BOQ the latest bank to tighten lending criteria

BOQ Group, which includes Virgin Money, will be revising its debt-to-income (DTI) policy for home loan applications, amid concerns that a growing number of borrowers will be unable to service large loans.

Mortgage applications with a DTI ratio of above six, that is, more than six times the borrower or borrowers’ annual income, will now be subjected to greater scrutiny and must be accompanied by detailed supporting notes.

The bank will also introduce a minimum nominal rental figure of $650 per month in its serviceability requirements for all home loan applications, effective 20 July.

BOQ is the latest in a growing list of banks that have tightened lending criteria. Last week, ANZ informed brokers that it may be turning down loans with a DTI ratio of more than seven, beginning 3 August.

Teachers Mutual Bank also reconsidered its appetite for risk earlier this month, lowering its DTI threshold from a maximum of eight to seven, and ceasing lending for off-the-plan property purchases.

Since March, banks have made a number of changes in response to growing credit quality risks, including requesting more proof of income, withdrawing lenders mortgage insurance waivers, and denying loans to workers in vulnerable industries.

Self-employed applicants and those who are employed on a casual or contract basis may have also found it’s much more difficult to secure a loan or get approved for the amount they want.

RELATED: Could tougher lending rules shut out first home buyers?

All this has tempered the enthusiasm many first homebuyers (and anyone else with sights on the property market) may have felt at the news of potential dips in housing prices. But according to Mozo’s property expert Steve Jovcevski there are workarounds.

“First homebuyers will have to become more disciplined in their savings habits. In a situation where people are being encouraged to stay at home, make the most of it by spending as little as possible and saving as much of a deposit as you can,” he said.

“Lenders will be looking at your spending patterns in the three months before you apply for a home loan, so the less you spend, the greater your serviceability will be.”

He also recommends being mindful of your credit score. Making too many credit applications can signal to lenders that you're reckless with your finances, which could jeopardise your chances at securing a loan.

“Don’t apply for credit cards or personal loans, and even when you’re looking for a home loan, avoid making inquiries with too many lenders. Do your research upfront and only apply to a few once you’ve narrowed down your search,” Jovcevski said.

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