Couple #1 – I met a couple one evening, married for 12 months, both earning $80,000. I was happy to inform them that based on their earnings, the computer says “congratulations, you can borrow $1m!”.
Couple #2 – This is actually the same couple as Couple #1, at my meeting with them 3 months later. They told me how much they enjoyed meeting me 3 months ago, and how excited they were when I told they could borrow $1m. Then they told me their news…..that one thing lead to another and they are now expecting twins. The wife says she is very unlikely to go back to work. I updated the details and this time, the computer says “congratulations, you can borrow $200k!” I remind the husband that although James Packer earns $1,000 a minute, that is nothing compared to the cost of a moment in time 3 months ago! I’ve only just started eating soup through a straw.
The point of the story is that a bank will lend $1m to a couple one day and then almost nothing 3 months later. The problem is that banks don’t rely on common sense but on a computer. This is problematic because Couple #1 were likely to have children, but their “data” at the first meeting didn’t take it into account at all, because computers don’t see the big picture .
The moral of the story is to borrow responsibly even if the “computer says yes!”