Buyers face new checks
WESTPAC will demand far more detailed information from home loan applicants, quizzing them on everything from grocery bills to medical expenses as it cracks down on so-called “liar loans”.
The nation’s second biggest bank is set to more than double the number of expense categories it questions mortgage applicants about, drilling into grocery spending, clothes shopping and transport, medical and investment property costs.
It will also assume applicants living with their parents have a minimum rent expense of $650 a month and demand documentary evidence around child support, rent and any debts.
The change in policy comes amid growing pressure for Australian banks to properly scrutinise mortgage applications so they can be sure customers are capable of repaying their loans.
It comes after analysts at investment bank UBS last week warned the lenders were likely to soon significantly cut the amount they offered home buyers as they assessed mortgage applications more thoroughly.
The housing market would likely suffer a jolt as a consequence, UBS said, and in a more extreme scenario, a painful “credit crunch”.
Westpac’s new approach will come into effect next Tuesday and include subsidiaries Bank of Melbourne, St George Bank and BankSA.
An information package sent to mortgage brokers by St George Bank – and seen by the Gold Coast Bulletin – explained the rationale. “These measures will help both the bank and brokers to understand the granularity of our customers’ actual expenses and liabilities so we can better determine their financial situation and repayment ability,” it said.
“You will need to make detailed enquiries and capture the customer’s response to ensure we have an accurate view of the applicant’s living expenses.”
Westpac will demand detailed information around 13 expense categories under its new responsible lending framework, up from six.
Categories include clothing and personal care, groceries, insurance, medical and health, recreation, telephone, internet and media subscriptions, transport, childcare, education and other.
Potential borrowers will also be required to provide information on costs tied to any properties they own, such as rates and utilities, both as an owner occupier and investor.
Applicants will need to provide an explanation for any category where they say they have no expenses.
The tighter approach comes as responsible lending standards come under scrutiny at the banking royal commission and the industry regulator cracks down on higher-risk lending.
UBS has also warned the nation’s banks are sitting on top of $500 billion worth of “liar loans”, where borrowers have secured credit despite providing the lender with information likely to be false.
More than 30 per cent of the nation’s mortgages fall into this category, UBS said.