Aussies to be questioned over streaming services, private schools under new ASIC lending guidelines

author-avatar By on December 11, 2019
Aussies to be questioned over streaming services, private schools under new ASIC lending guidelines

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Banks and lenders have been instructed to grill borrowers over their spending and what they're willing to give up if they want a home loan, under new lending guidelines released by ASIC.

Want a home loan? Sorry, but you might have to give up your nightly Netflix binges and send your kids to public schools.

After a lengthy review, the Australian Securities and Investments Commission (ASIC) on Monday released a 96-page document with updated responsible lending guidelines which are designed to stop consumers from taking on 'unsuitable' debts.

ASIC Commissioner Sean Hughes said the updated guidelines have been aimed at clarifying the obligations of lenders following the financial services royal commission.

"ASIC conducted extensive consultation on this important issue. The public hearings and submissions highlighted the areas where industry sought clarification from ASIC. We have listened carefully to all stakeholders and addressed areas where we consider updated guidance would help," Mr Hughes said.

The regulator has included 39 examples to accommodate different types of employment and expenses.

In one of the examples provided by the regulator, a lender decides that prospective borrower 'Sarah' can only afford a home loan under the loan term she has requested if she moves her children to a public school.

Sarah decides it's not a lifestyle change she's prepared to make, so the lender asks if Sarah would be happy for her loan term to be extended. Sarah agrees that her loan term could be increased, even though it means paying more in interest over the life of the loan, in order to keep her kids in a private school.

In other words, borrowers could take out longer and more expensive loans if they're not willing to forego certain things. 

In other instances, borrowers will have to work out what they are willing to give up if it means being approved for a loan. In another example, 'Leah' applies for a $720 loan to pay for her car rego. After the lender reviews her bank statements, they see that she regularly spends her full income every pay cycle. Leah agrees to cancel her monthly streaming services in order to service the loan.

"After discussing with Leah concerns over her ability to finance the small amount credit contract, Leah told the lender that she could cancel her monthly streaming services, which would cover the monthly repayment amount on the proposed loan.

"The lender requested an email from the subscription service confirming cancellation of the account and as Leah's account statements showed no evidence of Leah overdrawing her account or default fees, continued to approve the credit application and offer Leah the loan."

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 28, 2021. View disclaimer.

Lenders asked not to rely on HEM

The corporate regulator is also asking banks and lenders to go beyond the basic spending benchmark otherwise known as the Household Expenditure Measure (HEM) because it's not always the best way to assess the reliability of a borrower's expenses. 

ASIC said the HEM benchmark doesn't include spending on a range of necessities like housing costs, superannuation, HECS debts, lease payments, school fees, medical bills, child support and alimony, interest repayments on loans and life insurance. 

"The HEM figures do not include spending on a range of items that are commonly part of a consumer's overall outgoings," ASIC said.

"When you compare the consumer's estimates to HEM it is important that you only use the estimates of spending on the kind of items that are included in the benchmark figure, and not a wider estimate of their total expenditure (otherwise the comparison is unlikely to give you useful information about whether the estimate of the consumer's 'basic' expenditure is realistic."

Earlier this year, ASIC took Westpac to court over the bank's reliance on the HEM method, arguing it was a breach of responsible lending. 

Federal Court judge Justice Nye Perram dismissed the case, suggesting consumers could cut back on luxuries when pressed to meet their loan repayments.

"I may eat wagyu beef every day washed down with the finest shiraz, but if I really want my new home, I can make do on much more modest fare," Justice Nye said.

The ASIC document refers to Justice Nye's judgement several times, saying that even though borrowers can cut back on their spending to make their loan repayments, there are many important costs such as dependants to support or housing costs that people have to make, and that it would be unrealistic for banks to assume people can cut these out. 

"We recognise it may not be possible to identify with certainty the extent to which current expenditure on items of this kind are essential or if the consumer would be able to make some reductions if needed. You are likely to need additional information to determine whether the consumer has higher levels of essential spending, which cannot be reduced or eliminated, because of their particular circumstances," ASIC said. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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