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Where can I find something definitive regarding the 'APRA Living Expense' figures...

Discussion in 'Property Finance' started by ThomasAJ, 17th Mar, 2016.

  1. ThomasAJ

    ThomasAJ Member

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    ...that are used nowadays (I presume) by lenders to calculate serviceability.

    I've been looking around PropertyChat and also Google for some figures but not able to find. I have read much talk about it but no $s.

    Can anyone point me to a resource please?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    what do you want to know? There are no set figures with each bank determining their own minimum spend levels
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Frankly I wouldn't mind knowing the answer to this myself. The banks are implementing their own methods of determining living expenses. As your income increases, so does your living expenses, although the banks aren't reducing figures as debt increases.
     
    Last edited: 17th Mar, 2016
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Peter you tried using NAB calculator recently. Seems a higher living cost is needed for the same client when they get a bigger loan!
     
  5. ThomasAJ

    ThomasAJ Member

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    Well I was hoping for something, anything, as a base.

    There was an organization whose recommendations were used by lenders some time ago (forgot name) so I can use that and add a percentage?

    Anyway I thought APRA set some min. $s - if they did not then why are people continuously referring to APRA's effect in increased min. living expense.

    Confused!

    Further...

    I found this from Rolf L from 2009.

    "most use something along the lines of Henderson Poverty Index
    1100 a month for a single
    1607 for a couple
    2400 for a couple + 2 kids"

    OK so those figures are the minimum then and out of date.

    But I think an experienced MB might make an educated guess from recent experience and come up with a rough guide. Others might chime in :)
     
    Last edited: 17th Mar, 2016
  6. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    The minimum living expenses are variable, so there is no one figure for a single male applicant minimum living expense etc. For some people it will be $1200, for others it may be $3000. Some lenders are basing it solely on their income level, others are also factoring in what State or postcode they live in.
     
  7. ThomasAJ

    ThomasAJ Member

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    But I have seen post/s here where MBs talk about scrapping in a mortgage app by reducing the living expense figures by as little as $1. If my understanding is correct then people must have a very good idea, via feedback from lenders, what is what.

    OK sure it's variable but surely it can't vary from $1200 to $3000 - that's way too wide.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Such a practice is now very risky as mortgage brokers are supposed to make reasonable enquiries as to what the clients actually spend. Brokers shouldn't tell clients what they need to put down otherwise they risk breaching the NCCP Act.
     
  9. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    The lenders disagree.

    As an example, with one of the Big 4:

    Single applicant, 30k p.a wage, nil investments:

    $1,140 per month living expenses

    Single applicant, 200k p.a wage, 100k gross rents received

    $3,025 per month living expenses

    The assumption is that when you have such wide ranges of income, that one end of the spectrum may be driving this:

    [​IMG]

    Whilst at the upper end the trend would more likely be this:

    [​IMG]

    Then there's private schools, private health care, expectations of types of holidays, groceries etc. The whole system functions on making average assumptions across the demographics.
     
    Last edited: 17th Mar, 2016
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  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I noticed this last year when the released the new calculator. I raised it with them at the time suggesting that despite having more rental income, the borrower takes on more debt with each purchase. People don't tend to spend more with each property purchase, instead they spend less.

    They didn't respond. Quite a few other lenders have implemented a similar system.


    That never worked as lenders used minimum figures, which were based on the Henderson Poverty Index. Putting in $1 for a single made no difference as lenders would still assume about $1100. Most lenders didn't even bother asking for a figure.

    One of APRAs suggestions was for lenders to address this, including comments that people tend to spend more as they earn more, so lenders have taken this path. Westpac is asking for your post code and is linking their cost of living minimums to this in some manner. This does mean that the figure can vary quite significantly and I have seen the variances that you suggest.

    I've yet to see anything from any lender publically disclosing the figures they're using and I don't think we will see anything like this. Regulators want people to do a budget, figure out their own living expenses and use that figure, not for the banks to make an assumption.

    Keep in mind that all the things that have happened from APRA are suggestions, not directives. They haven't stated to lenders that they must use certain figures for living expenses, or a particular rate buffer, or that lenders must increase rates for investment loans. Their comments have been somewhat obtuse and they've left it up to the lenders to interpret and implement. There's no standard for any of it.

    It's all very frustraiting as the software we use for our preliminary assessments isn't even remotely accurate for clients with a couple of IPs. I've also found discrepancies between the various packages provided by the same lender.

    These days, for a couple the minimum figure for most people appears to be approximately $2,600 but that won't work for everyone.
     
  11. ThomasAJ

    ThomasAJ Member

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    Yes I do understand that in a MB-client context. Am I drawing too long a bow if I think it also applies to forums?

    Anyway looks like CBA and WPC use the HEM which is a subscription.
     
    Last edited: 17th Mar, 2016
  12. beachgurl

    beachgurl Well-Known Member

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    The calculators I use via my aggregator's site list the minimum living expense once I've entered the applicant details. There are noticeable differences between lenders.
     
  13. York

    York Finance Broker Business Member

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    Wasn't much difference between HEM and HPI anyway. Even if you try 'creatively' adjust your living expenses downwards, most lenders have a minimum anyway. Which ever is the highest figure out of yours or theres they'll take it and apply it.
     
  14. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I'm curious, do the lenders consistantly agree with your aggregators software?

    As an example, I use the NAB spreadsheet calculator and it allows one figure. We then use the same figure in ApplyOnline which doesn't accept it.

    I've got 3 difference sources of assessment software that all have different results.

    Bonus points: A CBA assessor sent me the calculator she was working off. It looks significantly different from the one they provide to brokers.
     
    Last edited: 17th Mar, 2016
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Mine don't.
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Ask and you shall receive... :)

    @ThomasAJ I'm convinced that big brother is watching us all. I received an email from Westpac a few minutes ago about policy changes, including updated HEM tables.

    There's a table for singles and couples.
    * Titles like "NSW Metro 0" indicates your place of residence and the number of children (in this case 0).
    * Net Income is calcuated as, "Total net income less rental income". It's an annual figure.
    * Even if you're a sole applicant, if you're married or defacto you need to use Table 2 (for couples).
     

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    Last edited: 17th Mar, 2016
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  17. ThomasAJ

    ThomasAJ Member

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    Wow! Perfect! Thank you very very much Peter.
     
  18. headsonbeds

    headsonbeds Well-Known Member

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    That's a little creepy with the arrival of those tables Peter. I've noticed a lot of hot topics end up in next months API magazine as well!

    Are those incomes the combined of both partners or just the one applying?
     
  19. Digitalism

    Digitalism Active Member

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    Table 1 is single and Table 2 is joint.
     
  20. Tim & Chrissy

    Tim & Chrissy Well-Known Member

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    Not that this is of much help but CBA told us our minimum living cost calculations post APRA were around $1,050-$1100 per week from memory. 2 adults, 4 dependant children.