Ross Greenwood speaks to ANZ general manager of home loans John Campbell after Money News obtained a document stating ANZ bank will no longer lend to people who have a debt to income ratio greater than nine times.
Ross Greenwood: Welcome back to Money News, right around Australia. There has been something of a break of news tonight for us and that is through mortgage broker channels we picked up a note that the ANZ banks intuints mortgage brokers late this afternoon and says, “Effective 21st of October ANZ will introduce a debt-to-income policy for the purpose of identifying customers that are highly leveraged.”
What they’re saying is that this is going to be any application where debt is greater than nine times annual gross verified income will no longer be acceptable to ANZ for mortgage purposes. Done a bit of checking and say for example, in the case of the Commonwealth Bank, generally I prefer them to be four and a half times, but anything above seven times is seem to be needed to be manually approved. In other words, it can’t be automatically wired through via a mortgage broker, whatever. In the case of National Australia Bank, similar to now the ANZ, any debt-to-income ratio of more than nine times again would be knocked back.
Just to explain, this is the equivalent of you having verifiable income of $100,000 and therefore the limit of your borrowing completely they’d just knock you back if you look to go and borrow more than $900,000 regardless of what other assets or circumstance you might have. Let’s try and explain this a little bit more because the mortgage brokers we spoke to said this is one of the biggest piece of news I’ve seen a bombshell in a long time. Let’s say, whether it is exactly that. John Campbell is the general manager of home loans at the ANZ bank. He joins me now. John many thanks for your time.
Interview with: John Campbell, General Manger of Home Loans, ANZ
John Campbell: Hi Ross. It’s good to be with you.
Ross Greenwood: Just explain why the ANZ is introducing this policy.
John Campbell: Ross, I think as you heard and you mentioned before, what’s some of the other banks have done as well. This is a policy that we have put in place. Some of the guardrails that we want to make sure particularly to keep to our responsible banking obligations and make sure we don’t make borrowing and put customers in positions where they just can’t service their loans. You referenced the nine times income level that whereas we’re setting the policy now, I must tell you there are very, very few instances where customers actually get anywhere close to being nine times geared in terms of their income levels.
For example, investors where they might have multiple investment properties and those investment properties can service themselves. You can still have income, but you can have your properties can service themselves where you get at the higher levels and those ones we will just do some additional checking and make sure that we properly assess them. The vast majority, the bulk of the loans that come through our systems and through our applications are at levels way below that nine threshold, which is this upper threshold that we’ve set.
Ross Greenwood: Okay. I want to go to a couple of things here because you mentioned for example rental income that a person might have. I want to go to the definition of that term gross verified income. What exactly do you determine to be gross verified income?
John Campbell: Ross, it depends on the individual customer circumstance, but if you think of somebody who’s a salaried employee, we look at, for example, what your payslip tells us or your bank statement tells us in terms of your income. We look at the income that we can actually physically verify. We do of course, whether you work over time, all those other things that we can verify that contributes to your monthly income. We will take all of that into account and make sure that we get a really good strong picture of what it is that your income is on a recurring base.
Ross Greenwood: Okay. It’s a recurring income. You want to see I have evidence of a recurring income. If you’re a freelancer, your income’s a bit lumpy, you might actually discounted as a result of the lumpiness of that income.
John Campbell: We might, but we work between. We speak to the clients to make sure what is that recurring nature so that you don’t find yourself in a position where we might’ve approve that you can’t serve us right. We want to make sure we get to the right level.
Ross Greenwood: Right. That’s one thing. The second thing also is then for example, you’ve got a small business person. They’ll obviously be paying themselves for the business, but the business will have an income. How do you work that one out?
John Campbell: That one, we actually have some specialized assessors who are very skilled in looking at those specific applications because they are more complex because you do have to look at what the business. In fact, those are much more based on a cash flow. If you think about and you would understand that the cash flow of the business as opposed to necessarily the individual themselves. We just go through a similar process to see whether it’d be through the company or what gets paid to the individual, what is that recurring nature. We give that to our specialist assessment team who are very skilled in making sure we get to that same good solid level of income that can be maintained.
Ross Greenwood: Okay. That gross verified income though, does that detect any household expenses to come through? Because we know banks right now are being much tighter as a result of criticism of that automatic household expenditure measure that’s been used to hem for a long time. In this regard, is that simply the income measurement or is the expenditure measurement, the household expenditure measurement? Is that something separate again?
John Campbell: It’s separate law. This debt-to-income or the DTI is specifically a measure that looks at your income and then the level of debt that you would have that as a multiplier of the rest of the income verification and, or the expense verification that happens as well, but it’s one of the many measures that we look at, but we verify the expenses and the income and then there is the debt-to-income, which is just a check again that we do.
Ross Greenwood: I know there’s some forms of income as part of this gross verified income on which the loans might be based. Are there some which you will discount? In other words, if I’ve got income coming from an employer, you say, “Bingo, that’s 100%.” Then there are others where you might discount it as a result of the form of the income that’s coming to that person.
John Campbell: I think Ross, the example you used earlier we spoke about probably most prevalent here is where there is just not a sustainability of income. When it’s over time that might fluctuate month to month, we take a more normalized level of that. There’s not income that we just completely disregard. We just look at things that are lumpy or that just don’t come through in a regular basis and try and get that to a more sustainable level that we’re comfortable with.
Ross Greenwood: Do you believe, John, that this is out there, this policy to protect the bank or to protect the customer?
John Campbell: I would always tell you it’s there to protect the customer. Being wanting to be responsible in the way that we do the lending is to make sure that the customers don’t find themselves in a position where they just cannot service the loan. That’s an awful position for them to be in. It’s just one of the other checks and balances that we put in place to make sure that the customers can actually afford and they can live with the loan that they take out. We know it’s a big commitment. We know it’s important to customers. We want them to be in the position where they can comfortably service these loans and still do what they want to do in their normal regular life.
Ross Greenwood: There you go. John Campbell is the general manager of home loans at the ANZ bank, but their policy put in place, no doubt, to try and identify potential very highly good customers, especially those with multiple properties you would imagine as well. I appreciate your explanation on the program this evening.
John Campbell: Thanks Ross.
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