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Interesting Article here in the AFR yesterday from Duncan Hughes about the changes in lending practices. Banks are under regulatory pressure to tighten lending standards which will have flow on effects to applications.

National Australia Bank, which has about 15 per cent of the mortgage market, is tightening credit assessment of borrowers amid growing regulatory concern about household debt and loan serviceability across the industry.

The bank has reduced loan-to-income ratios from eight-times to seven, a full percentage point change following the introduction of the benchmark last September.

It means the bank will “automatically decline” or refer for more assessment applications that exceed the threshold, depending on the borrowers’ income source, such as whether it is PAYG or self employed.

The tougher measures will also apply to borrowers who apply for NAB’s white label products, or popular packages, such as Advantedge Financial Services, which is a wholesale funder for mortgage managers.

“Regulatory bodies have raised concerns about Australia’s household debt-to-income ratio, which has risen significantly over the base decade,” a bank spokesman said.

“NAB is committed to lending responsibly, and ensuring our customers can meet their loan repayments today and into the future.”

Borrowing by households is still growing more than three times as fast as incomes, accordingly to the latest government analysis.

This creates concerns about borrowers’ long term ability to service debts, particularly if real estate price rises begin to taper off, there is deterioration in household income, or an economic shock increases financial stress.

Australian Prudential Regulation Authority chairman Wayne Byres earlier this month foreshadowed “further strengthening of borrower serviceability by lenders” in a bid to lower risk and lending volumes.

The regulator’s macroprudential intervention in other lending categories has achieved targets. For example, speed limits on new interest-only lending has led to a sharp reduction, particularly those with high loan to value ratios.

Loan-to-income is the ratio of borrowers’ indebtedness to the loan amount and measured by dividing total gross annual income.

Other lenders are also introducing new measures to improve their assessment of the borrowers’ total debt and capacity to service a loan.

For example, Westpac Group and ANZ, which combined account for nearly 40 per cent of the nation’s mortgage lending, are tightening control over borrowers with confidential changes to assessment, approval and monitoring.

ANZ, whose broker network accounts for about 56 per cent of mortgage flows, is clipping the discretion of frontline mortgage assessors that deal directly with mortgage brokers and customers in loan approvals.

Westpac Group, which includes St George Bank, BankSA and Bank of Melbourne, relies on brokers for about 46 per cent of distribution and has about 45 per cent of higher risk interest-only loans in its mortgage book, the highest percentage of the big four.

The bank recently introduced stringent tests on residential property borrowers’ existing and future capacity to meet their repayments.

Called ‘requirements and objectives’, it is intended to identify possible scenarios that might impact on a borrowers’ capacity to repay, including having dependents with special needs that might require long-term spending on care and treatment.

From Monday, February 26, brokers that make any changes to a submitted loan application, which might arise from further conversations with the borrower, need to alert the bank.

Other lenders are also introducing alert systems to monitor struggling property borrowers in a bid to head-off problem loans amid growing concern about household debt.

Under new arrangements being planned by Adelaide Bank, subsidiaries and affiliates, loan repayments will be routinely compared with borrowers’ income and monthly to ensure it falls within guidelines.

Debts that exceed guidelines will prompt a “diary note commentary” to inform the lender of possible mortgage stress.


Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at or (m) 0408 671 524.

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This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.