Move follows Macquarie’s decision to pull plug on company and trust lending entirely
Commonwealth Bank has followed in the footsteps of Macquarie Bank by changing the way it lends to companies and trusts.
In correspondence sent to brokers and seen by MPA this Friday, Commonwealth Bank announced additional requirements for non-individual borrowers (i.e. companies and trusts), effective from tomorrow.
“From Saturday 22 November, when submitting an application for non-individual borrowers (company and trusts), applicants and/or the servicing guarantor must have an existing lending facility with CommBank (i.e. a home loan, business loan, personal loan or credit card) for a minimum period of six months,” reads the correspondence.
Applications submitted up until today will be assessed under CBA’s current policy.
“As a reminder, from today… we are updating the balance sheet calculation used to determine other financial institution (OFI) company loan repayments,” the correspondence also says. “Please ensure your clients are aware of these changes when having your conversations.”
The problem of property 'spruikers'
Experienced property investors often borrow though company and trust structures, as they come with tax and serviceability perks. Under the strategy, debt is held by the trust, not the individual, potentially allowing borrowers to take out bigger loans.
However, it can also lead to overleveraged positions for borrowers when not properly administered.
In late October, Macquarie pulled the plug on company and trust lending entirely, citing concerns over the way it was being used by property spruikers on social media.
“With application volumes increasing, we’re adjusting our approach to ensure we continue delivering market-leading turnaround times and high service standards for brokers and customer,” said Macquarie.
Macquarie referenced “the emergence of strategies on social media aimed at maximising lending through trusts and companies”.
Macquarie also referenced incoming anti-money laundering regulations, “which will require additional verification steps for trust and company loans, making the origination process more complex and time-consuming for banks, brokers, and customers”.
CBA head of broker weighs in
If a further update to MPA, CBA confirmed that the changes "currently apply to broker-introduced applications as part of our efforts to simplify processes in line with our risk appetite".
In comments sent to MPA on the matter, Baber Zaka, CBA's general manager third party banking, said: “At CBA, we regularly review and refine our processes and policies in line with market conditions to ensure they continue to meet the needs of our customers and brokers, while maintaining responsible and prudent lending standards.
“From Saturday 22 November, adjustments will be made to our home lending policy for non-individual borrowers, using Company and Trust structures. When submitting an application, brokers will need to ensure these applicants and/or the servicing guarantor have an established lending facility with CBA for at least six months.
“We deeply value the role that brokers play in helping Australians achieve their home ownership goals. The third-party channel is an integral part of our business, and we remain committed to supporting brokers, including through trust and company lending for existing CBA customers, so they can continue to deliver great outcomes for their clients.”
