ASB using debt-to-income ratios

ASB Bank has introduced debt to income ratios as a secondary test of borrowers' income, as lenders change their processes after Covid-19.

The bank, and its AIA/Sovereign Home Loans brand, are testing customers on DTI ratios and will not lend to borrowers above 6x in many cases, advisers said. 

The secondary test, alongside its traditional debt servicing calculator, has made it difficult for clients and advisers in recent weeks. The changes have been in force since September.

Advisers have told TMM Online that ASB is drawing the line at 6x income, but occasionally stretches to 7x.

The lender is believed to be calculating scaled income, counting 75% of borrowers' rental income alongside other income. 

In a note to advisers, ASB said it introduced the changes due to a decrease in servicing test rates, which allowed borrowers to access high levels of debt relative to income.

The bank said loans that result in a 6x DTI may be declined if an owner-occupier is above 85% LVR, or if an investor is above 70% LVR. 

ASB may reject high DTI loans based on locations, it said.

ASB is understood to be the lender mentioned in Tony Alexander's recent mortgage adviser survey, which revealed debt to income ratios were causing issues for brokers.

One adviser told Alexander: "[Unnamed bank] have now introduced a debt to income ratio limit of 6 for lending above 70% on investment properties and 85% for owner occupied properties. If the debt to income ratio is above 6, they will no longer approve any lending."

Another adviser told Alexander the DTIs were causing confusion and adding to turnaround times.

"Staff say they don’t know when the DTI criteria will be applied or not so we are submitting applications having no idea if it will auto-decline or not. This isn't helping application turnaround times and client experiences at all."

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