Streaming and meal plans under the microscope as lenders target subscription services

Industry insiders have tipped subscription services to be the next area under scrutiny as lenders crack down on excess spending. 

Banks are getting much more serious about how hopeful borrowers spend their money, with streaming and meal plans joining gambling and buy-now-pay-later shopping sprees on the watchlist. 

While a Netflix or Spotify account isn’t necessarily going to stop someone from getting a loan, experts say subscription services matter for borrowers because the costs add up and an applicant’s spending ultimately affects how much banks are willing to lend.

Whether it’s a gym membership, a meal plan, or a regular toilet paper, razor blade or cut flower delivery, subscription services soak up surplus income that could otherwise go towards loan repayments.

Director of 40 Forty Finance Will Unkles said some banks see subscription services as discretionary spending, while others count it as a cost of living and a recurring expense. 

“The argument is that you can dial them up and down as an individual, unlike your car registration,” he said. 

“For that reason, most banks will not count it as a big expense against you and add it to your cost of living.”

Mortgage Choice broker Caroline Jean-Baptiste told Domain banks have moved away from a flat view on how much people needed to earn to qualify for a loan, and are instead targeting ongoing expenses.

She said a subscription wouldn’t necessarily stop someone from qualifying for a loan but could be used to paint a picture of spending habits when calculating borrowing limits.

Adding up the cost of subscriptions

Research from Finder shows about one in three households has Netflix, and one in 10 has Foxtel. A third of Australians have a gym membership.

Finder’s insights manager Graham Cooke it was easy to underestimate the recurring costs of subscriptions.

“If you’re on a low income, these can all add up quite a lot, and they can affect the amount you can borrow on a home loan.”

A typical meal service costs about $10.32 per meal, according to Finder. For regular subscribers, this works out to be about $72 a person (or $144 per couple) each week for dinners alone.

It’s a large chunk of the pie for just one meal a day, especially when compared to the $239 that a typical couple spends each week on food, according to ASIC’s MoneySmart.

Despite the cost, Cooke said there was a difference between meal plans and delivery services such as Deliveroo and Uber Eats. “One is a replacement for shopping whereas Deliveroo is just convenience food,” he said.

Unkles said many clients were willing to cut their subscriptions after getting a loan, but banks wanted three months of proof that spending was under control.

He said people who don’t want to end subscriptions should consider scaling them back, and borrowers weighing up their options should consider the opportunity cost of convenience.

“The opportunity cost is you pay a premium for the food,” he said. “If your goal is to save for a house, the opportunity cost for that is you have to spend more time cooking for yourself,” he said. 

“You’re going to lose some time in your life, what do you value more?”

How living expenses affect borrowing capacities

Reckless spending habits can limit borrow capacities, as according to Jean-Baptiste, people who earn a lot tend to spend a lot.

“The number of people that spend all they earn simply because they need to maintain this lifestyle at this earning level is huge,” she said.

“There really needs to be a shift in mentality around holding on to your money instead of spending every last cent.” 

She said a couple earning $160,000 who spent $5560 per month – or $66,720 per year – on living expenses would only be able to borrow $760,000. She said this represented a “reasonable lifestyle”. 

“They have two cars, health insurance, visit the hairdresser, get massages, have gym memberships, buy some clothes and spend $1000 a month on entertainment and socialising,” she said.

“They have a good deal on insurance, have two phones, internet, Netflix and Stan.”

A couple earning the same amount could boost their borrowing capacity to $970,000 by living a leaner lifestyle and cutting expenses to $3020 per month, or $36,240 per year.

“They have two cars, extras only health insurance, rarely go to a hairdresser or buy clothes and spend $400 a month on entertainment and socialising, preferring to take part in free activities such as park visits and hiking,” she said.  

“They have a good deal on insurance, have two phones they pay an annual amount, found a bargain internet package, no Netflix or Stan.”

The difference between the two budgets could mean choosing between an apartment or a house, a two bedroom or three bedroom home, or a long or short commute.