Controlling bank loans over living expenses creates headaches for borrowers
Borrowers are increasingly monitored by banks when they apply for loans.
While this causes frustration and delays, the changes were made to protect borrowers following the recommendations of the Royal Commission on Hayne Banks.
- Living expenses come under closer scrutiny since royal commission of banking inquiry
- Loan approval times take longer, leaving some borrowers frustrated
- Broker says some banks take up to a month to start reviewing apps
Borrowers find that they need to provide more details on living expenses and are asked about references made in bank transactions.
A couple from Adelaide put their mortgage application on hold after friends started transferring money to their account for a baby shower gift.
“I had to prove it was for a baby shower gift by sending screenshots of the current planning invitation / conversation requesting transfers.”
A regional couple wanted to extend their interest-free period on an investment loan and found the process more difficult than the initial loan application.
The scrutiny of their living expenses included how much they spent on dog food each week.
New criteria to protect borrowers
Riverland loan broker Paul Hutchins said his clients have had similar experiences.
“Banks are very strict not only to make sure everything is reported so they like to report, but they are very strict on living expenses,” Hutchins said.
He said the application process has become stricter since the royal commission.
“The living expenses have been much more in-depth since the royal commission; one of the things that came out was that they said it wasn’t a true reflection of what we’re spending,” he said. he declares.
The application process may have left some borrowers frustrated, but it was put in place to prevent people from becoming over-indebted.
He said he often had to explain why some customers could live on less money than the guidelines suggested, such as if they were paying less for electricity because they had solar power.
“We have to explain, if we want to comply with the directive, why people are not spending as much as they should”.
‘Rod for their own back’
Mr Hutchins said that in his experience, banks take up to a month to start reviewing some applications, which delays the loan approval time.
But he said he could understand why credit institutions were now more cautious.
“In the defense of the banks, they want a clear definition of what you spend because obviously they’re committing you to a big financial commitment.
“I think some of them were overzealous, but I also understand where the banks are coming from because they were hit by information from people in general who would come in and say, ‘You put me in this position but I couldn’t afford it ”.
“In a way, consumers made a rod for their own back, and then we tar everyone with the same brush, which we shouldn’t have.”