Banking royal commission: loans and mortgages ‘will be harder to get’

It will be harder to get a mortgage and car loan if banks take heed of the royal commission’s call to verify customers’ expenses.

Kenneth Hayne, left, at the royal commission. Picture: David Geraghty

It will be harder to get a mortgage, car loan or credit card increase if banks take heed of the banking royal commission’s call to verify customers’ expenses.

Commissioner Kenneth Hayne QC has called out the banks for failing to fulfil their legal obligations to make reasonable inquiries about consumers’ financial situations and take reasonable steps to verify the information.

It means banks will have to do more to substantiate customers’ income and living expenses, rather than relying on the benchmark household expenditure measure (HEM).

Mr Hayne said the evidence showed that more often than not, each of the big four banks took some steps to verify the income of people applying for a home loan. More often than not, none of them took any steps to verify the applicant’s outgoings because it was considered “too hard”.

“What was meant by verifying outgoings being ‘too hard’ was that the benefit to the bank of doing this work was not worth the bank’s cost of doing it,” Mr Hayne said in his interim report.

He said the HEM was used to calculate only modest weekly household expenditure and took no account of whether a particular borrower had unusual household expenses, such as caring for someone with special needs or an aged parent.

Analysts expect a tightening of lending standards will become more pronounced, further restricting the availability of credit.

AAP