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A leading broker has voiced frustration over the lack of clarity from lenders over the documentation and evidence they need to service loans.
Following the suggestion during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that ANZ was “non-compliant with the National Credit Act, responsible lending obligations and with regulatory guides issued by ASIC” by not verifying “inconsistent” living expenses, many lenders have been tightening up their credit policies around expenses and benchmarking.
The Commonwealth Bank of Australia (CBA) brought in new debt-to-income measurements for borrowers last month, and Westpac updated its expense guidelines, requiring borrowers to provide documentation at an “itemised and granular level” across 13 different categories and include expenses that will continue after settlement as well as debts with other institutions.
Building on concerns raised that the ongoing crackdown on living expenses is an “overkill”, Aussie Parramatta principal Ross Le Quesne told The Adviser that he believes there was still a lot of confusion over what exactly lenders want to see to satisfy expense checks.
Speaking to The Adviser, Mr Le Quesne said: “I do a lot of property investors and we’re now seeing property-related investment expenses as a separate line for those criteria.
“So, where clients may think they have a positively geared property portfolio and it’s looking after itself and not costing them a lot of money, that needs to now be detailed in an investment property’s line. And that obviously takes away from what they can afford to repay and what they can afford to borrow.”
However, the leading broker said that one major source of frustration was a lack of coherence around what is actually required to service a loan.
The leading broker said: “The market is definitely different. I think there is a lot of fear in the market at the moment because with the things that are coming out of the royal commission, it means that [lenders are] being very conservative from a risk profile.
“No one is prepared to go outside the lines. So, the number of documents that we are getting asked for, as brokers, has significantly increased [because] the banks want to dot the i’s and cross the t’s of 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 are coming up with all this stuff that is not even on their checklist.
“This is what is frustrating and challenging for brokers in the market right now because it is an unknown. As soon as we know exactly what we need to provide and our systems and processes can change to be able to provide that on a consistent basis, then it will set in to the new normal.
“But the period of change is frustrating for us and it’s frustrating for clients, because there is not that clear expectation and guidelines in place.”
The broker added that the additional checks and multiple touch points had led to a slowdown of approvals (which ANZ CEO Shayne Elliott had previously warned would be a likely outcome of tougher expense checks), highlighting a case where a lender came back for clarification on a $79.99 iiNet charge on a borrower’s statement.
“Everyone knows that is an internet charge, so the level of detail is crazy… and it definitely has slowed down approvals,” Mr Le Quesne said.
The Aussie broker added that it was therefore increasingly important for brokers to have conversations with their clients early to prepare them for the deep dive into their expenses.
“I think communication is really important. Obviously, clients are going to be asked for more documentation than they’ve ever been asked for before, so it is important that we communicate that, explain the new guidelines and what the possible flags are to customers ahead of time. That way, if it does come up or if there are questions around it, it is not a surprise to them.”
[Related: ‘Overkill’: Top broker questions living expenses crackdown]
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