Major bank tightens screws on interest only loans
ANZ said it will be regarding all interest-only loan renewals as credit critical event requiring full income verification effective 5 March.
In a broker update last week, the bank said the change covers borrowers shifting from P&I to IO repayment type and those extending their IO terms.
It said the new policy applies to any renewal request if the resulting repayment type is IO and either the current repayment type is P&I or the proposed IO term is greater than the remaining IO term of the existing loan.
A loan must remain or revert to P&I if serviceability is not evident after the bank has done full income verification and serviceability test over the new residual P&I term.
The policy applies to all its home and residential investment loans, said ANZ in the note. Applications submitted to credit assessment before 5 March will be evaluated under the previous policy.
The bank said it is introducing the new policy as part of its enhancements to its lending practices, and because converting to or extending an IO period is a material change to original loan conditions. It said that this change could increase total repayments over the life of a loan.
The policy follows ANZ’s recent move to tighten its assessment and approval of borrowers.
As Australian Broker reported two weeks ago, the bank is clipping the discretion of its frontline mortgage assessors. It also added “a higher level of approval for some discretions” used in assessing loan serviceability.
A spokesperson for the bank told Financial Review that the move was not a change to the bank’s credit policy or underwriting standards and that it applies to all housing loans, not just those originated through brokers.
Last week, ANZ announced that its Australian residential mortgage book grew by 10% annualised to $98bn in the December 2017 quarter – higher than the system growth of 6.3%. The increase was largely driven by owner-occupied loans.
The bank’s tightening of its assessment and approval of borrowers could slow its home lending business moving forward, particularly in the IO and investment lending segments. But with APRA continuing its crackdown on higher risk lending, banks have no choice but to tighten their assessment of borrowers, particularly their serviceability.