Netflix or loans? Borrowers put to the test

Mortgage brokers welcome moves from the Morrison government to scale back lending verification requirements.

Mortgage Choice mortgage broker James Algar, Mr Algar said applications for self-employed borrowers was particularly tough as many banks under current rules did not acknowledge that many incurred expenses within the business­ ­budget. Picture: Britta Campion / The Australian

It’s become a familiar ring for borrowers applying for a mortgage: what’s your monthly Netflix and phone bill spend?

The shake-up in mortgage lending rules by the Morrison government detailed on Friday is aimed at giving some control in the process back to the borrowers — as well as responsibility for the loans they apply for.

For mortgage brokers who have been at the front line of preparing paperwork for clients, the biggest changes will mean borrowers no longer have to prepare six months out to apply for their loans.

Mortgage Choice Dee Why broker James Algar said he had clients attempting to borrow well below their limits stumped by banks quibbling over minor expenditure questions.

“You might get a client who can borrow as much as $600,000 but they’re only asking for $400,000 and the bank is still asking do they spend $40 or $50 on their phone bill,” he said.

“We deal with 30 banks and each one takes a single scenario for a joint couple buying a property, all of them apply different benchmarks to living expenses and it leads to a huge amount of confusion and lack of transparency.”

Mr Algar said applications for self-employed borrowers was particularly tough as many banks under current rules did not acknowledge that many incurred expenses within the business­ ­budget.

“These changes are going to make a big difference to self-­employed people,” he said.

Mr Algar said the broker did not coach its clients but it did talk to them about “budget management with a view to securing a home loan”.

“The onus of the current laws are you’ve got to prove it first before you can access the credit,” he said. “There’s a living expenses spreadsheet [on which] every bank has 13 to 16 points of data they want around the household budget.”

While bank bosses have been promising to ease restrictions since the corporate regulator last year lost its landmark legal action against Westpac over responsible lending, the message hasn’t filtered down to loan officers, who banking analysts claim remain risk-adverse.

The Weekend Australian has seen correspondence from one major bank that expanded the categories of expenses it was reviewing from 17 to 22, starting from Monday.

Kingsbridge Private founding principal Sheyne Walsh said the current system combined intense scrutiny of applications with slow processing times, which crimped people’s abilities to bid for a property. “We’re seeing three out of four banks taking a month to approve a loan due to verification,” Mr Walsh said.

“It’s become a lot of jobs about chasing down expenses and verifying them versus getting money into people’s hands.”

Mr Walsh said when he started in the industry clients would often get an answer within a day, but these days he tells them “I know you’ve got an auction this weekend, but it’ll take 31 days to get approved”.