The math is clear: (annual net income – annual expenses) / annual commitments = Net Surplus RatioĬonfused? Don’t be, we’ll break this down. Part of a credit providers obligation is to lend responsibly – because we don’t want our customers (or anyone) to struggle under the weight of a loan which is too large. This type of scenario puts people at financial risk. Especially if you lead a lavish lifestyle (as in, your expenses are high). But, it means when you do purchase a home, you’ll be able to rest a little easier knowing your repayments are within your means, instead of sitting on the borderline of affordability.įor example, if you have a high loan amount compared to your income, and your repayments are large – you may quickly find it difficult to stay afloat. Yes, to become what a lender considers ‘serviceable’, you may need to take extra care of your financial health.
What does it mean for you?īeing classed as ‘serviceable’ can mean a world of difference when you have a home loan. We take our obligation to lend responsibly very seriously, so we need to make sure our customers are serviced to the appropriate standards we’ll only lend what we know you’ll be able to afford, and we factor in things like your ongoing income and living expenses, as well as potential future changes in your variable interest rate. Tic:Toc is fervently aware of this, and we’d like to avoid a repeat of the GFC, please. This caused a domino effect, and brought many home loan customers unstuck as housing collapsed.
So, when the US economy turned sour in 2007, living expenses increased and the defaults started piling up. One of the largest contributing factors for the GFC was irresponsible lending expenses weren’t validated enough, and customers were taking out much more credit than they could reasonably carry. Well, my fellow Australian, serviceability has become an increasingly important topic in the wake of the Global Financial Crisis (GFC) and 2019’s Banking Royal Commission. What does serviceability mean? And how do you know if your financial situation is serviceable? If your lender says your financial situation is a serviceable one, it means they believe you can comfortably afford to make repayments on your home loan, even if interest rates go up a little.
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