Frustration mounts as lenders’ spending policies lack clarity
14:14, 7 June 2018
6 minutes to read
A leading broker expressed frustration with lenders‘ lack of clarity on the documentation and evidence they need to service the loans.
Following the suggestion during the Royal Commission on Misconduct in Banking, Pensions and Financial Services that ANZ was “non-compliant with national credit law, responsible lending obligations and regulatory guides ASIC published “By not checking for” inconsistent “living expenses, many lenders have tightened their credit policies on spending and benchmarking.
The Commonwealth Bank of Australia (CBA) introduced new debt-to-income measures for borrowers last month, and Westpac updated its spending guidelines, requiring borrowers to provide documents to a ” detailed and granular level “in 13 different categories and include expenses that will continue after settlement as well as debts to other institutions.
Building on concerns expressed that the ongoing crackdown on living expenses is an “exaggeration,” Aussie Parramatta chief executive Ross Le Quesne told The Adviser he believes there is still a lot confusion over what exactly lenders want to see to satisfy expense audits.
Speaking to The Adviser, Mr. Le Quesne said: “I do a lot of real estate investors and we now see real estate related capital expenditure as a separate line for these criteria.
“So when clients can think that they have a positively oriented real estate portfolio and that it takes care of itself and doesn’t cost them a lot of money, this now needs to be detailed in the line of a building. shift. And that obviously takes away from them what they can afford to repay and what they can afford to borrow. “
However, the main broker said one of the main sources of frustration is the lack of consistency around what is actually required to service a loan.
The main broker said: “The market is definitely different. I think there is a lot of fear in the market right now because with things coming out of the royal commission it means that [lenders are] being very conservative of a risk profile.
“No one is ready to break the lines. Thus, the number of documents that are requested of us, as brokers, has increased considerably. [because] banks want to dot i’s and cross t’s on a lot of their files.
He continued, “I don’t think the banks even know what documents they want right now. You can practically tear up their checklists because they offer all of these things that aren’t even on their checklist.
“That’s what’s frustrating and difficult for brokers in the market right now, because it’s an unknown. As soon as we know exactly what we need to deliver and our systems and processes can change to be able to deliver it consistently, then that will settle into the new normal.
“But the period of change is frustrating for us and for customers, as there are no clear expectations and guidelines in place. “
The broker added that the additional checks and multiple touchpoints resulted in slower approvals (something ANZ CEO Shayne Elliott previously warned would be the likely result of tighter spending controls), highlighting a case where a lender came back for clarification on a $ 79.99 iiNet fee on the borrower’s statement.
“Everyone knows this is an internet load, so the level of detail is insane… and that has certainly slowed down approvals,” Le Quesne said.
The Australian broker added that it is therefore increasingly important for brokers to have conversations with their clients early to prepare them for a deep dive into their spending.
“I think communication is really important. Obviously, clients will be asked for more documentation than ever before, so it is important that we communicate this, explain new guidelines and possible flags to clients in advance. That way, if it comes up or there are questions about it, it’s no surprise to them. “
[Related: ‘Overkill’: Top broker questions living expenses crackdown]