Goodbye winter and the cold weather and bring on the warm sunny days. Welcome to Spring 2022 and this month’s newsletter.
This month’s newsletter is about Buy Now, Pay Later (BNPL) services which has seen a major change to how many of us shop. Over the past two years the BNPL sector has enjoyed a surge in popularity which has led to over 4 million (19.1%) using one of these services in the past year.
These services have low barriers to entry and do not charge any interest, meaning it is simple for users to simply sign up and start shopping. However, what many people fail to realise is that using BNPL services can impact your home loan application.
What is Buy Now, Pay Later?
Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a future date. The main selling point is there is no interest charged on any purchases made. Fees only apply if you do not make your repayments on time.
How do lenders view BNPL?
Lenders conduct a credit check of your credit report and request bank statements to ensure that your finances match up with your mortgage application.
The majority of lenders say that when analysing your bank statements, typically, three months’ worth of bank statements, that they search for BNPL commitments.
Can using BNPL affect your home loan application?
The way in which BNPL can affect your mortgage application is dependent on several factors. This includes:
- How much you repay to BNPL per month,
- The outstanding balance owed on your account,
- When the debt will be repaid in full.
If the lender determines that you heavily rely on short-term credit, this could negatively impact your mortgage application.
Will I need to close my BNPL account to apply for a home loan?
It is a misconception that you need to close your account before applying for a home loan. Simply using a BNPL service will not always impact your application.
If the amount of debt does not affect your ability to make home loan repayments, and you have not been late or missed repayments then you should be fine.
How can I improve my chances of home loan approval?
Here are things you can do to maximise your mortgage application chances:
Minimise BNPL borrowing.
- It is recommended that potential homebuyers avoid entering any new credit agreements, including BNPL purchases, during the home loan application process and to make sure all short-term debts are paid off.
- Lenders may be wary of new credit commitments that are made in the months leading up to applying for a mortgage, so ideally avoid entering new arrangements during this time.
Make repayments promptly and on time.
Keeping on top of BNPL repayments is just as important as keeping on top of your overall debt levels. This includes personal and car loans, credit cards, and other BNPL commitments.
Don’t keep secrets from your broker.
Providing all possible information to your broker is important. Be sure to tell your broker early in the process about any BNPL commitments. It is in your best interest to provide the complete picture of your borrowing so that you can increase your chances of having your mortgage approved.
Remember we are here to assist you through the complex home buying process. If you have any questions or concerns, always feel free to raise them with us.
Until next month enjoy the sunny days
At its meeting today, the Board decided to increase the cash rate target by 50 basis points to 2.35 per cent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 2.25 per cent.
The Board is committed to returning inflation to the 2–3 per cent range over time. It is seeking to do this while keeping the economy on an even keel. The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments. The outlook for global economic growth has deteriorated due to pressures on real incomes from high inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine, and the COVID containment measures and other policy challenges in China.
**The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.**
