All aboard for policy changes

by Melanie Mingas19 Jun 2019

Robert Perks, MD of Fifth Avenue Finance Group, says APRA’s changes to serviceability rules cannot come soon enough

I’ll get straight to the point – the banks need to back APRA’s recent easing of mortgage serviceability rules.

It’s really a no-brainer – the proposed changes make sense given the current interest rate environment, added to the expectation that rates will fall further and remain lower for longer.

But the banks need to support assessment rates and remove all overregulation and red tape applied to lending policy in the post-royal commission era.

APRA’s suggestion that banks change the way they assess customers’ abilities to meet their mortgage repayments is a move that should let people borrow more.

The regulator is effectively proposing to remove guidance that customers should be able to repay their loan if their interest rate increased to at least 7%.

It recommended lenders instead make serviceability calculations using a 2.5% rate buffer.

While it’s great news that APRA is taking a proactive approach to policy in helping the banks lend more money, the 7% servicing assessment rate hasn’t previously been a problem in home loan approvals prior to the banking royal commission.

APRA’s very reasonable directive was for mortgage brokers and lenders to make “reasonable enquiries” into living costs instead of using the House Price Index or HEM living expense measurements as a default living expense calculation.

The banks have overreacted to the directive and taken an overly cautious approach when applying this to updated lending policies.

Requiring customers to provide personal bank statements to prove their statements of living expenses is tantamount to an audit ... of their personal lives

This, as well as the red tape around responsible lending, is the real driver of home loans being declined.

An example of this responsible lending red tape is the policy of a number of banks that require a home loan customer to provide a personal statement detailing their living expenses and commitments.

But they go further than that, requiring customers to provide personal bank statements of their accounts to prove their statements of living expenses.

It is tantamount to an audit of a home loan customer’s living expenses statement, and also of their personal lives.

This disingenuous policy suggests that home loan customers are not capable of telling the truth to the bank or their broker in order to get a home loan approved. It is overstepping into customers’ personal privacy. Home loan customers are entitled to their privacy, providing it’s legal, period.

What this policy serves to create is an environment in which customers protect themselves by having non-disclosed secondary bank accounts that they can use to pay subscriptions, for example.

I can assure you it’s not best practice to audit a client’s life by way of their bank statements.

Making reasonable enquiries into living expenses should instead involve discussing fixed and non-fixed expenses, and the client’s appetite to reduce or cancel these expenses should home loan affordability become an issue.

This could mean having a discussion around cancelling subscriptions like Netflix, Stan and Foxtel if the need arises, providing they aren’t under a fixed contract.

Bigger picture when looking at APRA’s proposed changes – they are simply very welcome and, if implemented, will help some borrowers who can’t quite get there currently with a mortgage.

These changes, along with the uncertainty of the election now over, will potentially provide more positives for the housing market – so my message to the banks is, get on board!

 

 

Robert Perks

MD of Fifth Avenue

Finance Group