Indulgences such as caviar, wagyu beef and the finest bottles of wine shouldn’t count against you when lenders assess your application for finance, a Federal Court judge has said.

Ok, so maybe Federal Court Justice Nye Perram has a slightly different grocery list to the rest of us.

But his recent judgement should be welcome news to potential borrowers who have splashed out on the odd luxury over the past six months and are worried that it would completely derail their loan application.

So what’s going on?

Well, the corporate watchdog (the Australian Securities and Investments Commission, aka ASIC) filed a court case against Westpac in 2017 in an attempt to strengthen lending standards.

ASIC argued that Westpac’s automated decision system relied solely on a household expenses benchmark that underestimated real living expenses and, as such, was flawed.

However, Justice Perram ruled that Westpac had done nothing wrong by using its automated system, rather than manually checking the borrowers’ living expenses, when approving more than 260,000 home loans between December 2011 and March 2015.

A tasty morsel from the judgement

Justice Perram said that current laws do not explicitly require banks to check expenses.

“[I’m] unable to discern why, as a matter of principle, the consumer’s declared living expenses must be considered,” he said.

“I may eat wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.

“The fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship.”

Basically, what Justice Perram is saying is that just because you fork out for expensive items before you apply for a mortgage, doesn’t mean you’re incapable of reducing your expenses once you’ve taken out a loan.

What happened next?

The Australian Financial Review (AFR) followed up on the decision with a scathing smackdown of ASIC in an editorial that asked: “why did ASIC even bother?”.

“Leave banks – the institutions with the expertise and incentive to write good loans – to assess risks for home loans. Not second-guessing bureaucrats,” the editorial stated.

“After all, it is hardly in a bank’s own interest to lend to people who are unlikely to be able to pay the money back.”

CoreLogic Research Analyst Cameron Kusher meanwhile wrote that it was not only a big win for Westpac, but the entire lending industry.

“The judge in the ASIC/Westpac case seems to really get it. While you might spend a lot more before you get a mortgage, getting a loan is about knowing someone has the capacity to change their spending behaviour once they have a mortgage,” he said.

“Lending has become so prescriptive when it is really the unexpected life events that cause someone to default on their mortgage. You can’t foresee everything.”

Meanwhile, ASIC commissioner Sean Hughes said the commission was consulting on new guidance in relation to responsible lending obligations.

What this means for your next loan application

Westpac says the decision provides clarity for the interpretation of responsible lending obligations, however consumer groups who found the decision “disappointing” are calling on the government to amend responsible lending laws.

While this court ruling may have the potential to somewhat relax the tight lending standards currently in place, it’s better to be safe than sorry when applying for a loan and we can provide you with some good tips on how to get your accounts in order.

After all, it is still up to the lender’s discretion (perhaps hold off on the caviar for a while longer!).

So if you’re considering applying for finance in the near future, get in touch.

We’d be more than happy to help guide you through the ever-evolving responsible lending landscape.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

No doubt, like most, you’re suffering from a bit of election fatigue. But stick with us – here’s one last article that explains what you can expect from the 46th parliament of Australia.

With the Coalition securing enough seats to form a majority Morrison government, this week we thought we’d recap a number of key election promises and how they may impact your financials.

Now, we understand that politics can be somewhat of a … polarising issue, especially straight off the back of a hotly contested election campaign.

So we’ve done our best to take the politics completely out of this and just break it down into simple facts on what‘s been promised moving forward.

1. The big election issues that will remain unchanged

Perhaps the biggest talking point from this election is not what’s changing, but what’s staying the same.

Labor had entered the election campaign promising to halve the capital gains tax discount for investments entered into after 1 January 2020, and limit negative gearing to new housing.

However, the re-elected Coalition government opposed both these policies, so expect them to remain unchanged.

Labor had also planned to abolish the franking credit refund, which would have had an impact on shareholders and self-funded retirees. However, the Coalition campaigned strongly against Labor’s plan.

2. Tax relief

This is a bit of a tricky one.

The Coalition’s pledge to cut personal income tax was perhaps its biggest election promise.

Now, the good news is that last year the government passed a $530 tax cut for people earning up to $90,000 this financial year.

The bad news, however, is that it looks unlikely that the government will be able to pass legislation before the end-of-financial-year deadline to provide an extra $550 in tax relief.

That’s because it’s extremely unlikely that federal parliament will return before June 30, as the writs for the election won’t be returned until late June.

That said, the federal government is looking into other options for delivering the tax cuts, such as having the ATO retrospectively amend assessments once legislation has been passed.

3. First Home Loan Deposit Scheme

It was a policy announcement made late in the election race, but it will be welcomed by many young first home buyers eager to crack the property market.

Up to 10,000 first homebuyers will be given a leg-up into the property market under the First Home Loan Deposit Scheme.

The scheme, which will commence on 1 January 2020, will help eligible first home buyers purchase a house with a deposit as low as 5%, without having to pay Lenders Mortgage Insurance (LMI).

That means many first home buyers could save around $10,000 in LMI under the scheme.

4. Small business tax relief

For businesses with a turnover of less than $50 million, the government has promised to further reduce the 27.5% tax rate to 26% in 2020–21 and then to 25% the following financial year.

For unincorporated businesses with a turnover less than $5 million, they have introduced a tax discount of 8% (capped at $1,000), which will further increase to 16%.

The Coalition says this small business tax relief plan should benefit 3.4 million businesses employing over 7 million Australians.

Meanwhile, the government has also extended the Instant Asset Write-Off scheme until 30 June 2020.

The scheme allows small and medium businesses to claim immediate deductions of up to $30,000 for new or second-hand depreciable asset purchases, helping them with their cash flow.

Final word

As we’ve outlined above, there are a number of Morrison government policies that may trigger a re-assessment of your finances and tweaks to where money is allocated in your monthly budget.

Perhaps you’ll have a bit extra to pay off your monthly mortgage, small business loan, or to put away for a rainy day.

Whatever the case, if you need our help in any way, you know where to find us. We’d be more than happy to run through your query with you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.