Credit reporting your full finances profile before you get your mortgage

Government plans to give banks the ability to collect credit reports and a full credit profile of  mortgage credit  applicants before you get your mortgage

The banks have been taking a beating lately. After all they have been lending “irresponsibly” over the last few years, and the Government has has the tie down solution: new responsible lending requirements placed on the banks, and due to come into effect from January 2011.

Banks remedy is a bitter pill for most of us. They want to have a full financial credit profile of everyone so that they can ensure you can afford the mortgage loan [or any other credit] that you are taking on.

In case you are thinking that this is happening already, think again.

When you currently apply for credit of any kind, including a home loan, you sign a privacy Act statement that authorises the mortgage or other credit provider to access your credit reports and discuss your credit with other lenders.

They essentially only get access to all defaults, all utility account transactions. For instance, phone bills that you or your partner, or even ex partner have not paid can be a deal breaker and unpaid judgements against you. they also get a handle on how many credit enquiries you have made over a 90 day period. That can also be a deal breaker when it comes to getting finance approved. That is, banks just need the bad stuff on you to decide if you a good credit bet. And only when you apply for credit. Now a default is considered only after 60 days of unpaid bills.

But the banks new model is to view every aspect of your finance and credit affairs, including accounts with other institutions, relationships with utility companies, when accounts are opened and closed, and, crucially, the repayment history of all accounts going back two years [currently this can be as low as 6 months to 12 months].

Can you spot the change? They now want all the credit stuff on you, the bad and the good, and will be able to credit profile you.

And the time lapse will shrink, so conducting a credit account can have a worse outcome that some of us would like.

The banks view is that by knowing more about you, will give then a better ability to ensure you are able to repay your bills and credit when due. This could be based on your payment cycle, so 30 days may be the number that is settled on.

The Australian Government believes that the proposals are in the consumers’ best long term interests because the current system allows only bad information to be considered.

Will new credit responsibility laws put a lid on house prices?

Will this affect house prices? It could well dampen demand for housing, based on the fact that many people are in my view over committing on their mortgage credit, and if this happens we could see home prices flattening, just as the decade of relaxed credit we have experienced has increased demand. It seems that the days of easy credit for home loan finance are numbered.

Author: Rick Adlam, Mr Mortgage