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Mike Pero Mortgages boss warns of “forensic underwriting”

Mike Pero Mortgages boss Mark Collins has warned lenders are conducting “forensic underwriting” on expenses when assessing loans, amid tightening credit conditions.

Wednesday, August 1st 2018, 1:21PM

by Dan Dunkley

Collins told TMM Online his adviser network has noticed lenders scrutinising every detail of a customer’s personal expenses, rather than using an expenses benchmark. He says lenders are asking customers for their average spend on items such as streaming subscriptions and gym memberships.

Collins believes pressure from the Royal Commission in Australia has made lenders change their tune. "There has certainly been a big difference before and after the Royal Commission. It seems to have had a flow on effect [to New Zealand]."

Collins says technology is making it "easier for banks to look at discretionary spending", and believes first time buyers and younger borrowers are most likely to be impacted by the "forensic" attention to detail.

Collins says customers need to be aware of “how little expenses add up”. He believes small expenses, including Sky and Netflix, can make such a difference to an individual’s application, that they can impact borrowing power by up to $50,000: “This pattern of ‘forensic underwriting’, where lenders look closely at transaction records, is only going to increase. Technology is making it easier for them to assess loan applications and lenders are keeping close tabs on their exposure to risk."

He says Mike Pero advisers have begun to take on "more of a financial coaching element" with younger clients. "We have to look at bank statements and tell customers they are spending too much and they may not be able to afford the home they want. We may have to tell customers to come back in 6 months and show they have curbed their spending habits."

His comments are likely to alarm advisers who have already noticed a tightening of credit conditions, tougher servicing calculators, and harsher treatment of individual expenses over the past year.

Last month, reports from Australia suggested CBA, parent of New Zealand lender ASB, had begun to look at a greater range of personal expenses. ASB said in a statement: “ASB staff validate all expenses (and income) information provided by customers via third party (adviser) applications. That validation is based on the customer's declared expenses compared against internal benchmarks. The internal benchmark is subject to regular review consistent with responsible lending and other requirements.”

Tags: Lending LVR Mike Pero mortgages regulation

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Lender Flt 1yr 2yr 3yr
AIA 4.55 ▼2.19 2.59 ▲2.99
ANZ 4.44 2.79 3.19 3.59
ANZ Special - 2.19 2.59 2.99
ASB Back My Build 1.79 - - -
ASB Bank 4.45 ▼2.19 2.59 ▲2.99
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▼2.19 2.55 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼2.79 3.15 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 1.95 1.85 2.35 2.45
Heretaunga Building Society 4.99 3.80 3.90 -
HSBC Premier 4.49 2.19 2.45 2.69
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.25 2.35 2.65
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.04 3.40 3.84
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.19 2.55 2.99
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.69 2.99 3.29
SBS Bank Special - 2.19 2.49 2.79
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▼1.99 - -
The Co-operative Bank - Owner Occ 4.40 ▼2.19 2.59 ▲2.99
The Co-operative Bank - Standard 4.40 ▼2.69 3.09 ▲3.49
TSB Bank 5.34 2.99 3.35 ▲3.79
TSB Special 4.54 2.19 2.55 ▲2.99
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 ▼2.79 3.19 3.59
Lender Flt 1yr 2yr 3yr
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.19 2.59 2.99
Median 4.55 2.68 2.99 2.99

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