Bor­row­ers un­der closer scru­tiny


MORT­GAGE bro­kers say banks are tak­ing a closer look at whether bor­row­ers can af­ford to meet home loan re­pay­ments, and one bank is now ask­ing for a writ­ten dec­la­ra­tion that the lend­ing is re­spon­si­ble.

Since June 2015 lenders have had to ad­here to a re­spon­si­ble lend­ing code which says they must make rea­son­able in­quiries into a per­son’s sit­u­a­tion to en­sure debt re­pay­ments do not cause ‘‘sub­stan­tial hard­ship’’.

But banks have come un­der more pres­sure in the wake of last year’s Aus­tralian Royal Com­mis­sion into mis­con­duct which found the Aus­tralian banks were highly re­liant on us­ing av­er­age house­hold spend­ing data to base their lend­ing de­ci­sions on rather than us­ing spend­ing data from the in­di­vid­u­als ap­ply­ing for the loan.

Bruce Pat­ten, a mort­gage bro­ker at Loan Mar­ket, said banks here were ask­ing for more in­for­ma­tion on peo­ple’s spend­ing habits than ever be­fore.

‘‘There is def­i­nitely more pres­sure on home loan ser­vic­ing. That is go­ing to be the big­gest fac­tor in lend­ing over the next 12 months,’’ he pre­dicted.

All of the banks were ask­ing mort­gage bro­kers to con­firm lend­ing was be­ing done re­spon­si­bly but West­pac was the only one with a dec­la­ra­tion form.

The West­pac form prompts both its in­house staff and ex­ter­nal bro­kers to ask bor­row­ers if they an­tic­i­pate or plan on any changes in their life that would make it harder to meet their re­pay­ments.

It also asks if the bor­row­ers are over 55 at the age of ap­pli­ca­tion, or will be over 75 when the home loan ma­tures.

A West­pac spokesman said the doc­u­ment, which it in­tro­duced in­ter­nally and to bro­kers in Septem­ber, was used to make sure its lenders had the right con­ver­sa­tions with cus­tomers.

‘‘It is not used to cal­cu­late el­i­gi­bil­ity for a mort­gage.’’

Re­gard­ing the age ques­tion, the spokesman said it was im­por­tant that bor­row­ers who may be due to retire dur­ing the term of their loan con­sider how they would man­age re­pay­ments as their in­come changes through and af­ter their work­ing lives.

‘‘All lend­ing is con­ducted on a case­by­case ba­sis. Our mort­gage ap­proval cri­te­ria do not in­clude age,’’ he said.

Mr Pat­ten said some clients were al­ready ques­tion­ing the closer scru­tiny. ‘‘They say: ‘I never got asked this last time. Why do they need to know that?’’’

He said bro­kers were hav­ing to spend more time jus­ti­fy­ing why a per­son should be al­lowed to bor­row that much.

Kyle Moritz, a mort­gage bro­ker at Squir­rel, said ser­vice­abil­ity was key but all the banks in­ter­preted their re­spon­si­ble lend­ing obli­ga­tions slightly dif­fer­ently.

‘‘They want to be able to see you can af­ford a mort­gage.’’

Mr Moritz said it was usu­ally peo­ple over the age of 50 who were ques­tioned about hav­ing a longer term for a mort­gage, ‘‘which is fair enough.’’

‘‘Most peo­ple want to pay their debt off be­fore re­tire­ment.’’

Mr Moritz said cer­tain banks were get­ting a bit ner­vous around that af­ter crit­i­cism of re­spon­si­ble lend­ing prac­tices in Aus­tralia’s Royal Com­mis­sion into mis­con­duct in the fi­nan­cial ser­vices in­dus­try.

Mr Pat­ten said banks wanted to see a sav­ings his­tory and looked favourably on those whose com­bined rent and weekly sav­ings might be sim­i­lar to what they would pay for a mort­gage.

‘‘We get a lot of peo­ple who come in and say we can af­ford $750 a week [in mort­gage re­pay­ments] but they have rent of $450 a week and no sav­ings.’’

That would not fly if a per­son’s de­posit was less than 20%, Mr Pat­ten said.

In Aus­tralia there have been me­dia sto­ries of peo­ple be­ing turned down for home loans be­cause of their use of Uber rides or UberEats.

Mr Pat­ten said that would hap­pen only if a per­son’s spend­ing was ex­ces­sive.

‘‘If you are spend­ing $300 to $400 a week on UberEats, how can you sus­tain a mort­gage when you are pay­ing so much for take­aways?’’

He pre­dicted a time when banks would sweep up data from a per­son’s ac­counts to see what level of dis­pos­able in­come they had left.

Peo­ple look­ing to bor­row could help them­selves out by do­ing a bud­get and un­der­stand­ing where their money went, he said.

Only about one per­son in 10 he saw had that al­ready pre­pared. —NZME

❛ There is def­i­nitely more pres­sure on home loan ser­vic­ing. That is go­ing to be the big­gest fac­tor in lend­ing over the next 12 months

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