Ensuring each client can comfortably repay the loan they are applying for is an essential part of a mortgage broker’s job, but, according to Sarah Thomson, the requirement to trawl through the client’s bank statements with a fine-toothed comb and make judgements about where they may be financially in five years’ time is taking things a little too far. She told MPA that the heightened scrutiny of bank statements needs to change.
“It’s so incredibly onerous,” she said. “It’s onerous on staff, it’s onerous on clients.”
If a client has multiple bank accounts, the task is made even more time consuming as broker and client go through every transaction and the reason behind it.
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But, aside from the time it takes to scrutinise a client’s spending habits over several months, Thomson has also uncovered a trend that seems overconservative on the behalf of lenders. She has found that some very strong applicants who could easily afford to make the extra repayments have been declined by their existing bank for a loan increase because they have spent their disposable income on luxuries rather than saving it for a rainy day.
“I think that is really tripping up some of our really good, strong clients who can turn around straight away and stop buying - they don’t have to spend their money on specific things,” she said. “We’ve had probably three of those conversations recently that are really embarrassing as a broker because you’re telling someone that they are in a really brilliant position - that every other bank would have you, just not your existing bank.
“It’s stupid and you feel stupid having a conversation with the client. I feel sorry for the client because it’s quite deflating for them as well, even though they’ve done nothing wrong, and they are in a great position.”
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When going back to the banks, Thomson has been told that while the lender can see the logic behind what she is saying – that the clients will simply change their lifestyle habits and spend that money on repaying their loan, there is nothing the bank can do about it.
“We’ve had clients that have only been at that bank for six months and have changed all their banking across and now, because of that, we’re changing it all back,” she said. “We’re basically having to pick another lender and go elsewhere.”
Thomson said she thinks having a conversation with clients about their living expenses is important, but that if a client has committed to reducing their spending on luxury items such as holidays or designer furniture, for example, this should be taken into account when assessing their ability to repay their loan.
“You are over 18 when you are getting a loan,” she said. “You’re an adult, so if this is your repayment, can you afford this payment? If rates go up, can you afford it at 5%?”
Much the same can be said about the level of “future-gazing” currently involved in assessing loan applications, such as whether the client might have a child in five years’ time. Thomson said the sort of questions being asked by lenders are particularly sensitive when it comes to clients undergoing IVF.
“Clients are questioned within an inch of everything - what are these fees for, are they pregnant?” she said. “Clients on IVF, their idea is to have a child, and then if you say that to a bank, they’re likely to put in one dependent and then it doesn’t service.
“There are some banks we just wouldn’t even go to because we know that if we mentioned anything about that they would decline the loan, or they would ask for so much it would be embarrassing for the client.”
is an online writer for Mortgage Professional Australia
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