The reasons why your bank might reject your loan application
Every living expense can play a potentially crucial role in whether Sydney home buyers get their loan. Despite the recent credit loosening, home loan applications are a huge hurdle before getting approvals.
There are numerous questions about the homebuyer's current situation and their plans with any purchase on past bank statements likely to trigger spending analysis by the bank.
Their forensic line-by-line scrutiny on spending includes everything from UberEats, Netflix, betting, pets, and the ongoing financial impact of children or, as last Saturday's front page reported, even the pursuit of IVF treatment.
Lendi managing director David Hyman watches bank requests seeking more information from loan applications. Before the Royal Commission, on average 40 per cent of loan applications came back from the lenders with more information required.
During the Royal Commission period, around 52 per cent of all loans applications submitted were coming back seeking greater details.
This peaked in April this year at 63 per cent.
Significantly, since the election and APRA's changes to serviceability guidance, the trend has settled. Data from Lendi applications submitted in July and August show the rate of more information required has dropped to 29 per cent.
Even the boss of Mirvac, Susan Lloyd-Hurwitz, who earns over $4.5 million, has found the questioning "tortuous" when recently settling on a $770,500 investment apartment.
Lloyd-Hurwitz said the scrutiny was "painful" and could "get nonsensical".
Last week Treasurer Josh Frydenberg said banks were being too zealous in the wake of the Royal Commission.
"Common sense dictates that a sensible balance needs to be struck because an unduly restrictive application of these obligations can do as much harm as an overly lax one," Frydenberg said.
The tighter lending restrictions is unquestionably one of the reasons why listing volumes are at 20 year lows, which the RBA governor Philip Lowe says is hurting the economy.
"With fewer of us moving homes, spending on new furniture and household appliances has been quite soft", Dr Lowe noted. "So too has expenditure on moving costs and real estate fees. More broadly, the correction in the housing market has also affected the economy through its impact on residential construction activity."
Stung by the Royal Commission's exposure of liar loan fraud, the banks moved to tighten their procedures and policies last year.
But last month the Supreme Court judge Nye Perram wisely noted that borrowers could always cut back on their spending after getting their new home.
"I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare," he colourfully noted while deciding for Westpac and against the Australian Securities and Investments Commission (ASIC) on a legal question of what Westpac should consider before responsibly giving someone a loan.
The latest data from APRA shows that riskier lending including loans with a high LVR or interest-only, remain a low proportion of new mortgages.
Most loans are based on serviceability assessments that incorporate an interest rate buffer of 2.5 per cent above the current lending norm, to take into account potential repayment increases in loan rates in the years ahead.
Originally published as Banks still cracking down on loan applications