The first changes from the Royal Commission

2 lenders announces changes today as a result of feedback from the royal commission last week. Westpac (St George) and Newcastle Permanent. I'm expecting most lenders to follow in the very near future.

While policy detail hasn't been announced for the Westpac group its certain will be something like..

1) Borrowers will have to provide statements on all debts.

2) Borrowers will have to provide bank statements to support their living costs declarations. I'm tipping 3 months worth. It will be for all active accounts and credit cards.

No 2 is the killer. If you're spending $8K a month on your main accounts and credit cards besides loan repayments and you declare living costs of $4k / month there will be questions asked and you may have to justify the difference which may not always be possible.

I see this as really hurting the affluent end of the market / private banked clients who are not used to this level of scrutiny. Discretionary spending will be the new grey area.

The question of how much can one can borrow will not be so easily answered either. No matter how simple your affairs are.

 

Early anecdotes with credit today is lenders credit teams are a little spooked and are aware they are being watched/monitored closer than ever before. One credit officer i had a chat with today said the banking royal commission has reduced the banks appetite for certain types of deal (within specific credit policy, but variance in income from one year to the next)!

 

Couldnt you withdraw some additional cash prior to the 3 month bank statements and live of this so banks wouldn't know what your total true expenses are?

 

Change #2 would be beneficial to those living at home- show that you pay no rent, no groceries or utilities. Though I wonder if this overrides lenders who insist that there must be some expense related to these.

 

That's pretty much what's going to have to happen. A lot of people simply won't qualify for their loans if their real living expenses come into play.

Nope. Lenders have minimum figures which they already use. Proving you spend next to nothing just makes them use the minimum. Also many lenders will now impose minimum rent figures to those living with family. I was stung this week with Bank of Melbourne on this, whereas they didn't question it for the same person a month ago.

 

There is a lot of additional compliance work and budgeting work starting to be required... Deals simply take far longer to put together now, due to all the extra requirements.And I sense this is just the beginning... the Royal Commission is starting to look like a broker bash/commission bash...

How long before brokers need to start charging fee for service?

 

Hmmm...broker to client...you won't qualify for that size loan right now...but if you tighten up your spending for the next 3 mths come back and we should be ok.

Yes Royal Commission/ASIC this is a great idea to increase compliance and time to put an application together with no real world benefit.

 

agreed. seriously the spread between assessment rates and actuals are fat as!

 

That’s the positive spin but it’s getting harder and harder so I don’t feel it’s a positive. The pie gets smaller.

Nothing surer for mine it’s a direct response to the RC. We had 2 full days of lenders shown to be wanting in their interp of one of the key premises of NCCP. “Reasonable steps to verify”.

Relying on customer or broker information is not enough. ANZ had 73% of application coming in at HEM or less. They also wouldn’t cross ref bank statement even if they had them. The only reason Westpac wasn’t grilled harder was they had a case going with ASIC on a similar matter.

Pretty daming. I watched the webcast and read the transcripts. It is pretty much a direct response to the commissioners and his attack dog QC’s objections.

Anz will be next to announce policy changes. Then Nab. Cba are safe as they were the only ones really complying with the letter of the law.

 

Yeah but nah I think. They had that bank statement policy years ago. It came in after gfc. Got removed for a period then reintroduced for only new customers then fully reintroduced 6 months ago.

Cba credit always wanted it. Sales not so much

 

In theory, that could be done, I guess.

Will require serious thinking ahead though. “Want to buy a house in 4 months time? Withdraw cash now and make sure not to spend more than X per month for the next 3-4 months”.

Also, lenders may be able to smell a rat. Super low grocery shopping for example. The whole behaviour by the potential borrower may become dodgy for no good reason.

Living expenses can change if push comes to shove. Struggling to pay the mortgage? Stop going to the gym, buying expensive clothes, cinemas, night outs etc etc.

My position is that current spending is no indication to minimum spending you will have if you’ll encounter mortgage distress (at 7.25%...). HEM, on the other hand, is.

Yeah, that’s how I see it. But all signs are leading to lenders being forced to base living expenses on recent statements. That’s probably the next hit borrowing calculators will get.

 

Yuk. I recently applied for a $2k overdraft on a bank account from one of the major banks. For me, would have required over 50 pieces of documentation! I declined to proceed.

 

Not if credit staff are getting enough information and going through the statements properly. It would be seen as a deposit but not income or expense.

 

Whoops. It wouldn't be seen as a deposit - as living of it in cash. I don't doubt credit staff would figure this out fairly quickly though.

 

That’s what I would have thought, discretionary spending is just that discretionary. It in no way reflects expenses, as ones income grows so does expenditure, a large amount of this could be turned off almost immediately.

If banks were to base serviceability calculations on bank statements that would really be going too far and could decimate borrowing capacity for many people unnecessarily.

 

The broader question is what happens to the property market if credit is harder to get. And it doesn't matter whether we're talking about Brisbane or Sydney or where we are in the cycle.

My guess is:

Difficulty in getting credit =

• less buyers, particularly investors and marginal FHB
• downward pressure on property prices
• reduced supply of new properties (developers' feasibility numbers don't stack up)
• higher rents once the supply overhang is soaked up