Bank’s assessment of refinancing request was correct

Home Guides & cases Case notes Lending - 83502

Bank’s assessment of refinancing request was correct

Categories:

Concerns about lending decisions,

Summary:

In 2021, Alick took time off work to look after his sick daughter. His wife worked, and they had rental income from a second house, so they were not in any financial difficulty. The home loans were in Alick’s name, and he asked the bank if it would restructure his loans by consolidating them into a single loan, along with a top-up, and all at a more favourable rate. This would result in repayments that were lower than at present. The bank declined his request, saying it could not take into account his wife’s income unless she was a joint borrower, and it had also applied a stress-test rate that showed his request would not have been affordable. Alick complained that the bank wrongly declined his application. He said it had not given his request due consideration and should have advised him of other options, such as consolidating without the top-up or simply breaking and refixing at the better rate. The bank considered it had acted appropriately: it was not prepared to lend to him and had applied its policy as usual.

Published:

November 2024

Our investigation

We don’t have the power to consider complaints about a bank’s commercial judgment in lending matters, but we can look at whether a bank has properly administered a lending request. We were satisfied the bank had done so in this case. Banks must lend only if satisfied the applicant can afford the repayments without suffering substantial hardship. The lending was in Alick’s sole name and bank’s policy required it to consider Alick’s full financial commitments, including living costs (even though he said his wife paid these). When doing so, the bank found Alick had a substantial monthly deficit. As his wife wasn’t a joint borrower, her income could not be included in the assessment. The bank also used only 75 per cent of his rental income because this source of income wasn’t guaranteed. Alick said that stress-tested rates should be applied after the end of the chosen rate, but stress testing occurs before the selection of rates. The bank wasn’t prepared to provide any new lending to Alick in any form, whether as a consolidated loan or a consolidated loan plus a top-up. It therefore would have been inappropriate to suggest he request just a consolidation loan when it was clear it would have declined either option. If Alick had wanted to simply break his loan and refix it, he could have asked for this after the bank declined his request – but he did not.