Home buyers will be quizzed about how they plan to repay their remaining mortgages or any credit secured against their properties when they retire, even if they have decades remaining in the workforce, confidential new lending policies by Westpac reveal.
Bank officials and mortgage brokers, who act as intermediaries between buyers and the bank, are being ordered to "record (the applicants) comments in your notes for review".
"These conversations help to ensure your clients have considered any loan commitments they may have in retirement, and they are comfortable with the products they will hold with us when they reach retirement," the internal bank document reveals.
Evidence of retirement strategies, such as superannuation balances, future rental income, use of investments, will not be required, it states.
"But the retirement inquiries need to be asked and recorded at application," it states.
Rising costs of funding wholesale debt, increasing regulatory costs and borrowers seeking bigger loans for longer terms are causing lenders to protect their income by increasing rates and toughening terms.
The big four and dozens of smaller lenders are increasingly supplementing increases to their fixed term rates of up to 80 basis points with small print changes that add to the lenders' costs.
For example, Commonwealth Bank of Australia, which accounts for one in four property loans, will next month introduce complex changes to the pricing of interest-only loans by making changes to the reference rate, which is the base rate that applies to a borrower's loan.
Lending reviews
Others, such as AMP Bank, which is the banking division of the nation's largest financial conglomerate, are set to announce a new round of increases in their variable rates from next Monday.
Westpac's latest lending changes, which are also likely to apply to Bank of Melbourne, St George Bank and Bank SA, are angering mortgage brokers who fear the banks are shifting long-term responsibility for scrutinising applications.
"They are switching the blame onto us if the transactions go wrong," a mortgage broker, who does not wish to be named, said. "What 45 year old knows what they are going to be doing in 20 years time," he said.
In addition, a large percentage of home loans are not completed with the original lender, or the original terms. Loans are routinely switched to other lenders, different products and repaid early.
The new rules, which apply from February 20, require bank officials and brokers to question the applicant "when they plan to retire (what age) and how they plan to service their loan, or repay it in full, during their retirement".
It will particularly apply to those aged 55 or more, or who will be 75 before the loan terms expire.
A 30-year term will be assumed for lines of credit with no loan terms.
That means borrowers using popular revolving lines of credit, such as Westpac's Equity Access Loan, will also be scrutinised about their retirement plans.
The credit facility is secured against a property and has no set repayment term. Repayments typically only cover interest, fees and charges.
Other banks, such as National Australia Bank, have recently introduced tougher screening of loan applicants based on their ability to repay after reaching traditional retirement ages.
A Westpac bank spokesman said: "We won't speak to home loan applicants about their retirement plans unless they are aged 55 or over - at the time of the loan application - they will turn 75 during the loan term, or they otherwise tell us they are planning to retire within the foreseeable future."
She said it only applies to new loans and that it did not "make presumptions about a customer's financial circumstances and will assess all loan applications on an individual basis."
