Expense categorisation changes March '20

This article explains three major changes to expense section in the CRM occurring on 14 March 2020.

Summary

A. New categories
B. Multiple household
C. Expense buffers
D. New expense merge table
E. Old deals - expenses are archived

Terminology

• LIXI - is an Australian, member-based not-for-profit company that develops data message transaction standards for the Australian mortgage processing industry, and promotes efficiency improvements. 
• HEM - household expenditure measure recorded by the Melbourne Institute

A. New Categories

• We have recategorised expenses into 33 categories (up 1 from previous 32), to ensure they map to new LIXI 22 categories.
• All major lenders are committed to adhering to LIXI 22 categories to ensure standardised expense recording and analysis
• We have more categories than LIXI to ensure users and clients better understand where to record their expense.

Our expense categories are:

• Childcare [Childcare  including nannies and non-compulsory pre-school]   
• Clothing, Shoes & Accessories [Clothing,  footwear and accessories (including travel goods, handbags, umbrellas,  wallets, baby-goods) for men, women, children and infants, including  purchases, repairs and alterations]   
• Hairdressing & Grooming [Personal  care items such as hairdressing, manicure, tanning, inc personal care  products, cosmetics, hair services ]  
• Food & Supermarket [Groceries  (food and non-alcoholic beverages), toiletries and cleaning products]   
• Doctor, Dentist, Pharmacy, Glasses [Medical  and health care services including GPs, specialists, physiotherapists,  chiropractors, and opticians. Medicines, pharmaceuticals, prescriptions,  glasses, purchase or hire of therapeutic appliances and equipment, hospital  charges, nursing home charges. Excludes health insurance and ambulance  insurance]   
• Coffees, Lunches Takeaway [Take-away food, coffee/tea and lunches     
• Cigarettes & Alcohol  [Cigarettes  and alcohol purchases]   
• Entertainment [Dining  and outings, gambling and other entertainment] 
• Domestic Holidays [Domestic  holidays related travel and accommodation] 
• Gym Fees, Sport, Other Health & Wellness [Gym  and sport club memberships, yoga, pilates, health clubs and other  wellness]   
• Phone, Internet & Pay TV [Fixed  and mobile phone, home and mobile internet, Pay TV subscription] 
• Media Streaming & Subscription Services [Streaming  services such as Spotify, Netflix, Kayo, sport streaming] 
• Pets - Food, Care, Vet [Pet  food, grooming, minding services, care products, health products,  veterinarian fees]  
• Gifts & Celebrations [Gifts  and expenses related to birthdays, milestones and other celebrations]     
• Other Discretionary Expenses - incl Overseas  Holidays [Overseas  holidays related travel and accommodation; Other ongoing or recurring items  not included within the other categories] 
• Public Education Costs - Incl Fees, Uniforms [Public or government, primary and secondary school tuition, school and sports fees  including compulsory kindergarten/reception/pre-primary/prep]  
• Private Education Costs - Incl Fees, Uniforms [Private  education fees, public education uniforms]   
• Tertiary & Vocational Education   [Higher  education and vocational training fees (including TAFE, business college,  drama, music, dance) excluding HECS, and professional fees (union dues,  professional association subscriptions, legal, accountant and tax agent  fees)]  
• Essential Vehicle Running Cost [Running  costs for essential vehicles including fuel, servicing, repairs, parking,  tolls (excludes insurance) and registration of motor vehicles (excludes  recreational vehicles such as caravans, trailers, motorcycles, boats and  aircraft)]   
• Essential Vehicle Insurance [General  basic insurances include ambulance, car (not recreation vehicles), travel,  and personal belongings insurance. Excludes property (house and contents),  health, sickness and personal accident, life, income protection and pet  insurance] 
• Recreational Vehicle Running Costs   [Motorbike,  boat, caravan insurance]   
• Public Transport, Taxis & Ride Share, Commuting Airfares [Public  transport, commuting airfares, taxi, ride share and care share]     
• Life, Trauma, Income Insurance   [Sickness  and personal accident insurance, life insurance] 
• Private Health Insurance [Health  insurance including hospital, medical and dental insurance]  
• Primary Residence Running Costs [Costs  associated with the primary residence, either owned or rented. Includes  rates, water, sewage, repairs and maintenance, electricity, gas, heating oil  and wood for fuel, purchase, hire and repair of household and outdoor  furnishings and equipment, furnishings, floor coverings, linen, tableware,  gardening tools, power tools, electrical, lights, trees, shrubs, plants, pool  chemicals, home insurance, contents insurance and appliance insurance.  Excludes body corporate fees, strata fees and land tax]  
• Primary Residence - Body Corp [Body  corporate fees, strata fees and land tax on owner occupied principal place of  residence. Excludes investment properties, secondary residences, and  properties maintained for other purposes such as holiday properties or  residences maintained for parents or children]   
• Secondary Residence Running Costs [Costs  associated with any secondary residence, either rented or owned for  non-investment purposes, such as a holiday property that is not rented to  generate income, or a property that family members (parents or children) are  allowed to live in rent-free. Includes property management fees, rates,  water, sewage, repairs and maintenance, electricity, gas, heating oil and  wood for fuel, purchase, hire and repair of household and outdoor furnishings  and equipment, furnishings, floor coverings, linen, tableware, gardening  tools, power tools, electrical, lights, trees, shrubs, plants, pool  chemicals, landlords insurance, home insurance, contents insurance and  appliance insurance]     
• Secondary Residence Body Corp [Body  corporate fees, strata fees and land tax on secondary residence]       
• Investment Property Running Costs [Costs  associated with any property owned for investment purposes. Includes property  management fees, rates, water, sewage, repairs and maintenance, electricity,  gas, heating oil and wood for fuel, purchase, hire and repair of household  and outdoor furnishings and equipment, furnishings, floor coverings, linen,  tableware, gardening tools, power tools, electrical, lights, trees, shrubs,  plants, pool chemicals, landlords insurance, home insurance, contents  insurance and appliance insurance]   
• Investment Property Body Corp   [Body  corporate fees, strata fees and land tax on investment property]    
• Current Rent Expense [Current  rent paid]  
• Child or Spousal Maintenance [Maintenance  for either dependent or non-dependent children, and spousal or de facto  partner maintenance]   
• Ongoing Board Expense [Ongoing  board paid]  

To see the meaning of each category, simply click on the '?' next to the category in the CRM:

The field next to the 'frequency' drop-down option will calculate each expense category on a monthly basis.

Note that Client Portal and AOL/LoanApp mapping are updated with the new categories.

B. Multiple Households Feature

Users can now enter separate expenses for multiple households. This is an important feature, required to improve mapping to lender gateways and maximum borrowing calculations.

Simply click on 'ADD HOUSEHOLD' button (1) and associate contacts from the deal with that expense tab (2).

To complete the process, where more than one household, click 'ADD HOUSEHOLD' again and associate the remaining contacts (3). Once completed, the button will grey out (4).

Note: Maximum 2 contacts can be linked to one household. If there are more than 2 contacts in one household, then another household should be added and linked to remaining contact.

C. Expense Buffer

All ACL holders (and their representatives) are obliged to perform own servicing calculation, independent of that competed by the lender. Admin users now can switch Expense buffering On and Off.  (Buffers are visible in the third/right column of the Monthly Position Table).

Our Expense buffer calculation follows LIXI guidelines on expense items that are in and out of HEM. 

Table A: Our expense categories that are included in HEM

Table B: Our expense categories that are not included in HEM

The practical consequence is that when expenses are collected, only Table A will be compared to HEM, and if the sum of items in Table A is less than HEM, then the HEM figure will be used in the buffer calculation. In such a case, the total buffer expenses will be HEM + sum of items in Table B (out of HEM items).

The consequences is that in majority results, Expense buffer will be above actual HEM figure for that scenario, i.e. out of HEM items will increase the total expense figure:

Hint: in and out of HEM item monthly sums can be viewed at the bottom of the expense tab:

• A - Total sum of all 33 expense items
• B - Table A expenses
• C - Table B expenses minus other commitments (Rent, Board, Child or Spousal maintenance)
• D - Other commitments (Rent, Board, Child or Spousal maintenance)

Switching Expense Buffer

Admin users can go to Settings >> Financial Position Buffer and switch these on or off.

Note: lenders will have own decisions on expense items that are in and out of HEM. For more detail on how major 4 are categorising their expenses and treat expense items in relation to HEM see this article from LIXI. For the purpose of Maximum Borrowing calculation, we will map each lender expense categorisation specific to their own policy.

Example

In the example below, both Family 1 and Family 2 have their expenses in Table A total figure below the HEM figure (both have the same HEM figure).

As a result total Expense buffer is above the recorded (actual) expense figure.

Note: The only scenario where the buffer expense figure will be the same as the actual expense if the Table A total is equal or above the HEM figure for that scenario.

D. Expense Merge Table

New expense merge table is {@dealTablesExpensesByHousehold} and it needs to be updated in all documents. Old expenses can still be produced with the old merge table.

E. Old Deals - Expenses are Archived

Old deals with the previous expense categorisation will still have these as Archived expenses. These can be produced using the old merge table  ({@dealTablesExpenses}):

Note that the old expenses will not map to ApplyOnline or LoanApp. While the old deals are running out, we recommend for expenses to be manually entered into lender gateways.

Maximum Borrowing requires new expenses to be populated. Where only old expenses are present, Maximum Borrowing figure will show $0 for all lenders.

Video Example

See this video for a demo of new expense categorisation: