Big 4 bank cracks down on mortgage applications

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July 13 2020
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A major bank has announced that it will reduce the borrowing capacity for its customers as it tightens serviceability criteria for new mortgages.

ANZ has announced changes to its debt-to-income (DTI) policy for home loan applications, effective for applications submitted from 3 August.

At present, ANZ does not accept home loan applications with DTI greater than nine.

However, the major bank has informed brokers that as of 3 August, mortgage applications with a total value greater than seven times the borrower’s annual gross verified income “may be deemed unacceptable for ANZ mortgage purposes” and would be subject to “stricter credit criteria”.

The changes follow speculation over the quality of Australia’s credit, linked to the economic downturn caused by the COVID-19 health crisis.

S&P Global Ratings recently forecasted an 85 bps increase in credit losses across the Australian banking sector’s loan portfolio in the 2020 financial year.

The 85 bps increase, which is expected to moderate to 50 bps in 2021, amounts to approximately $29 billion in gross loans, nearly six times higher than the record low last year.

According to the Australian Banking Association (ABA), COVID-induced uncertainty has pushed approximately 800,000 borrowers into loan deferral arrangements, over 61 per cent of which are mortgage-holders.

ANZ chief executive officer Shayne Elliott noted that it currently has over 100,000 mortgages which are currently having deferral of payment, although he noted that conditions are improving.

“For many customers, their income hasn’t been as impacted as they first thought and they will begin making repayments. In fact, many customers are already back making their repayments, and this is a good outcome,” Mr Elliott said.

“There are, however, many customers on deferrals that remain in a difficult situation, and we will work through a range of measures, including restructuring loans and, in some circumstances, extending deferral periods.”

Investment management firm Morgan Stanley estimates that approximately 20 per cent of such borrowers would default on their debt, triggering a $4.3 billion rise in credit losses across the big four banks alone.

The ABA recently announced that banks would extend repayment holidays for up to four months for distressed borrowers unable to service their loan upon the expiry of their initial deferral periods (most of which expire in September).

However, Morgan Stanley analyst Richard Wiles has warned that loan deferral extensions could “require a reassessment of COVID-19 overlays”.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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