Westpac tightens home loans deposit loophole
Cracking down on using personal loans to bolster a deposit.
Increased pressure on lenders to find new ways to tighten lending criteria due to rising house prices has pushed Westpac to tighten some of its rules.
The AFR reports that after an internal review Westpac has closed a loophole in the home loan application process that would allow borrowers to use a personal loan to represent savings. This will also cover personal loans taken out with other lenders that are used to fully fund deposits or top-up shortfalls if off-the-plan apartments are revalued below the purchase price.
The bank’s spokesman told the paper “provisioning of a personal loan to assist with the purchase of a home loan is not aligned to our home loan genuine savings policy”
These changes, according to the spokesperson, come also as a response to the Australian Bankers’ Association’s recent strategy to improve bank practices, increase transparency and strengthen culture.
All lenders are under increased pressure from regulators to tighten borrowing criteria to help quell concerns over rising house prices and falling affordability. Both APRA and ASIC have urged lenders to have a better understanding of how a borrower will plans to repay the loan principal.
A veteran mortgage broker, who didn’t wish to be named, spoke to AFR about what action lenders may take to help with the tightening of lending criteria, suggesting that “this could be the beginning of the end of 100% housing loan.”
Mortgage brokers are expecting other lenders to follow Westpac in not allowing a personal loan to be used in conjunction with a home loan as a form of building up deposit.
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