Demonstrable commitments from prospective borrowers to adjust their spending ahead of a home loan application will be considered as part of a lender’s serviceability assessment.
Government-backed lender HomeStart Finance has informed brokers that it has revised its policy for home loan serviceability tests.
The South Australia-based lender currently requires applicants to demonstrate, over a three-month period, that their rent and/or savings are equal to or greater than the proposed monthly repayment obligations under a HomeStart loan.
However, effective immediately, the lender will now consider demonstrable “lifestyle changes” over the three-month period, which may include decisions to cancel discretionary spending such as a Netflix subscription.
“These lifestyle change decisions must be declared by the applicant and the expenditure(s) identified in recent bank statements,” HomeStart noted.
The state government-backed mortgage lender added that brokers are required to provide commentary in their submission notes.
As a result, HomeStart has updated its serviceability assessment process to the following:
- the calculation of a maximum loan available as a quote, based on percentage of debts to net income and taking into account HomeStart product restrictions;
- determining whether the applicant will have at least a minimum of 5 per cent of net surplus income (NSI) to cover non-essential expenses;
- demonstrating capacity to repay by verifying whether the applicant has:
- a combination of rent and/or savings that are equal to or greater than the proposed HomeStart monthly loan repayment over the preceding three months; or
- demonstrate “lifestyle changes” through a deliberate reduction in discretionary expenditure in the preceding three months.
[Related: Banks relax valuation policies]