Australian Banks Deny Underestimating Cost Of Living Expenses For Mortgage Borrowers

April 20th, 2011 Sarah Rae Leave a comment Go to comments

Australian banks which have been charged in a report by investment bank Merrill Lynch with underestimating the cost of living for their customers, and as a result lending to much as they seek to maintain their market share, have dismissed the accusation.

The report published by Merrill Lynch earlier in the week suggests that Australian lenders have not factored in costs of living at a high enough level, resulting banks lending to customers who may later struggle as expenses begin to rise.

According to the report, Australian lenders are using cost of living estimates which are as much as 7 per cent below mainstream forecasts.

Excluding housing expenses Australian banks have estimated that on average, the expenses of an individual are $1,208 whilst a couple faced expenses totalling $1,708.

The estimates fall well short of those by the globally recognized Poverty Index, which puts living expenses for a couple at $1,814.

According to the Merrill Lynch report, ANZ is the most aggressive lender, whilst rivals CBA and Westpac are the most conservative.

On Tuesday the banks responded by saying lower rates of credit impairment and arrears suggest that mortgage lending was far from being too aggressive, and that they had implemented stringent customer assessment plans.

“The poverty index certainly isn’t perfect and this is why we spend time with customers to help assess their real cost of living,” an ANZ spokesman said.

A spokesman for Westpac said the lender updated its living cost assessment once every three months.

“We also confirm a customer’s repayment history and savings record, as a proxy for proposed mortgage repayments,” he said.

“We review and update our servicing models quarterly, to take into account changes in living costs, market interest rates and other market factors.”

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