AMP introduces additional expense requirements

The bank has revealed that loan originators, including brokers, will need to provide supporting documentation surrounding customer declared living expenses that are clearly itemised for both basic living expenses as well as discretionary expenses.

This form, which must be included in mortgage applications, asks for monthly expenditure on basic living items such as groceries, child maintenance, home and contents insurance, property expenses, transport and clothing/footwear/cosmetics, as well discretionary spending such as private school fees, childcare, medical costs, recreation (such as dining out, holidays and entertainment) and communication bills (such as internet, phone and pay TV).

It must also be signed by the applicant.

The move aims to help the bank provide borrowers better understand their customers to enable them to “provide them [with] the right outcome” while also meeting obligations to the regulator.

It follows on from ASIC’s inquiry into living expenses (REP445), which indicated that merely asking a consumer to state their expenses as a single lump sum for a period (such as monthly) without any detailed breakdown increased “the risk that the consumer would underestimate their actual living expenses which may result in an unsuitable loan being made,” the bank stated.

The new information will need to be submitted with all new loan applications from 27 November.

Several banks have been revisiting how they benchmark and assess living expenses, and APRA chairman Wayne Byres said earlier this week that he wanted the finance industry to “devote more effort to the collection of realistic living expense estimates from borrowers” and give “greater thought” to the appropriate use and construct of benchmarks.

Aggregators have also been warning brokers to look more deeply at borrower expenses, with Connective’s group legal counsel Daniel Oh telling The Adviser: “Brokers are on the front line. They are meeting the consumer, they can read the body language and can read the bank statements, see the living expenses and payslips. But they cannot accept those documents at face value.

“They (brokers) need to really look at those and study them, and if something doesn’t look right, ask questions.”

[Related: Brokers call for closer scrutiny of living expenses]