The crushing agony of tightening lending standards, explained

Application processes for loans now involve more in-depth consideration of living expenses. It can sometimes feel a bit like a police interrogation: you’re in the chair in a small dingy room with a swinging overhead lamp being questioned on how much you spend on pet food every week. 

The approval time for loans has been dragging out and can take up to a month for some applications. Brokers would often have to explain why some clients aren’t spending as much as they’re expected to because they’re able to cut back on their budget and live on less money than guidelines. 

Despite the frustrations and delays, they’re demonstrating you have a financial institution that’s dedicated to protecting you from becoming over-indebted. Weaker landing standards would only mean people will be loaded up with as much debt as possible. And believe it or not, there is significant profit to be made in pushing borrowers to the edge. 

The changes were brought in as recommended by the Hayne banking royal commission. The Banking Royal Commission shone a light on some undesirable practices by some lenders and put pressure on the industry as a whole to pull its socks up. Since the royal commission, the process had become more stringent. The responsible lending law requires lenders to check how much a potential borrower is earning and how much they’re spending and whether there’s enough leftover to meet their repayments without ‘substantial hardship’. 

Living expenses are the best indication of what sort of person you are financially therefore banks are now tight on making sure everything is declared so they go through statements and receipts. However it’s understandable why lending institutions have to be more cautious since they’re putting you into a big financial commitment. They want to avoid the situation where people come in and say you put me in a vulnerable position with a mountain of debt that I could never hope to pay back.