Catherine Heuzenroeder* says bank loan scrutiny on living expenses has created a headache for borrowers.
Borrowers are experiencing more scrutiny from banks when they apply for loans.
While it is leading to frustrations and delays, the changes were brought in to protect borrowers as a result of recommendations by the Hayne banking royal commission.
Borrowers are finding they need to provide more details about living expenses and are being questioned on references made in banking transactions.
An Adelaide couple had their home loan application put on hold after friends started transferring money into their account for a baby shower present.
“The bank identified it as us not having told them we had a baby on the way,” the borrower said.
“I had to prove it was for a baby shower gift by sending screenshots of the invite/conversation of present planning asking for transfers.”
A regional couple wanted to extend their interest-free period on an investment loan and found the process more arduous than the initial loan application.
The scrutiny of their living expenses included how much they spent on dog food every week.
New criteria to protect borrowers
Riverland loan broker Paul Hutchins said his clients had similar experiences.
“The banks are really tight on not only making sure that everything is declared, so they like to go through statements, they are really tight on living expenses,” Mr Hutchins said.
He said the application process had become more stringent since the royal commission.
“Living expenses have got a lot more in-depth, since the royal commission; one of the things that came out was they said it’s not a true reflection of what we spend,” he said.
The application process may have left some borrowers frustrated, but it was brought in to protect people from becoming over-indebted.
“We’ve gone too far, in my opinion, but we’ve also got to be mindful because I’m different to someone else; I might get away with $1,000 a month but someone else may spend $2,000,” Mr Hutchins said.
He said he often had to explain why some clients were able to live on less money than guidelines suggested, such as if they paid less for electricity because they had solar.
“We have to explain, if we’re going to come under the guideline, why people aren’t spending as much as they are expected to.”
‘Rod for their own back’
Mr Hutchins said, in his experience, banks were taking up to a month to start looking at some applications, which had been dragging out the approval time for loans.
But he said he could understand why lending institutions were now being more cautious.
“In defence of the banks, they want a clear definition of what you’re spending because obviously they are putting you into a big financial commitment.
“I do think some of it has been overzealous, but I also understand where the banks are coming from because they got hit with information from the general people coming in and saying, ‘You put me in this position but I couldn’t afford it’.
“In some ways, consumers have made a rod for their own back and then we tarred everyone with the same brush, which we shouldn’t have.”
*Catherine Heuzenroeder is a features reporter based at Renmark.
This article first appeared at abc.net.au.
