Rely on an expert, says broker
One woman’s struggle to get a mortgage top up approved illustrates the value of getting independent advice, says a mortgage adviser.
Earlier this month, senior support worker Kim Anderson-Robb shared her experience in applying for a $50,000 top-up on her (then) $62,000 mortgage in 2021 for urgent repairs to her home. Upon applying to her bank for a fifth time, she received an approval to borrow $27,000 earlier this year.
One of the ongoing challenges of Anderson-Robb's application was that it coincided with the introduction of changes to the Credit Contracts and Consumer Finance Act (CCCFA), requiring lenders to make additional enquiries to ensure loans were suitable and affordable.
Pre-Christmas shopping trips to Kmart and the Warehouse formed part of the discretionary spending Anderson-Robb said was scrutinised for by her bank, along with purchases such as sandwiches and water.
Jeff Royle (pictured above) financial paramedic and adviser at iLender said while there were knowledge gaps in the customer’s financial situation, using a mortgage adviser could have helped her in several ways.
Firstly, an adviser could provide an early answer on whether or not the top-up would be approved - and if it was a “no”, what she would need to do to turn it into a “yes”, Royle said.
“It may have been another bank … if that failed, one of the prime non-banks (e.g. Resimac or Pepper Money) would have done this,” Royle said.
An interest rate available through a non-bank may be equivalent to or around 0.5% higher than a trading bank, providing an opportunity to educate the customer about their options and any difference in cost, he said.
Other considerations include the loan-to-value ratio (LVR), the customer’s actual repayment history, her age and continuing income, Royle said.
Noting the applicant was over the age of 50 when she first applied for the mortgage top-up, Royle said that while lenders could not decline based on age, they are required to abide by responsible lending standards.
Lenders apply different rules, he said. For example, one non-bank lender currently requires an exit strategy for applicants aged 36 and over wanting a loan for a 20-year term, while others require an exit strategy from the age of 55, he said.
It was clear from the story that the woman felt loyalty towards her bank, prompting her to re-apply multiple times.
Royle said that loyalty was not usually a sticking point for borrowers, but he also acknowledged that lenders have strong retention policies.
One of the benefits of using an adviser is that a borrower has a single point of contact, meaning their application does not land in the hands of different people.
“I think that’s a tick in the box for any adviser … the consumer can make one call to the adviser and then it’s part of the adviser’s role to liaise with the bank,” Royle said.
He said that major banks in particular had put considerable time into making sure that they offered consistency in the application process.
“We find that for ANZ for example, once an assessor picks up a deal, we stick with that assessor and that helps enormously,” Royle said.
CCCFA changes were first introduced on December 1, 2021, with the aim of protect consumers from unaffordable debt. The Act has undergone three rounds of amendments, starting with the removal of unnecessary enquiries into living expenses on bank statements, effective July 7, 2022.
Further amendments were made in August 2022, which included clarification around estimation of expenses and a new exception for conducting a full income and expense assessment for refinancing.
More recently the CCCFA has been amended to exclude discretionary expenses from affordability testing, effective May 4, 2023.
Royle noted that the CCCFA changes were aimed at protecting vulnerable borrowers from unscrupulous payday lenders and were not intended to impact residential home lending.
He noted that the Responsible Lending Code, introduced on June 6, 2015, was a “fair piece of legislation” that had served the industry well.
“At the end of the day, what lender wants to lend someone money not feeling comfortable they’re going to get it back,” Royle said.
Are there any other examples where using a mortgage adviser could have helped the applicant in this situation? Share your thoughts in the comments section below.
