Lenders’ family benefit policies under spotlight, broker reviews

For example, one client who was a single mum, working full-time, and had four dependent children’s home loan application was not reviewed by several lenders, despite a court-ordered agreement for 50:50 custody.

“I approached several lenders to question the assessment policy for the client and …what I found was that most lenders wanted to include all four dependents for affordability,” Ms King said.

“This heavily weighted the living expenses much higher than those discussed and sighted through bank statements, and of course, it showed a worst-case scenario.

“The majority of the lenders approached, stated this is how they would assess a single parent in these circumstances.”

It sparked an independent review into lender policies led by Ms King and four other female brokers within Loan Market, including Nicola Cranswick, Karen Hecht, and Meghan Castledine.

Ms King said what she found after approaching several lenders and compliance teams was that “many agreed this assessment was a worst-case scenario that did make it difficult to borrow for single parents with dependents”.

The white paper Leading Ladies of the Loan Market looks at several other policies that “may also have a negative impact on families’ applications for new lending” and provides solutions.

Fair assessments of dependents

Given the example above, if a client has a court-ordered family agreement “relating specifically to custody”, then 100 per cent of dependent costings should not be included in the full loan serviceability assessment, she said.

She added that while some lenders may consider using two dependents instead of three with a court-ordered custody arrangement if custody is less than 100 per cent, this is usually considered as an “exception to policy” and subject to the assessor’s interpretation.

“This reflects badly when there is an even number of kids as opposed to odd,” Ms King said.

“We would like lenders to consider if there is a binding court order — one that maintenance and family tax has been assessed on for future income — that costs should also be assessed accordingly with this agreement in mind.

“When the living expenses can be clearly shown & costs of living for dependents are in line with time in custody and not the number of dependents, a solution can be set into policy to assist families with more certainty and a fairer process to follow.”

She added there needs to be more clarity prior to submission where lenders state their policy to give clarity to brokers and their clients.

“I have spoken to some risk and compliance in relation to this point and most believe this would be a positive step for families and lenders to help support their clients,” Ms King said.

“If our lenders had a clearly articulated policy around assessment for dependents, this should result in faster processing times, and a better understanding of who we can help & update this policy should increase the share of clients that we can assist.”

Assessment of paternity/maternity policies

In regard to paternity and maternity policies, Ms King said many lenders offer varied packages for parental leave, but these often fall short with self-employed female applicants.

For some lenders, assessment of paternity and maternity policies includes a letter from the employer to confirm salary and return date; others will service the loan based on return-to-work income, employer payments, government, and cash holdings; and others assess maternity leave income and/or can use savings to cover repayments until they return to work.

However, for self-employed female applicants, the verification criteria are more difficult.

“A self-employed applicant, particularly sole traders, cannot write their own letter with lenders having the level of comfort necessary to sign off on this,” Ms King said.

“Being pregnant does not necessarily make it difficult to work, most females will return to work following the birth of a child, can work part time/full time, and continue to earn an income or even hire support to continue running a business during maternity leave and upon return to work.

“Some lenders’ policies need to be reviewed to create a fair playing field for all families.”

Family tax benefit assessments under fire

Family Tax A & B is a payment that is assessed annually by the government and can be made payable for a dependent to the age of 19 years, but some lenders cut off the age at 11, Ms King said.

“The only lender that accepts this income, regardless of age under the policy, is ANZ,” according to Ms King.

“Generally, when a dependent has left school and benefits stop, it is because they are working, earning their own income, and paying many of their own costs.

“If they have decided to further study, then there are additional government benefits for them to do this. Again, this reduced the financial commitments of the family.”

Ms King is urging lenders to use this income “knowing that the overall financial stability of a family is not negatively impacted” by the loss of the Family Tax Benefit.

“The benefits of this would far outweigh the negatives, in that again, a policy like this will appeal to a larger market segment and when applied with the speed to settlement, can only mean greater profitability to the lenders,” Ms King said.

Ms King said these suggestions are the “starting point for an open conversation” with the possibility of a more standardised approach to family commitments and income in assessments.

She will be forwarding the white paper to lenders for discussion in the coming weeks.

[Related: Family benefit assessments unjust: Brokers urge reform]