Suncorp lead the charge

Also agree with Rendom. What do they want to achieve? If its lower overall borrowing capacity then just increase the assessment rate from 7.25% to 9% or actual + 4% which is some much cleaner and can't be gamed.

 

Yes true haven't sent one there for quite some time. Loans in policy declined on suspicion and IO rates for OO when note really available is the dizzy limit for me. BW is making the right noises though

 

They want to be seen as doing something to make sure they are acting responsibly. Something that will have no practical effect but can be brought out as evidence at the next royal commission.

 

Makes me want to sit at a Woolworths self service and split my normal groceries in to 10-20x small payments, then submit the forms as a printed or scanned statement so they can't copy/paste the data easily. 50+ pages...

 

Hmm theoretically a better capture of living expenses could work and it would lead to improvements. This must be with technology doing the legwork and comparing it to standard households/benchmarks to come up with individualised living expenses. I'm not sure how it would work exactly, but data sharing arrangements, holistic analysis & tech models will come into play. This will lead to a better capture of living expenses and in turn improve credit quality marginally and keep the system efficient and moving forward. I can see how this model will be better than just asking what a customers expense is and comparing it to a relatively standardised benchmark.

But, this is not how its being done yet. The practical implication of doing this needs to work a whole let better than it does now. Brokers will probably understand this in light of some of 2018 credit assessments.

It could be worth having this as a broader credit goal and working with lenders over time to achieve it, rather than just asking them to do it right away and leading to manual assessment issues.

At present, there are cases of very silly credit assessment processes from lenders. The 'cover your ass' approach by lenders without taking common sense is detrimental to consumer outcomes. Unfortunately for the system, doing this will mean there'll be plenty of borrowers who get declines, delayed, slowed down, etc who can reasonably afford the loan under benchmarks regulators would be happy with. The process itself creates a lot of damage for customers (lost deposits, savings, etc). That is NOT something you want to create within a well functioning lending system...especially when the allocation of capital has been working well in Australia as whole.

I suspect the RBA, APRA, etc are already communicating this to the treasurer and government. You can hear jawboning going on already from those in charge - 'risk to credit flows' talk from the RBA governor of late. I assume through the RBA/Treasury business consultation process with the banks, the banks have made them aware that this type of regulation is leading to poorer quality consumer outcomes by slowing it all down. The countries largest bank has been at 1 week+ credit turnarounds for most of the year...in 2018. That isn't an acceptable outcome long term for an economy looking to grow and prosper over time. We should be trying to move to a scenario where its all done inside 24 hours with quality. Another worthy lending market goal to have over time.

 

Does anyone else remember what happened when assessment rates went over 9% during the GFC? At the coal face of home loan lending, things ground to a halt. People couldn't buy houses, they couldn't refinance. The general public couldn't qualify for a home loan. Similar things happened to business, it was a bit of a disaster.

Australia didn't really have a financial crisis, but we nearly did. The thing that caused the problem was the governments mismanagement of interest rates (thanks Wayne Swan) and the thing that saved the economy was their realisation of the mistakes and cutting interest rates by 4% within a few months (for which Wayne actually earned awards - create a problem then fix it...).


The problem with living expenses isn't that banks are collecting extra documents relating to spending habits. The problem is they're treating the figures as absolutes. They need to rationalise between mandatory expenses and discretionary. Very few people live entirely frugally. Even mandatory expenses can be cut significantly if people are motivated enough.

The road we're going down says that if I earn $10k and only save $1k, my living expenses must by $9k. No consideration that I lead an enjoyable lifestyle because I have discressionary income and could easily cut my expenses down to $4k if I have to.


At the moment all the policies that banks are implementing that only consider the very worst case conditions and consumer behaviours. There's no consideration to the response to adverse conditions at any level. The government won't let rates increase to even 7% until the economy can actually sustain it. People will stop going on holidays and eating out. Negative gearing add backs will increase as rates go up and consumers will fix their home loans.

Lenders and regulators have a very long way to go on how they rationalise people's borrowing capacity. If they only continue down the current trajectory the lenders simply won't be lending money to anyone.

 

And 1990 when they reached 17.5% for a number of home buyers. It was a tad worse for small businesses. Some were hit with 23%. One of my associates lost his business and went bankrupt partially as a result of that although I believe there were other factors at play as well.

 

I can't count how many times people have asked, "What if rates go to 18% like they did in the 80s?"

Don't get too worried about rates going to 18%. The stuff will hit the fan long before then as rates go to 9% or 10%.

 

Spot on.

I feel fixed expenses should be calculated and verified then a buffer should be applied before referencing a HEMS like index. Outside of that is discretionary spending.

 

A good point yku have made @Peter_Tersteeg. In my oblique way, I was indicating no matter the level of debt or interest rate, if you cannot or are assesed as being unable to service the debt you're right royally screwed.

 

So why don't people just cut their discretionary spending for a few months before heading out to get a loan? Then the statements will show what they're now actually living off, and saving, each month. It's only 4 months worth of changed habits (which probably isn't a bad thing if they're looking at taking on additional/higher levels of debt anyway, right?)

 

A couple of lenders have been asking for one month. Suncorp is now asking for 4 months. It's starting to become a question of how long can you hold your breath for?

 

I am not a broker and have no brokerage experience other than being a customer, however I think it wont be long until you have to provide external login type info with all banks so that they can view a complete picture of your banking history. Obviously not providing online access to your accounts, but your transaction history. I think it will become a system that banks would opt in to use. As it is you can still avoid showing them a complete picture if you work around it hard enough.

 

True, and I get that. But if you're going to have to pull in your spending in order to make repayments on more debt, maybe doing it a few months earlier than needed, just to prove that you can, might not be a bad idea anyway. It's like a set of training wheels for a new mortgage.

 

Already using one such system. It's an easy way to get the right info from clients and they do a lot of automated analysis of how money is being spent. They can still improve but they are getting better. The other challenge is that not all banks are supported.

Really useful tool, but occasionally some people are reluctant to use it due to privacy concerns. It is actually more secure than sending statements via email though.

 

Is it (APRA, RC, tighter policies/regulations) not risking more borrowers going to non conforming
lenders at the risk of higher rate, quicker for rates to go up after taking out loans, higher upfront
fees, re-financing trap, etc.

The whole saga isn't going to help with affordability more like spreading it to everyone else to
share the pains.

Thanks Haynes ... but seriously thanks not, maybe he's already ripped the biggest benefits out
of the booms and credit systems over the last decade or two.

 

why should they have to though

 

In order to prove that, once they take on the extra debt, they will still be able to fund their existence.