Listening time: 3 minutes
Start rating: *****
Australian Credit Licence CPD
Explaining to your clients how living expenses scrutiny has become sharper in a post Royal Commission world can be a danger zone.
In part 2 of our 3-part vlog series, mortgage industry adviser Therese O’Neill shares 5 areas to watch for so you and your clients can navigate this phase of the loan application process safely and smoothly.
Tips for evaluating customer living expenses are featured in Financial Education Professionals’ Australian Credit Licence CPD.
Therese O’Neill, a professional mortgage industry adviser and mentor, is a member of FEP’s practitioner faculty and a regular industry news columnist.
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TRANSCRIPT PART 2/3
'Welcome to part 2 in our series.
Previously, we had a look at the how and the why living expenses scrutiny has changed since the Royal Commission released it's Interim Report in October of 2018.
Today what I’d like to share with you is 5 top tips to better navigate that minefield with your clients. To ensure that you fulfil your compliance obligations but, most importantly, that we achieve better outcomes for our client during this part of the loans process.
So let's begin:
Tip # 1 – Savings Discrepancies. If your client says that he or she earns $4,000 a month and they spend $1,000 a month then they should have savings of approximately $3,000 a month. If they don't, the're spending more than they believe.
Tip # 2 – Missing Expenses. It is SUPER easy for clients to miss expenses such as insurance, school fees and gym membership. Innocent oversights but the consequences, as we all know, can be time-consuming to correct and draining to explain to a credit assessor. Don’t just ask your clients for a list of expenses, talk to them about their lifestyle and their spending habits, so that you don’t make this costly mistake.
Tip #3 – Discounting rent payments. This is a super good tip. If your clients are moving into the property that they're purchasing, and they are currently renting then that rental expense will no longer continue and does not need to be declared.
Tip # 4 – Guesstimating. Some clients, in fact I’d argue, most of our clients, have literally no idea what they spend their money on. So do not let them fall into the trap of “guesstimating” what their living expenses are. They're going to need your professional guidance and your active listening skills so that they completely understand what it is that you're asking of them. Do not let them guesstimate. It’s human nature to underestimate our spending and they'll completely get it wrong.
Final Tip# 5 – Our spending habits are changing. We might spend less today on groceries, but we're spending more on Menulog, UberEats or Marleyspoon. We're spending less on public transport, less on petrol, but more on UBER. And today we binge-watch TV or we stream live TV. In fact, I don’t know a single millennial that watches regular TV these days. So be alert to these changed spending patterns and ensure you do your due diligence before reporting the living expenses for your clients.
Coming up in series 3, I'm going to cover off how to have that conversation with your over-spending clients.
I’m Therese O’Neill, Industry Expert and contributing author to Finance Education Professionals. Thanks for listening".