Banks have doubled down on their dissection of loan applications, holding up the application process to grill borrowers on peculiar transactions.

Pets, maternity leave and exit strategies are now under the microscope as banks question every aspect of borrowers’ finances.

The level of scrutiny surged during the banking royal commission, according to data from Lendi.

Prior to the commission’s public hearings on consumer lending, banks requested more information from 40 per cent of applicants.

That figure rose to 67 per cent during the first quarter of 2019, with a peak in questioning coinciding with the release of the commission’s final report in February.

Lendi co-founder and managing director David Hyman said banks were increasingly focused on whether borrowers could service their loans.

“Applicants need to be prepared to justify their expenses and provide proof of their situation across a range of areas both inside and outside of traditional lending policy parameters,” he said.

“In some cases, customers are being asked to go to extraordinary lengths to substantiate their application.”

Banks are now trawling through borrowers’ transaction history line by line and questioning expenses that don’t stack up with information provided by applicants, according to Hyman.

“The nature of these inquiries typically means the banks are digging into expenses,” he said. “As a result of that, more often than not banks are taking a view that someone’s expenses are higher than first stated.”

The ongoing financial impact of children and pets is a particular focus.

Hyman said a purchase at a pet store could prompt a bank to clarify how many pets the applicant actually has. Considering one dog or cat costs about $25,000 over its lifetime, it’s a concern that may be justified.

One borrower was asked whether they were hiding children from the lender because they had shopped at a baby store. In reality, the applicant had bought a pram as a gift for a friend.

Banks have also questioned joint applicants over whether children would jeopardise their ability to repay loans.

Some lenders have requested proof that borrowers are returning to work after parental leave, even if the loan can be serviced on one income.

Other borrowers have been asked to show evidence of savings set aside to cover childcare costs despite this being itemised in their monthly living expenses.

Young applicants have even been quizzed over their exit strategy – proof they would be able to repay their loan when they retire – which was previously only required by borrowers retiring within five to 10 years.

“Banks are increasingly asking for it earlier, especially for long-term loans,” Hyman said.   -   By Daniel Butkovich Editor Jul 11, 2019