Speaking to Your Investment Property's sister publication, Australian Broker, founder and owner of Melbourne-based Universal Wealth Management, Maria Rigoni, says the tougher rules are hurting prime borrowers.
“Lending criteria is getting harder and harder so really good, credit-worthy borrowers are being declined loans on the most simple and silly of reasons.
“What is happening is people are finding it harder and harder to borrow or refinance. You might have all these cheaper options out there, but with the way that [the banks] are squeezing down how much people can borrow, consumers are being stuck in high interest rate loans and you can’t move.”
Rigoni’s argument comes just after ANZ announced in a note to mortgage brokers that it would change the way minimum living expenses were calculated when it decides on home loans.
The changes, which took effect from April 4, will reduce how much some prospective customers can borrow.
“That interferes with two things,” says Rigoni.
“It interferes with a person being able to live their life and use their money as they see fit at a particular point in their life, and it stops lenders from being responsible for really making risk-based credit decisions.”
Rigoni says she also doesn’t believe verifying living expenses is appropriate and that relying on benchmarks is enough.
“I don’t see why you have to verify living expenses. If you are a potential borrower, the bank is already pretending you are paying a higher interest rate.
“Then they have a benchmark [for living expenses] but turn around and say they aren’t going to agree with that benchmark… I think a benchmark across the board is fine for living expenses, why do we have to go deeper than that?
“For me, I look at it from the perspective of what is a reasonable enquiry… It gets unreasonable and it gets to be an invasion of privacy to demand where [a client] spends their money.”
The unreasonably tough criteria is also undermining brokers, Rigoni claims.
“The brokers are doing all of this work and then the deal doesn't go through and the broker doesn't get paid," she told Australian Broker.
“I've been in finance for a long time and if I don't know at this stage who is a reliable potential borrower who is offering no risk to the lender, then what has happened to the industry? I am seeing prime borrowers declined based on idiosyncrasies which are irrelevant.”
