"Liar loan" crackdown by Westpac, St George, BankSA, BoM loan applicants

Westpac Group hopes to thwart "liar loans" by introducing stringent tests on residential property borrowers' existing and future capacity to meet repayments.

Mortgage brokers' onus of proof will be switched from establishing whether a loan is suitable for a client to making a declaration as to why it is "not unsuitable".

There are concerns lenders and brokers, paid by commission linked to the size of the loan, have overestimated borrower incomes and underestimated expenses.

Investment bank UBS estimated recently there are about $500 billion "liar loans", which could cause problems when rates rise from record lows.

The tough new lending changes from November 14 will apply to Westpac and Bank of Melbourne, BankSA and St George Bank.

"Westpac is committed to responsible lending and meeting our conduct obligations," a bank spokesman told Fairfax Media.

"The questions are designed to help understand your client's motivations and align the product to their requirements."

"The declarations are there to prompt [a mortgage broker] to explain the implications of product choice and their features so a client can make more informed decisions."

 Clients will even be quizzed on having dependents with special needs that might require long-term spending on care and treatment.

It will apply to eight types of loans including fixed interest, interest only, loans for refinancing and debt construction and mixed purpose.

Questions will cover clients' foreseeable changes, but also special circumstances, such as those approaching retirement age during the loan term.
Home Loans Westpac

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