The government has made changes to lending rules to prevent banks from using discretionary spending as a factor in assessing loan applications - finally!!
The changes will explicitly excluded discretionary expenses from affordability testing, which will come into effect from May 4. This change comes after many customers complained about being declined loans based on their daily purchases, like buying coffee. It's hoped that the change will help more potential buyers to get into the housing market, but there are concerns that it could lead to risky lending practices.
The previous lending rules were introduced in late 2021 to prevent irresponsible lending practices. However, it resulted in making things very difficult for first-home buyers to purchase properties. The rules required banks to look into customers' daily spending habits, which included discretionary spending like buying coffee or going out for brunch....instead of accepting that home loan holders would make their income fit around the mortgage.
It is still critical to make sure that taking on a loan will not result in anyone suffering financial hardship, i.e. they have to be able to repay the loan, all their other obligations PLUS have enough to live off. Chatting to a qualified expert mortgage adviser, mortgage broker or budget planner is a great start to making sure this does not occur.
The goal of the changes are to make it easier for people to borrow money and is expected to have a positive impact on the housing market and, in particular, first home buyers!
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