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Tech & Science Australians will be asked to give up private schools and Netflix by their bank if they really want a house, under new responsible lending guidelines

04:10  10 december  2019
04:10  10 december  2019 Source:   businessinsider.com.au

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Lenders should be asking customers to prove they can save money for loans by cancelling their Netflix subscriptions under new responsible Sarah then asks the bank if she can extend the term of the loan in order to keep her children in her chosen school . In another example "Leah" applies for a

Lenders, on the other hand, take more risk with unsecured personal loans. They don’t have any property to sell if you don't pay the loan, but they have other options available if they want to pursue repayment—such as, for example

a man standing in front of a building talking on a cell phone: Would you give up boater hats to buy a house? (Photo by Peter Dench, Getty Images) Would you give up boater hats to buy a house? (Photo by Peter Dench, Getty Images)
  • Banks look set to take a longer look at loan applications to determine what borrowers can and can't afford if they change their spending habits.
  • The Australian Securities and Investments Commission (ASIC) released new guidelines on Monday, suggesting spending on private education and streaming services like Netflix be slashed in order to get loans approved.
  • However, if Australians are unwilling to part with such luxuries, it's suggested borrowers take on more expensive loans instead of being denied outright.

Want a loan? You better be prepared to know what you're willing to give up for it.

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Banks today say that they are increasing their lending to small businesses but that the recession Community bank failures increased and few new banks have started up . This environment—where troubled local banks appear unable to meet re-­emerging small firm credit needs— would be an ideal

Under new responsible lending guidelines released by regulator ASIC on Monday, banks and lenders have been instructed to grill borrowers over their spending, and what they are and aren't happy to sacrifice for credit.

The new guidance is intended to get lenders to relax their standards, tightened up in the aftermath of the financial services royal commission.

Take 'Sarah', an example provided in the new guide, who wants to take out a 20-year mortgage. The bank knows she can't afford it unless she tightens the purse strings.

"The [lender] identifies that Sarah could afford the loan if she moves her children to a public school," the guide said. "When asked, Sarah indicates that a change to her children’s school is not a lifestyle change she is prepared to make."

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You need to save up for a down payment and clean up your debt so that you can afford the house on time. If you prepare for these events now, you will be ready when they happen, and if the events never happen, you will be better off financially because you will be debt free with money in the bank .

Let’s face it: Nobody likes to be judged. But when it comes to loans, it’s going to happen. Creditors are going to look deep into your credit history and make a decision about whether or not to lend to you. Lenders need to determine how risky it would be to lend money to a borrower.

Rather than rejecting Sarah outright, ASIC suggests lenders instead work to get her a loan in other ways, such as extending the life of the loan in order to reduce her repayments.

"Following this discussion, Sarah decides that although she would pay more interest over the term of a longer loan, the 20-year term originally specified was not a priority and could be changed."

In other words, Australians in some instances could be encouraged to take out more expensive loans if they refuse to give up certain things, like boater hats and rowing for their kids.

In other instances, lenders will work to find what they are happy to forgo in order to get loan approval. Take 'Leah' for example who wants a small loan to pay off her car rego but blows her entire wages every pay cycle, including subscriptions to streaming services like Netflix.

"After discussing with Leah concerns over her ability to finance the small amount credit contract, Leah told the lender that she could cancel her monthly streaming services, which would cover the monthly repayment amount on the proposed loan."

Again, the bank agrees and Leah stays on the road.

Such examples and the principles they contain are the clearest indication yet from the regulator of what banks should be doing.

It comes after a judge infamously declared in August that banks should lend despite an applicant's history of frivolous spending.

“I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare,” Judge Nye Perram said.

ASIC now seems to agree, permitting Australians to enjoy the finer things in life until the day their bank tells them otherwise.

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