Banks crack down on borrowing rules

Home buyers face tougher questions and even knockbacks when applying for a mortgage as banks and non-bank lenders secretly tighten rules on who qualifies
Leaked circulars show a series of banks and non-bank lenders have tweaked eligibility criteria on some home loans in the wake of rising repossessions, growing mortgage stress and a funds shortage.
An investigation by The Daily Telegraph reveals changes include increased loan-to-valuation ratios, more proof of income and the tightening of so-called 'lo doc' loans, for which borrowers need only provide a minimum of documentation.
As well as Westpac and St George, others that have sent out emails with changes include Adelaide Bank, ING Direct, AMP Banking, Newcastle Permanent and Suncorp.
The latest economic data shows the economy is slowing, including house prices in Sydney falling in the first three months of 2008 and falling new car sales.
But Federal Treasurer Wayne Swan warned that underlying inflation was high and would take time to contain -- a hint there could be more rate rises to come.
As well as rising repossession rates, problems in sourcing funds overseas due to the US subprime mortgage crisis is also taking a toll on non-bank lenders.
Among the biggest changes in eligibility criteria, Adelaide Bank tightened its credit policy to cap loan-to-valuation ratios at 90 per cent for principal and interest loans and 80 per cent for interest-only loans.
In its circular to brokers on 25 March, Adelaide Bank also expects evidence that a home loan applicant has 5 per cent of the value of the property in savings.
An Adelaide Bank spokesman confirmed the bank had decided it was "prudent in the general economic climate" to review its credit policy.
On 23 April, Westpac informed brokers of credit policy changes for lending to investors for CBD locations and luxury properties.
AMP Banking confirmed that on 2 April it added .2 per cent to any loan above 95 per cent of the property's value, reflecting the higher risk profile.
ING Direct on 24 April changed its Lo Doc Credit Policy to demand evidence of an ABN for two years and registration for GST.
Newcastle Permanent recently increased the amount of net disposable income -- income available after household living expenses -- it wants a customer to have.
Previously it was content to have a ratio of 1.25 of net disposable income to mortgage repayments, now it wants 1.35.
St George confirmed yesterday that on 7 April it modified the eligibility criteria for its No Deposit Quick Start Home Loan product, including increasing the interest rate margin, to discourage customers requiring debt consolidation.
Some small lenders have withdrawn from the the home loan market altogether, including Macquarie Banking, which on 7 March announced the removal of all mortgage products to new residential customers.
The director of the nation's largest mortgage broker, Australian Finance Group, said it was almost impossible now to find any lender offering a 100 per cent loan.
He said the biggest changes were in the so-called "non-conforming" loan sector, so-called lo doc loans, where borrowers would now be offered just 75 per cent of a property's value, compared with 85 to 90 per cent early last year.
Bluestone Mortgages, a leading operator in the non-conforming sector, said its maximum loan to valuation ratio was now 80 per cent.

Kelvin Bissett
The Daily Telegraph
23 May 08