Westpac Group has announced that effective Sunday, 11 April, the percentage of bonus income allowed to be used for serviceability assessment will return to pre-COVID-19 policy.
The announcement has followed changes made by the group in May 2020, when it reduced assessment of bonus income to a maximum serviceability assessment of 60 per cent as part of its response to heightened credit quality risk associated with the coronavirus pandemic.
However, Westpac Group – which includes major bank Westpac, and its subsidiaries St.George, BankSA and Bank of Melbourne – has said that the percentage of bonus income allowed to be used will return from 60 per cent (set during the COVID-19 crisis) to 80 per cent.
According to the group, for both mortgage-insured and non-mortgage-insured loan applications, the bonus income shading of 80 per cent is to apply, and applicants must be working with the same employer for a minimum of two years at the time of applications.
Westpac Group’s return to pre-COVID credit policies have followed similar moves by lenders like Latitude (which restored its pre-COVID-19 lending criteria to reflect improving economic conditions last year) and Pepper Money (which resumed accepting 100 per cent of casual overtime income, commissions and bonus income, and cash out requests for “verified purposes”).
In addition, the group has announced that in line with the ending of the HomeBuilder scheme, new applications for the grant will not be accepted for any building contracts signed after 31 March.
It said that customers will have until midnight on 14 April to lodge their HomeBuilder application and upload documentation to the respective state government HomeBuilder website.
However, the group said that existing applications lodged before 14 April that meet all of the criteria can continue to be processed according to current procedures.
Changes made to self-employed applicants’ policy
Major bank Westpac has announced that it is making changes to the “allowable add-backs and inclusions – undistributed profits” section of self-employed applicants’ policy to reflect the requirement to verify historical directorship and a shareholding of 50 per cent or more where undistributed company profits are used in servicing assessment.
Meanwhile, the subsidiaries have stipulated that where the borrower is both a current company director and shareholder, and owns a controlling interest in a company (i.e. shareholding of 50 per cent or more), currently and for the two financial years (or one year where acceptable to use one year’s financials, e.g. Medico) being assessed, and there is a shortfall in serviceability from the borrowers’ individual incomes, undistributed company earnings may be added to the borrowers’ incomes, only proportionate to the level of ownership held.
Westpac and its subsidiaries have stated that to establish that the borrower has met the eligibility criteria for use of undistributed company profits, the broker must complete a company search, and review the search to confirm that the borrower:
- Is a current director;
- Currently holds a shareholding in the company of 50 per cent or more; and
- Has been a director and a shareholder (50 per cent or more) in the company for the entire two financial years (or one year where acceptable to use one year’s financials) from which the income is being used (including where backdated).
OFI debt cancellation and reduction
From 12 April, Westpac’s subsidiaries are introducing electronic payment of liabilities held with other financial institutions (OFI) that are being reduced or cancelled using loan proceeds.
According to the subsidiaries, if a customer is closing out or reducing non-Westpac Group liabilities when originating or increasing the lender’s loan, the lender will now transfer the funds electronically to the OFI upon settlement.
They added that bank cheques will only be issued by exception, and that customers will still need to close out the product or reduce the limit directly with the financial institution.