Major banks toughen serviceability assessment

by Manuelita Contreras16 Feb 2018

ANZ and Westpac Group are said to have introduced confidential changes to their assessment and approval of borrowers.

The Australian Financial Review reported yesterday (15 February) that ANZ was clipping the discretion of its frontline mortgage assessors.

A spokesman for ANZ said the bank recently added "a higher level of approval for some discretions" used in its home loan policy for assessing serviceability.

The spokesman said the move was not a change to the bank's credit policy or underwriting standards and that it applies to all housing loans, not just those originated through brokers.

Mortgage brokers claim banks seem to be showing less flexibility in interpreting guidelines on such matters as irregular income when assessing loan applications, said the AFR.

The report also said that Westpac recently introduced strict tests of residential property borrowers' current and future capacities to repay their loans.

The change is said to be intended to identify scenarios that might affect borrowers' capacity to pay back their loans. These include having dependents with special needs that might require borrowers to spend on long-term care and treatment.

Brokers who make any changes to a loan application that has been submitted have to alert the bank from 26 February, said the report.

When asked for comment, a Westpac spokesperson only told Australian Broker that the AFR report was based on a note the bank sent to brokers on Monday (12 February).

Earlier this month, Westpac amended its borrowing terms, including allowing the use of desktop valuations only for a maximum LVR of 90%.

A Westpac spokesperson told Australian Broker that the bank has also updated its household expenditure measure in line with the benchmark published by the Melbourne Institute for Social and Economic Research.

This followed Westpac's announcement in December that it would require home loan borrowers to disclose what they owe on short-term buy-now, pay-later loans on digital credit platforms like AfterPay and ZipPay. The move was part of the bank's effort to bolster its assessment of borrowers' loan serviceability.

Stricter assessment of borrowers' ability to repay their loans will likely become the norm among lenders now that APRA is focusing on serviceability in its proposal that targets higher-risk residential mortgage lending.

The prudential regulator released a discussion paper on 14 February proposing changes to authorised deposit-taking institutions’ capital framework and addressing what it calls systemic concentration of ADI portfolios in residential mortgages.

Related stories:

Major bank to tweak borrowing terms

Major bank ditches “instant mortgage” plan

ANZ agrees to pay $5m for lending breach

COMMENTS

  • by Clarke Kent 16/02/2018 8:57:04 AM

    Compliance Gone mad

  • by Advice for the Regulators 16/02/2018 4:03:27 PM

    After 30 odd years in finance working for banks, mortgage insurers and 10 years as broker it is almost officially too hard. This focus on interest only, living expenses and exit strategies blah blah blah to fix a problem I can't see any evidence of is completely out of control. Please take note regulators. You are very close to destroying an industry which is here to help clients.

  • by Red Tape 16/02/2018 7:20:59 PM

    Spot on Advice for the Regulators , but these cardigan wearers thinks they know best!
    All these changes result in zero benefit to our clients, and just make our businesses way less productive by spending time producing crap that nobody reads, except for the employees in Aggregators that audit this rubbish.
    Compliance achieves next to nothing as rogues are usually still compliant on paper!