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CBA to withdraw from low doc lending

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Reporter 6 minute read

The major bank has announced that it will remove low documentation features on all new home loans and line of credit applications from 29 September, as the bank continues its ongoing move to “simplify” its offerings.

The Commonwealth Bank of Australia (CBA) has told brokers that it is “simplifying” its product suite to ensure that it is “providing a suitable range of products that align with [its] customers’ needs”.

As such, from Saturday, 29 September 2018, the big four bank will remove all low documentation features on new home loans and line of credit applications from both broker and proprietary channels. Should a customer wish to top up an existing home loan or line of credit with the low doc feature, they must provide full financials for all new applications.

All new loans that have a low doc feature, including Home Seeker applications, must reach formal approval by close of business on Friday, 28 September 2018.

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The bank has said that brokers who request an amendment to an application with a removed product or a low doc feature that has not yet reached formal approval by Saturday, 29 September 2018, will need to discuss “another product option” with the customer to suit their needs.

Loans must be funded by close of business on Friday, 28 December 2018.

There are no changes for existing customers that have low doc loans.

The move marks a major change in the lending landscape, but in practice, CBA has not provided true “low doc” loans for some time, requiring more documentation than most historical low doc loans required.

Indeed, this type of loan product makes up a minimal proportion of the bank’s portfolio.

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As well as removing the low doc feature, the bank will also remove several home loan products, including:

  • 1 Year Guaranteed Rate
  • 7 Year Fixed Rate
  • 12 Month Discounted Variable Rate
  • Rate Saver
  • 3 Year Special Rate Saver
  • No Fee Variable Rate

If a customer wants to top up a 1 Year Guaranteed Rate, 7 Year Fixed Rate or a 12 Month Discounted Rate home loan, they must complete a switch to another available product that best suits their needs.

An early repayment adjustment and an administrative fee may apply on the 1 Year Guaranteed Rate and 7 Year Fixed Rate when completing a switch.

Top-up applications for Rate Saver, 3 Year Special Rate Saver and No Fee home loans will still be available.

A CBA spokesperson said: “At Commonwealth Bank, we constantly review and monitor our suite of home loan products and services to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs.

"From September onwards, we will be streamlining our suite of products to deliver our customers a simplified and competitive range of home loan solutions.”

Highlighting that the bank’s product suite offers “attractive” standard variable rate and fixed rate options, while its extra home loan products offer customers “low interest rates, no monthly fees and no establishment fees”.

“Whatever our customers’ needs, our network of brokers or home lending specialists can help them find a flexible mortgage and guide them through the entire home buying journey, providing support every step of the way,” the bank said.

CBA “simplifying” the bank

The move to withdraw from low doc lending comes just a week after the bank announced another move to “simplify” its offering, when it revealed it would demerge its wealth management and mortgage broking businesses into a separate business that will list on the ASX and “pursue its own growth strategies”.

As announced last Monday (25 June), CBA will demerge several of its entities into a new group, the CFS Group, which it said will “result in the creation of a leading independent wealth management business” and will include Aussie Home Loans and the minority stake of Mortgage Choice.

The group will comprise:

  • Colonial First State,
  • Colonial First State Global Asset Management (CFSGAM),
  • Count Financial,
  • Financial Wisdom,
  • Aussie Home Loans, and
  • CBA’s minority shareholdings in Mortgage Choice and CountPlus.

The bank has said that the group will benefit from a separate listing on the ASX and give it the “ability to pursue its own growth strategies”.

Implementation of the demerger is subject to final CBA board, shareholder and regulatory approvals under a scheme of arrangement.

If approved, the demerger is expected to complete in 2019.

[Related: ‘Clean and timely exit’: CBA to cut ties with Aussie]

CBA to withdraw from low doc lending
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