Hesitant credit assessors could delay turnarounds

Rising rates could drive more scrutiny of borrowers’ serviceability levels, lower credit assessment levels, and longer turnarounds, according to a podcast.

In the latest Broker Pulse podcast, Momentum Intelligence director Michael Johnson and The Adviser editor Annie Kane discussed the results of the September 2022 Broker Pulse survey, for which a total of 237 brokers were surveyed between 1 and 14 October about their experiences from applications submitted throughout September.

There was a slump in broker experience ratings for credit assessors from a record high score of 50 in August 2022 to 43 in September, the lowest since January 2022.

In the podcast, Ms Kane attributed this drop to the rapid rise in interest rates, and lenders becoming pickier about the types of borrowers they are accepting.

This could be because of serviceability or the “luxury” of being able to choose from a larger pool of borrowers, particularly investors and small-to-medium enterprises (SME), Ms Kane said.

While noting high overall broker satisfaction with lenders, she said this was largely related to a lender’s product pricing rather than its credit assessors.

Ms Kane predicted that credit assessment levels could trend lower than usual over the next month and potentially in December as rate rises and increased serviceability buffers make it difficult for borrowers to receive loan approvals.

In October 2021, the Australian Prudential Regulation Authority (APRA) raised the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications from 2.5 percentage points to 3.0 percentage points above a loan product rate.

“Obviously, serviceability with the buffers on top of cash rate levels means that increasingly people are finding it harder to enter the market,” Ms Kane said.

“I think generally we will start seeing some of the turnarounds delay a little bit as we’re seeing a bit more hesitation perhaps from credit assessors when they’re looking at borrowers, making sure that while, yes, people who have got way over the buffer can go through pretty quickly, those who might be on the border will probably be scrutinised a little bit harder.”

Moreover, as fixed home loan rates begin to expire next year and borrowers rush to refinance their loans to higher rates, this could create bottlenecks and further delay turnaround times (the number of business days taken to reach an initial credit decision), Ms Kane posited.

Brokers reported that turnaround times had increased from six days in August to eight days in September in the small authorised deposit-taking institution (ADI) segment (those used by less than 20 per cent of the broker respondents) and from five days in August to seven days in September in the non-bank segment.

“I think that often ties itself quite neatly with credit assessment satisfaction as well,” Mr Johnson said in the podcast.

“If things take a bit longer, often the credit assessment ratings come down because there might be a significant workload or things just might be taking a bit longer for whatever reason.”

Momentum Intelligence is monitoring this trend to understand the trajectory over the coming months, particularly during the disruptive holiday period, Mr Johnson said.

He concluded that as the cash rate and variable rates rise further over the coming months, client preferences could play a larger role in determining the lender a broker chooses for clients.

“It’ll be interesting to see how the product mix changes at the lenders but also how that tackles in with if lenders are still able to make sure they can focus on service instead of just pulling the pricing down,” he said.

Brokers told Momentum Intelligence in the survey that they had poor experiences with credit assessors due to inconsistencies in servicing assessments between assessors, and suggested providing them with more training.

One broker said mistakes made by the credit assessor resulted in lengthy delays for final approval yet the lender did not prioritise escalation, which required multiple phone calls to the business development managers (BDM) and assessors for the application to be approved.

Another broker said their client’s loan application was declined with no explanation, and criticised the lender for poor communication.

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