NAB Group, including Advantedge, has changed its credit policy so that applications for interest-only and principal and interest loans will only be approved if they pass a loan-to-income ratio test.
NAB and its subsidiary companies (including wholesale funder and white-label provider Advantedge), have changed their home lending credit policies in reaction to the regulators’ concerns about Australia’s household debt-to-income ratio.
The lender has announced that is has changed its home lending credit policy so that only borrowers with a certain loan-to-income (LTI) ratio will be approved for loans.
The new ratio, which aims to determine the “customer's indebtedness to the loan amount” takes the total limit of the loan and divides it by the customer’s total gross annual income (as disclosed in the application).
Ratios greater than eight will be declined, according to the new policy, for applications assessed on or after 16 September 2017.
Applications with conditional approval prior to this change will reportedly be honoured for the 90-day validity period.
A spokesperson for NAB commented: "NAB is committed to lending responsibly, and ensuring our customers can meet their home loan repayments today and into the future.
"Regulatory bodies have raised concerns about Australia’s household debt-to-income ratio, which has risen significantly over the past decade.
"With this in mind, NAB, including Advantedge, made changes to our home lending credit policy for interest only lending in July this year, introducing a Loan-To-Income ratio calculation to better assess a customer’s ability to manage their home loan. We have now expanded this policy to apply to all new home loan applications."
Connective Home Loans, which is affected by the new policy, has told brokers that they should complete a manual calculation on its Serviceability Calculator to determine whether the LTI is less than the relevant threshold.
It warned: “If the LTI is greater than eight, brokers are not to proceed with the application unless the customer’s financial position has changed.”
LTI ratios ‘most powerful and effective for controlling risk’
Some members of industry have been calling for LTI limits to be instated in Australia for some time.
Earlier this year, Digital Finance Analytics principal Martin North, said that LTIs could help address risk in the mortgage market.
Mr North told The Adviser in March: “My own view is that the Reserve Bank and APRA have been very slow to come to the realisation as to how much risk is actually in the housing market…
“I think they should be looking much more firmly at debt servicing ratios and loan-to-income ratios.
“Those are the measures from a macroprudential sense around the world that are being recognised as the most powerful and effective when it comes to controlling the risk in the market,” he said, recommending that Australia could learn from the UK, “where they have very significant rules around loan-to-income”.
[Related: APRA tightens up on interest-only lending]
Annie Kane is the editor of The Adviser magazine, Australia’s leading magazine for mortgage brokers. As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also the host of the Elite Broker podcast and regulator contributor to the Mortgage Business Uncut podcast.
Before joining The Adviser team at Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.
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