Due to the Australian Prudential Lending Authority (APRA) lending guideline changes, the Australian New Zealand Banking Group (ANZ) is implementing more home loan lending changes. Serviceability assessments and foreign income thresholds are just two of the new changes, however, there are much more that have now come into play.
Mortgage brokers were notified at the end of March 2016 of proposed changes that the major bank was seeking to introduce in the coming months. ANZ stated in its notification to brokers that these changes were a part of the banks evolving credit policy, which would enhance how the lender makes decisions.
A bank spokesperson said that the ANZ was regularly reviewing its credit policies so that it remained conscious and in-sync with risk in a highly competitive and economically orientated environment that was fraught with regular restrictions.
Customers of the ANZ would continue to receive the same service, but those applying for a home loan may encounter tighter lending criteria. Though the bank ensures that they would continue to assess any credit application in the same manner as they had previously, which would be on individual circumstances.
Changes that have been implemented include:
- Minimum living expenses An income-indexed living expense value has been introduced. This is tiered by income levels for singles and couples and includes up to 10-dependents.
- Serviceability A higher value of a customers stated expenses or the new applicable living expense will be used to assess loan serviceability. In other words, how a customer can financially service their loan.
- Income type assessment Only 80% of overtime and commission-based income will be used to assess loan serviceability of a home loan.
- Rental income Only 75% of rental income will be used to calculate loan serviceability.
- Interest rate buffer The ANZ will drop its interest rate buffer from 2.75% to 2.25% for all facilities. However, this will not change the current interest rate.
- Interest-only renewal Owner-occupier home loans will need to have a full Credit Critical (CC) application once the full interest-only term reaches 5-years. This means that these customers will have their financial circumstances reviewed at the end of their interest-only term.
- Foreign income Home loan eligibility will no longer be assessed on 100% of foreign income. Loans based on more than 50% of foreign income will have to have a 70% loan-to-value ratio (LVR), and these loans cannot be held in a foreign company name.
There will also be no guarantor arrangements and these types of loans will require increased income documentation. Home loan applications with less than 50% foreign income would be based on standard policy.
Advocates for the changes to the ANZs lending criteria say that the changes protect the banks best interests and reduce its risk from loan defaults. This, in turn, gives stability to the Australian economy.
However, those who oppose the changes say that the new legislation is overbearing and unneeded. They are also suggesting that these changes may actually hinder banks more than helping them. Many mortgage brokers are suggesting that borrowers who are good risks will not be able to gain loan approval under the new changes the ANZ have made.
Brokers seeking approval for their clients home loan application from ANZ or any other major bank, need to ensure their clients have all their costs of living documented as they may need to prove how they are actually spending their money. Validating living expenses can be a difficult task and can slow down the time taken to gain application approval. However, eChoice brokers have access to tools such as the interactive eChoice Budget Planner which makes it quick and easy to keep account of what home owners are spending.
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