Tougher lending criteria is ridiculous, argues broker

by Julia Corderoy07 Apr 2016
The tougher lending criteria being imposed by the major banks, particularly in regards to living expenses, is silly and irrelevant, the former CEO of the Australian Institute of Professional Brokers has argued.

Speaking to Australian Broker, founder and owner of Melbourne-based Universal Wealth Management, Maria Rigoni, says the tougher rules are hurting prime borrowers. 

“Lending criteria is getting harder and harder so really good, credit-worthy borrowers are being declined loans on the most simple and silly of reasons.

“What is happening is people are finding it harder and harder to borrow or refinance. You might have all these cheaper options out there, but with the way that [the banks] are squeezing down how much people can borrow, consumers are being stuck in high interest rate loans and you can’t move.”

Rigoni’s argument comes just after ANZ announced in a note to mortgage brokers that it would change the way minimum living expenses were calculated when it decides on home loans.

The changes, which took effect from April 4, will reduce how much some prospective customers can borrow.

“That interferes with two things,” says Rigoni.

“It interferes with a person being able to live their life and use their money as they see fit at a particular point in their life, and it stops lenders from being responsible for really making risk-based credit decisions.”

Rigoni says she also doesn’t believe verifying living expenses is appropriate and that relying on benchmarks is enough.

“I don’t see why you have to verify living expenses. If you are a potential borrower, the bank is already pretending you are paying a higher interest rate. 

“Then they have a benchmark [for living expenses] but turn around and say they aren’t going to agree with that benchmark… I think a benchmark across the board is fine for living expenses, why do we have to go deeper than that?

“For me, I look at it from the perspective of what is a reasonable enquiry… It gets unreasonable and it gets to be an invasion of privacy to demand where [a client] spends their money.”

The unreasonably tough criteria is also undermining brokers, Rigoni claims.

“The brokers are doing all of this work and then the deal doesn't go through and the broker doesn't get paid," she told Australian Broker.

“I've been in finance for a long time and if I don't know at this stage who is a reliable potential borrower who is offering no risk to the lender, then what has happened to the industry? I am seeing prime borrowers declined based on idiosyncrasies which are irrelevant.”


  • by J 7/04/2016 9:04:30 AM

    I would like to know why banks are not doing the same for credit card applications because there are so many people who are tied down to credit card debts and unable to make payment for the high interest rates.

  • by Shawn 7/04/2016 10:22:53 AM

    Tightening up by the banks is not a bad thing. I feel that everyone underestimates the cost of living these days, especially for couples with children. If the guidelines are tougher then it's the banks doing the right thing by borrowers. The last thing we need is an increase in default rates when interest rates go up. Let's keep a responsible approach in place by the banks.

  • by Wozza 7/04/2016 10:42:03 AM

    So Maria, if someone is forking out $3000 per month on private school fees but marginally services the loan based on HEMS, you think that is lending in a responsible manner?