Article reposted from 2020homeloans.com.au

A combination of tighter home loan lending regulations and the uncertainty in our new COVID world have made looking after your living expenses an essential part of creating a more secure future for you and your family.

Many people are finding out the hard way that it’s not as easy to get a home loan approved as it used to be. The simple reason for this is that financial regulators have set tighter rules for lenders. Now they are required to look more closely at your daily living expenses to get a better idea of your ability to make your repayments now and into the future.

Cutting back on living expenses and saving more for a rainy day can provide a real safety net – it’s something we should all consider (while still supporting local businesses, of course!).

Lenders are looking more closely at our living expenses

In the aftermath of the GFC and cheap and easy credit, many people were no longer able to make repayments on their home loans. For some, their homes dropped significantly in value, making the mortgages larger than the value of their home.

To make sure this doesn’t happen again, the regulators now require financial institutions to lend more responsibly. As a result, lenders need to make detailed assessments of your ability to make repayments. This means they look at how you spend your money every day.

The most important thing to understand is what lenders look at when assessing your spending. You can work out where the easiest changes can be made.

Lenders break it down into a variation of these categories.

1. House and property costs. This includes things like utilities – water, gas and electricity – as well as council rates, land tax and property maintenance and costs.
2. Communications and streaming subscriptions. Paying for your telephone and data, and the internet, as well as streaming services like Netflix, Stan, Foxtel, Disney and Spotify can all add up. It’s easy to save some money by moving to a better phone plan and reducing your services.
3. Food and groceries. If you buy it at the supermarket it pretty much falls under this category. This can be a significant amount, especially if you’re feeding a family, so try to look for savings here.
4. Recreation and entertainment. All the fun stuff! Eating at restaurants, movies, concerts, alcohol, tobacco, gambling, club memberships, magazine subscriptions, gym memberships, pet care and holidays are included here. What can you live without to save money?
5. Clothing and personal care. Clothing, footwear, cosmetics, and even things like getting your hair and nails done are covered by this.
6. Medical and health. Many of these are necessities so it could be harder to save here, but this includes all doctors’ expenses, dental, optical and pharmaceutical expenses.
7. Transport. From public transport tickets and Ubers to motor vehicle running costs like fuel, servicing and registration, plus parking and toll costs. One thing to note is vehicle insurance is included elsewhere.
8. Education expenses. You’ll need to account for books, uniforms, excursions and any other costs for school, university or TAFE, plus school fees if your children are in private schools.
9. Childcare. If you have children that need childcare, whether it’s at a centre or a home nanny, you’ll need to state these costs.
10. Insurance. Health insurance, home and contents, motor vehicle, life insurance and income insurance are all important. Rather than get rid of any, consider shopping around for less expensive policies.
11. Everything else. Most of the other categories cover it all. But if there’s anything else, it needs to be included.

Whether you’re looking for a new or first loan, refinancing, or negotiating a rate change, it’s important you always demonstrate to the lender that you can meet the proposed repayments. Reducing your discretionary expenses for a few months will help identify where your savings could improve. Remember that a lender will assume this is ongoing, so make sure the reduction is sustainable in the long term.