How your Cheeky Mid-night Orders could Impact your Future Home Loans

Your cheeky Saturday night Uber Eat feasts and late night online shops could soon impact your loan potential as banks look to follow customers’ financial footprint in a bid to better assess borrowing capacity.

“Open banking” is a yet to be legislated scheme which will allow banks access to consumers’ financial data at an unprecedented granular level. This means there will be big changes to the loan industry.

Within 12 months, all Australian banks will be brought under the scheme and financial data will be shared with other accredited financial institutions - with the permission of the customer.

How does that differ from now you ask? Currently, banks look at grocery bills, medical expenses and utility bills to assess a borrowers’ household expenses and their ability to meet their repayments. However, under the proposed changes, a customer’s digital spending such as their Uber Eats or online shopping history could become fair game when it comes to getting approved for a home loan, industry sources confirmed.

General manager of credit risk at ME bank, Linda Veltman said the collection of such information will ultimately benefit customers.

“If you ask them how much they spend off the top of their head, it would be very different to what their spending habits have been over a period of time due to the fact it’s so easy to jump online and make a purchase,” she said.

Recent comprehensive credit reporting legislation and the open banking initiative have each pushed the industry forward to better understand customers’ spending behaviour and, in turn, better assess their creditworthiness, according to Ms Veltman.

She said having access to a customers’ financial footprint would make applying for a loan easier “because the information will all be available, no matter who you go to”.

Group executive of financial services at Canstar, Steve Mickenbecker said open banking would be welcomed by the banking industry after the Royal Commission uncovered unscrupulous lending practices.

“The banks are under massive pressure now to apply much more rigour to their collection of personal spending habits of borrowers,” said Mr Mickenbecker.

“They have to find a good and effective way to do that, and a time-effective way of doing that. Open banking will provide that solution for them.”

A Canstar survey found Australians on average spent $46.54 per order on food delivery, with almost a third ordering it one night per week. This equates to $2420 on delivery annually, an amount which if accurately assessed could affect a home loan approval.

Mr Mickenbecker said there were undoubtedly privacy concerns, but safeguards were being investigated by government. Under the proposal, financial data cannot be shared unless authorised by customers.

“But the reality will become banks saying, ‘If you want a loan then you will have to give this to us.’ The reality is, lenders will build that into their processes,” said Mr Mickenbecker.

“People with sound spending habits will generally be better off because they’ll be in the position to share their own records and habits with lenders.

“People with dubious spending habits will find it harder getting credit,” he added.

“The realities are, defaulting on loans puts you in a worse financial position than not getting the loans in the first place.”

A spokesperson for the Australian Banking Association said “in the future there is no doubt that the open banking reforms will make it easier for customers and banks to share detailed information to speed up the application process and make the assessment of expenses more reliable.”

The four major banks are expected to make credit and debit card, deposit and transaction account data available under the open banking framework by 1 July 2019.