Most lenders assume that borrowers in a spousal or de facto relationship are paying for their partner’s living expenses even if they’re not reliant on your income.
Discover how to increase your borrowing power when declaring living expenses for a couple.
Can you prove that your partner is not reliant on your income?
We have lenders that can consider reducing the living expenses for your family on the basis that your partner is working and has their own income.
To prove that they’re not financially-dependent, your wife, husband or partner can provide:
- Their two most recent payslips.
- Their most recent group certificate.
- A letter from their accountant confirming their income.
Effectively, this means you will be assessed as a single applicant rather than as a couple so you can borrow more.
Call us on 1300 889 743 or fill in our online enquiry form and we’ll apply with a lender that takes a common sense approach to your living expenses.
In some situations, you may be able to make reasonable reductions to your spending to improve your home loan borrowing power.
Most lenders don’t use common sense!
A common problem we see when banks assess living expenses for a couple is where one of the partners already owns one or two properties coming into the relationship.
The property is in their name but when they apply to refinance their investment loan they’re knocked back because their living expenses are too high.
This means they don’t meet the banks’ borrowing power (servicing) benchmarks and can’t afford the mortgage repayments for the amount they want to borrow.
The problem is that lenders make a lot of assumptions when assessing your living expenses.
In the past, they based their decisions on “one-size-fits-all” benchmarks like the Household Expenditure Method (HEM).
Luckily, this is changing.
If your living expenses are considered too high, the lender will flag your application.
This is an automatic process so a credit officer hasn’t actually assessed your application!
The good news is that we can assist you to build a strong case supported with evidence to show that your partner is financially-independent.
What if I own a property with an ex partner?
Joint debts with ex partners not on the home loan application are assessed by lenders as if the debts are 100% in your name.
Essentially, they’re assuming that your ex isn’t paying their share.
The bank will also only take into account 50% of your rental income, which is actually shaved to around 80%.
It’s totally illogical and targets borrowers who own multiple investment properties, in particular.
Luckily, some lenders will assess you at 50% of the debt using what is known as a common debt reducer.
You may want to also consider buying out your ex partner to further improve your borrowing power and allow you to build your property portfolio more easily.
What expenses do I need to declare in my living expenses?
Generally speaking, you’ll need to declare the following monthly expenses:
- Rent: Including board
- Clothing/personal care: Footwear, cosmetics, apparel, hygiene products and haircare etc.
- Education: Public, private and all associated costs including uniforms and textbooks.
- Groceries: Meat, fruit, vegetables, cleaning products, milk, bread and toiletries.
- Insurances: Health, home, home and contents, life, income, car, motorcycle and boat.
- Investment property: Utilities, rates, repairs and related costs including tax levies, body corporate and strata fees (for units).
- Transport: Public transport like buses, trains and taxis, petrol, registration, insurance, servicing and repairs..
- Connections: Phone (landline), Internet, mobile, subscription-based television and other subscriptions.
- Childcare: Childcare centre and preschool fees, nanny fees and after school home care etc.
- Medical health expenses: Doctors (GPs), dental, optometry, holistic medicine and specialists that fall outside of bulk billing or what’s covered by private health insurance.
- Recreation and entertainment: Take-out, pets, gifts, concerts, festivals, stage shows, opera, comedy etc.
- Owner occupied property: Utilities, rates and related costs including tax levies, body corporate and strata fees
- Other unique items: Only list if it’s a regular ongoing expense
Be careful when identifying actual expenses that count towards your montly spend! Learn more tips about completing a living expenses declaration.
Discover if you qualify for a home loan
Call us on 1300 889 743 or complete our free assessment form today and we can find you the right home loan solution for your needs.