Westpac introduces tough new rules in crackdown against so-called ‘liar loans’

WESTPAC will demand far more detailed information from home-loan applicants, quizzing them on everything from grocery bills to medical expenses as it cracks down on so-called “liar loans”.

WESTPAC will demand far more detailed information from home-loan applicants, quizzing them on everything from grocery bills to medical expenses as it cracks down on so-called “liar loans”.

The nation’s second biggest bank is set to more than double the number of expense categories it questions applicants about, drilling into grocery spending, clothes shopping and transport, medical and investment property costs.

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It will also assume those living with their parents have a minimum rent bill of $650 a month and demand documentary evidence around child support, rent and debts.

The change in policy comes amid growing pressure for Australian banks to properly scrutinise mortgage applications so they can be sure customers can repay their loans.

It comes after analysts at investment bank UBS last week warned that the lenders were likely to soon cut the amount they offered home buyers as they assessed mortgage applications more thoroughly.

Westpac chief executive Brian Hartzer.

The housing market would likely suffer a jolt as a consequence, UBS said, and in a more extreme scenario, a painful “credit crunch”.

Westpac’s new approach will come into effect next Tuesday and includes subsidiaries Bank of Melbourne and St George Bank.

An information package sent to mortgage brokers by St George — and seen by Business Daily — explained the rationale. “These measures will help both the bank and brokers to understand the granularity of our customers’ actual expenses and liabilities so we can better determine their financial situation and repayment ability,” it said.

Westpac will demand detailed information on 13 expense categories under its new responsible-lending framework, up from six.

Categories include clothing and personal care, groceries, insurance, medical and health, recreation, telephone, internet and media subscriptions, transport, childcare, education and other. Potential borrowers will be required to provide information on costs tied to any properties they own, such as rates and utilities.

Applicants will need to provide an explanation for any category where they say they have no expenses.

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Macca’s view on Westpac’s new requirements.

It comes as lending standards are scrutinised at the banking royal commission and regulators crack down on higher-risk loans.

UBS has also warned that Australian banks are sitting on $500 billion worth of “liar loans”, where borrowers have provided their lenders with information likely to be false.

More than 30 per cent of mortgages fall into that category, UBS has estimated.

Westpac says it will also apply a “notional rent” expense of $650 a month to applications from those renting, paying board or living with their parents. That move will likely affect first-home buyers living rent free with their parents as they save for a property.

It will apply to renters and boarders if their monthly rent bill is less than $650.

Applicants must provide documentary evidence for rental, child support or debt obligations that will continue after the loan is settled.

They will also have to sign a new “financial acknowledgment” form, confirming the information provided is accurate.

In a statement, Westpac said: “The enhancement of our expense categories means our staff and brokers have the opportunity to prompt customers to remind them about particular expenses they may have forgotten.”

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