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Lender lowers debt-to-income threshold

by Reporter10 minute read
Lender lowers debt-to-income threshold

A non-major bank has adjusted its risk appetite amid ongoing credit quality risks associated with the COVID-19 crisis.

Teachers Mutual Bank Ltd (TMBL) has announced further revisions to its credit policy, effective from 1 July across all of its brands (Teachers Mutual Bank, Firefighters Mutual bank, Health professionals Bank and UniBank).

As part of its ongoing response to ongoing credit quality risks linked to the economic fallout from the COVID-19 crisis, TMBL has reduced its debt-to-income (DTI) ratio – calculated with the applicant’s total financial debt commitments divided by their total gross income – from a maximum of 8, to a maximum of 7.

“This policy has been reviewed to ensure the bank maintains sound residential mortgage lending practices and continues to meet the regulatory obligations detailed by APRA,” TMBL told brokers.


This is the latest of a number of credit policy changes introduced by TMBL over the past few months.

In May, TMBL announced that it would cease lending for off-the-plan property purchases in response to growing credit quality risks emerging from the COVID-19 crisis.

TMBL also lowered the threshold on several secondary income types for home loan serviceability assessments and hiked interest rates across two and three-year fixed owner-occupied and investment home loans by 5 bps.

“These changes have been made to promote the sustainability of our book throughout this crisis,” TMBL’s head of third-party distribution, Mark Middleton, has said.   

“All of our four divisions have a solid volume of loans coming in at present, and we want to continue to encourage loan applications with strong credit quality.

“As always, we will continue to monitor the situation and consider all environmental factors when reviewing our policy.”

Several lenders across both the non-bank and ADI space have reduced their risk appetites in recent months in response to the economic fallout from COVID-19.

Analysts, including Moody’s vice president and senior credit officer Alena Chen, continue to forecast a sharp rise in credit losses over the coming months, particularly once mortgage deferral period expire in September.

However, some credit providers, including non-bank lender Bluestone, have rolled back some of their restrictions in recent weeks amid renewed optimism from the Reserve Bank of Australia, which stated that an economic recovery may be nearer than initially anticipated amid the easing of lockdown restrictions.

[Related: Bank excludes JobKeeper payments from serviceability test]

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