In a move that will bring its home loan serviceability benchmarks more into line with CBA and Westpac, National Australia Bank has tightened assessment requirements for self-employed home loan applicants.
NAB told mortgage brokers in a memo sent this week that it was tightening its debt to income ratio requirement for non-PAYE loan applicants to meets its responsible lending obligations.
Under the change, the bank has reduced its debt to income threshold from nine to eight times income.
This means that self-employed loan applicants are likely to be declined a loan if their existing debts and liabilities exceed eight times their annual income.
“This month, we’re making a number of important policy and serviceability changes to ensure we continue to lend responsibly and meet our regulatory obligations,” NAB told brokers in the memo.
“DTI ratio is an important measure we use to determine a customer’s ability to repay their home loan, based on their income.
“It helps us to continue to lend responsibly and protect customers by ensuring their lending request is suitable for their income level.
“On Saturday 21 May 2022, NAB’s home lending policy will change and our current DTI threshold will decrease from 9 times to 8 times.”
NAB advised brokers that there were some circumstances in which it would be prepared to consider a loan applicant with a DTI above 8.
These included cases in which the applicant’s debt included bridging finance.
Existing NAB borrowers with pristine credit histories would also be considered if their DTI ratio exceeded 8 on a refinancing application.
The tightening of NAB’s DTI threshold moves its assessment benchmark more into line with CBA and Westpac.
The two Sydney-based banks automatically refer loan applications with DTI ratios above seven to their credit bureaus for manual review.
ANZ no longer considers borrowers with DTI ratios above nine, but has not amended its lending policy in recent months.
Canstar director Steve Mickenbecker said he was not surprised that NAB and other major banks were moving to tighten assessment criteria as the global economic environment became more volatile.
“NAB must be taking a bearish view of the state of the US economy and the potential contagion effect for Australia,” he said.
“The tightening of the assessment threshold at NAB won’t impact most loan applicants but there will be some effect on borrowers at the margin.”
One of the immediate effects of the major banks’ tightening of assessment criteria will be to increase the market share of non-bank lenders.
While NAB has made it harder for self employed professionals and tradespersons to qualify for a loan, it is tossing up big incentives to woo self-employed borrowers in the medical profession.
In the memo sent this week, the bank said medical professionals can have lender’s mortgage insurance waived for owner occupied loans with a loan to value ratio of 95 per cent.
NAB previously capped the LMI waiver at a 90 per cent loan to value ratio.
Pharmacists have also been added to NAB’s list of medical practitioners eligible for the waiver.
All borrowers with DTI ratios below six would be offered cheaper rates, but the bank did not give any details of the pricing discounts in the memo.