Consumer Mortgage Lending Policy

Transcription

1 This policy is for accredited St.George broker reference only. It is not intended for customer reference. Consumer Mortgage Lending Policy To search within this document you can use Shif+Ctrl+F or click on the binocular icon Version: 2.1 Date Last Updated: 25 February 2013 Page 1 of 136

2 Table of Contents 3. Guarantees 3 6. Applicants Eligibility/Serviceability 9 7. Self Employed and Contracted Applicants Income Documentation and Verification Non-residents First Home Owners Grant (FHOG) Loan Terms Acceptable Securities Loan to Value Ratio (LVR) Valuations Policy Building Loans Lenders Mortgage Insurance (LMI) Property Insurance Debt Refinance and Repayment History Validation of Information Provided by the Customer Assessment Period Under Responsible Lending Super Fund Home Loans Serviceability Assessment 127 Note: Clas refers to the St.George origination system LIS refers to the St.George account management system LDS refers to the St.George decisioning system Page 2 of 136

3 3. Guarantees 3.1 Overview - guarantees Note: Examples of guarantee situations are provided. For more details, refer to 3.2 Common guarantee situations Background The Courts have taken a tough attitude against financiers seeking to enforce personal guarantees, which has resulted in the Bank's current procedures of legal and often financial advice etc. The introduction of the National Credit Code (NCC) and amendments to the Code of Banking Practice (CBP) further complicate the taking of personal guarantees from customers. The schedule in 3.2 Common guarantee situations gives details of the 12 most common guarantee situations. Note: It is contrary to Bank s policy to add a borrower/guarantor for the purpose of increasing serviceability. 1. In all instances, prospective guarantors are to be informed that they need to make any appropriate enquiries about the credit worthiness, financial position and integrity of the borrowers. This should be pointed out at application and again at approval. (The prospective guarantors are reminded of this prior to signing the Guarantee and Indemnity.) 2. In all instances, regardless of product, whenever a guarantee is to be taken, the minimum credit policy requirement is that independent legal advice is to be sought by each guarantor. Evidence that advice has been received is to be provided to the Bank prior to settlement (ie release of loan funds), and in a form satisfactory to the Bank s mortgage preparers. The Loan Agreement is to be conditioned accordingly. Page 3 of 136

4 3.2 Common guarantee situations guarantees Personal Guarantee Scenarios No. Guarantee Regulated by Regulated by Structure to be scenario Code Of Banking Practice National Credit Code used ("CBP") 1 A & B own property jointly. A wishes to Yes (investment Yes. Guarantee from B supported by borrow to purchase investment property and owner occupied). mortgage from A & B. in their own name. Mortgages over investment property and the property owned by A & B are to be offered as security. Advice - Independent legal advice required for B. Serviceability - A must be able to service loan. 2 A & B own property Yes Yes. Guarantee from B jointly. A wishes to borrow to purchase (investment and owner supported by mortgage from A & owner occupied property in their own name. Mortgages over investment property and the property owned by A & B are to be offered as security. occupied). B. Advice - Independent legal advice required for B. Serviceability - A must be able to service loan. 3 B & C offer their Yes Yes. Guarantee from B & jointly owned property as (investment and owner C supported by mortgage over their additional security for A who is borrowing to purchase either an investment or occupied). jointly owned property. Advice - Legal advice and financial Page 4 of 136

5 owner occupied property. (Typically advice required for guarantee from B & Mum & Dad assisting child). C. Serviceability - A must be able to service loan. 4 A & B want a Yes Yes. Mortgage over A & Relocation Loan: They are selling (investment and owner B s current and proposed property. their current property, as are C & D who will move in with A & B after settlement. occupied). Serviceability - If additional income required by A & B to service proposed debt, a rental agreement (or other) may be set up between A & B and C & D. 5 A, B, C & D are Yes Yes. No guarantee borrowing to purchase an investment property (investment and owner occupied). required - as A, B, C & D are borrowers and security jointly. They will offer new property providers. as security as well as their respective owner occupied properties. (A & B own one jointly as do C & D). 6 A is borrower for owner occupied Yes (investment Yes. B is not an owner of the secured property purchase. They want add-on and owner occupied). property, or a borrower. B s to that loan for extension to home income, therefore, cannot be included which they share with their nonborrower partner B. Bank requires B s income to qualify in the serviceability. Serviceability - A must be able to service loan. Page 5 of 136

6 for add-on (Refinance is not No guarantee involved! applicable). 7 A is borrowing to purchase owner Yes (investment Yes. Guarantee from B supported by occupied property with B on a 50:50 and owner occupied). mortgage, i.e. the mortgage is over the tenants-in-common basis. B either has cash or is borrowing elsewhere. A needs to borrow more than 95% of his 50% share of the property. entire property. Advice - Legal advice required for B. Serviceability - A must be able to service his/her own existing and proposed debts. 8 A & B borrow jointly Yes Yes. Guarantee from C to purchase an owner occupied/ (investment and owner supported by registered mortgage investment property and offer as collateral security occupied). over property jointly owned by C, A & B (or C & A if another property owned jointly by them, or one of them and another party C. applicable). Advice - Legal advice for C. Serviceability - A & B must be able to service their existing and proposed loan/s. 9 Company borrows to purchase Yes, if company is a No, loan is not regulated as the Personal Guarantees property for investment manufacturer and employs borrower is a company. unsupported from A & B. purpose. A & B are directors and provide guarantee. less than 100 people or employs less than 20 people Guarantee is not regulated because loan is not regulated. Advice - Legal advice required for A & B. in any other circumstance Page 6 of 136

7 (a small business). If so, guarantees are regulated as given by an individual for a small business. 10 A & B are directors of a Trustee Loan is covered by the Loan is regulated under A & B must be able to support the loan company who wish to borrow in their own names to purchase a property, (either investment or owner occupied). Income of the trust is required for serviceability. Code. Guarantee is not covered by the Code as it is given by a company. national credit code.guarantee is not regulated as it is given by a company. in their own right. Income from the Trust is not to be used for serviceability assessment, and no guarantee from the Trustee to be sought. 11 A & B, C & D want to purchase/develop Yes (investment and owner Yes. Guarantee from A & B to support borrowings of C & D dual occupancy for investment/owner occupied). supported by mortgage over the occupation. All four names will be on property; guarantee from C & D to the title initially but after development, support borrowings of A & B supported subdivision of titles and ownership will occur. A & B and C & D each require loans for the purchase. by mortgage over the property. Advice - Legal advice for A & B and C & D. Serviceability - A & B and C & D must be able to service their separate loans. 12 A requires a loan to Yes No, loan is not Guarantee by C & D purchase a property/business. Security is to be regulated as it is for business purposes. supported by a mortgage over their Page 7 of 136

8 provided by C & D as well as the property being purchased by A. Guarantee is not regulated because loan is not regulated. property. Advice - Legal and Financial advice certificates for C & D Serviceability - A must be able to service loan Company Guarantee scenarios Where borrowers own a controlling interest in a company (ie. more than 50%) there is no requirement under the (consumer) credit policy, that the company must provide a guarantee (unless the security property for the loan is owned by the company, in which a guarantee from the company is required in all cases). Also, where borrowers own a controlling interest in a company (ie. more than 50%), and there is a shortfall in serviceability from the borrowers' individual incomes, company earnings may be added to the borrowers' incomes, and only proportionate to the level of ownership held. Ownership must be confirmed by the Assessor and retained in the loan file. In all other cases a company guarantee may be required. Page 8 of 136

9 6. Applicants Eligibility/Serviceability 6.1 Eligibility - Applicants eligibility/serviceability General Loans may be made available to either existing Bank customers or non-customers provided that they can meet the product/ type/option criteria (security, purpose, terms etc) and that they can demonstrate: The legal capacity to enter into a Credit Contract. (Bank policy requires that the minimum age of an applicant has to be 18 years). A satisfactory financial position for age/income with the ability to meet all existing and proposed commitments in accordance with the Bank's debt servicing criteria without enduring financial hardship. A satisfactory credit history. Stability in employment with a regular, predictable and verifiable income source. Stable residency, or mobility through employment (e.g. teacher, police officer etc.) They are not aware of any significant changes to their financial situation over the next 3 years that would adversely impact their ability to meet loan repayments. If a customer indicates that they are aware of adverse changes that may impact their ability to make repayments the loan must be referred to Credit with details of the change, the expected impact, and any mitigating circumstances that Credit should consider when reviewing the application. Note: It is contrary to credit policy to add a borrower to any loan facility to increase servicing/borrowing power. Furthermore, guarantors incomes may not be added to borrowers incomes when assessing servicing capacity. Personal Guarantors In some scenarios the guarantor of a loan shares common debts with the borrower. When this is the case, the Assessor is to ensure that the guarantor can afford their share of the common debt and verify income of the guarantor. The Assessor will also need to do an Income Calculation Worksheet (ICW) to ensure the guarantor can service their share of the debts and living expenses. Page 9 of 136

10 Incorporated entities Companies including private, public and statutory; incorporated bodies such as clubs and associations; companies acting as trustees for trusts. Unincorporated entities Retail styled-consumer facilities are not available for these borrower types, and should be referred to Business/commercial lending for further consideration. Bodies Corporate The Bank will not lend to Bodies Corporate without approval of Credit. Evidence of income Evidence of income is to be sighted for all applicants. A copy of such evidence is to be retained in the credit file. Refer to - 8. Income documentation and verification for policy regarding satisfactory evidence and verification of income/employment. Employment and residential stability Generally three years duration establishes stability. The main area to look at is continuity in employment. Short numerous periods with differing employers/occupations indicates income sources may not be dependable or predictable. Assessors are to use a common sense approach in determining stability of employment and residence. Reasons for constant employment changes and residential movement are to be sought to enable a logical judgment to be made. Note: Applicants currently serving probationary periods are acceptable subject to current income and previous employment history and stability being demonstrated and confirmed in line with normal policy requirements. Page 10 of 136

11 Rental income from investment properties When completing and analysing the Statement of Position of the customer and a source income is derived from rental of residential properties, the net rental income should be set at a maximum of 80% of the gross returns. This should be used as a guide only, with lower percentages applied where appropriate. For example, Serviced Apartments Serviced apartments and Concentrated Risk Postcodes Rental Income. 6.2 Applications outside policy - Applicants eligibility/serviceability Criteria not met Where criteria is not met (ie. security, term, serviceability etc.), and the Assessor considers mitigating circumstances warrant favourable consideration, then the application is to be referred to Credit as required. The application is to include appropriate details of all the mitigating facts supporting the recommendation for approval. 6.3 Serviceability rating - Applicants eligibility/serviceability Applicant's capacity to service loan The applicant's capacity to service all debt is rated using the Commitment Cover Ratio measurement ("CCR"). The CCR is calculated by dividing all ongoing repayment commitments on the applicants' total current & proposed debt(s) (including principal and interest) into the applicants' income after deducting tax and living expenses. The result is quoted as 'times coverage'. Minimum CCRs will vary depending on the product/security/borrower type. Note: The Variable Benchmark Rate(s) as advised from time to time, is to apply to assessment of all group and external retail/consumer debt, except where: The actual standard variable rate or fixed rate to be applied to the loan (as selected) is higher, in which case, the higher rate is to be used; For loans on which Advantage Package or any other discount rate margin is to apply for the term of the loan (ie there is no short term to apply to the negotiated discount margin), the applicable variable benchmark rate LESS the discount margin may be applied; OR Page 11 of 136

12 For a multi-sequence or multi sub-account facility and each is to have a different discount rate margin applied (for the term of the loan), the variable benchmark rate less the lowest discount margin may be applied; a fixed rate is to apply for 3 years or more for new loan applications, assessment to be at the advertised fixed rate for the fixed rate period selected, plus 0.50% For existing loans currently in a lower fixed rate with a remaining fixed rate period of at least 3 years, the lower (actual) fixed rate may be used in assessment. However: if one of the sub-accounts or loan sequences is at the standard variable rate, a fixed rate or any other product other than the Advantage Package variable rates, the standard benchmarks will apply, or if different Advantage Package discount margins apply to the split loan sequences or, to the Portfolio Loan sub-accounts, the benchmark rate applicable to the lowest level of discount should be used i.e if one sub-account is at a 0.70% discount, and one at a 0.40% discount, the benchmark rate for the 0.40% discount is to be used, or if multiple sub-accounts or loan sequences are requested which are at different interest rates, the highest benchmark rate is to be applied to the total loan amount to determine serviceability eg for a split loan with part at standard variable rate and part at fixed rate, the higher benchmark rate of the two is to be applied to the total loan amount. Note: All external debts (excluding credit cards and personal loans) are to be recalculated using the benchmark rate, or the actual charged rate, whichever is the greater, over the remaining loan term. Existing debts should not be automatically calculated over a term of 30 years however are to be assessed on a P&I basis - refer to the parameters set out in the 'Serviceability assessment' section below. Serviceability assessment Applicants ability to service all debts is to be assessed on a Principal & Interest basis ( P & I ), taking account of the requirements for applying a benchmark rate. This requirement is irrespective of loan purpose, interest only period, LVR or security to be provided. Servicing assessment is to be completed on a P & I basis over the loan term requested by the applicants, up to a maximum of 30 years, as follows: Residential housing or residential investment loans, including multi-sequence loans; Combination loans (ie interest only followed by P & I); and Relocation loans with end debt; and Portfolio Loans. Page 12 of 136

13 Servicing assessment is not required for Relocation loans with no end debt. CCR Summary Table Minimum Serviceability ratio No LMI With LMI LVR 80% LVR > 80% N/A 1.00 Non Resident Lending Self Supporting holding a 457 Skilled Migrant Visa 1.10 Refer to LMI Non Resident Lending Self supporting 'All others' 1.15 Refer to LMI Non Resident Lending Not self supporting holding a 457 Skilled Migrant Visa 1.10 Refer to LMI Non Resident Lending Not self supporting 'other' 1.15 Refer to LMI Portfolio Home Loans Low Doc Home Loans Serviced Apartments, Hotels & Student Accommodation 1.25 N/A Building Loans Owner Builder 1.25 N/A 6.4 Capacity to service loan income calculations Income calculations Home Loan Application Finance Workbook Income Calculation Worksheet or the selfemployed screen (for Sole Traders and partners in a Partnership) is used in conjunction with the Home Loan Application Form to determine the applicants' capacity to service the proposed loan. A separate Super Fund Home Loan Income Calculation Worksheet is to be used for the Super Fund Home Loan product. Page 13 of 136

14 Where customers own a controlling interest in a Company (i.e. more than 50%), and there is a shortfall in serviceability from the applicants' individual incomes, Company earnings may be added to applicants incomes, proportionate to the level of ownership. Ownership is to be confirmed by the Assessor and retained in loan file. Applicant/s income only is to be used. In cases where existing expenses and loan commitments may be shared between the applicant and another party not an applicant on the loan, refer to requirements under Common Debt Reducers if servicing of all debts and expenses, including those that are shared, cannot be proven by the current applicant solely. Where there is a joint income, or reliance on an income other than the applicant, a joint application should be sought. It is contrary to Credit Policy to add a borrower to any loan facility to increase servicing/borrowing power. Furthermore, guarantor s incomes may not be added to applicants' incomes when assessing servicing capacity. When the property is in one name and the loan is in two names, the scenario is only acceptable in spousal relationships (married / defacto). Any other relationship types would not be acceptable. Common Debt Reducers A Common Debt Reducer (CDR) is a person who is not an applicant on the proposed loan but shares common debts and/or commitments (which may include living expenses) with one or more of the borrowers. Typically this is for a husband and wife structure where only one of the parties is an applicant. A Common Debt Reducer scenario should only be used when the applicant cannot support the proposed loan and the total commitment of the shared liabilities on their own. A servicing assessment must be performed for the CDR, in addition to the normal assessment for the applicant. All income for the CDR is to be assessed and documented (but not verified) in accordance with existing standard lending policy. This will mean that the applicant will have to supply the CDR s income details to be used, otherwise they cannot be assessed. Note: It is the Assessor s responsibility to remind the applicant that the applicant has to tell the CDR what information of the CDR s they are giving to the Bank and why it is being given. The Assessor should also remind the applicant that the applicant acknowledges this when they sign the Privacy Statement. The CDR s individual commitment cover ratio (CCR) needs to meet the minimum CCR requirement applied to the product being sought by the borrower, as per policy. The proposed loan is not included in calculating the serviceability ratio for the CDR (since they are not an applicant), but any other liabilities held by the CDR will need to be included in calculating their servicing capacity, in addition to the existing commitments and expenses shared with the borrower Page 14 of 136

15 6.4.1 Base income - Capacity to service loan Annual income Show each applicant's annual gross income from salary or wages exclusive of bonus payments, overtime, commissions etc. Salary Sacrifice / Non-taxed income Assessors should also determine if an applicant has any component of their remuneration being reduced via a salary sacrifice or non-taxed component - this could be for additional superannuation contributions, repayment of car leases, computers, child care or a host of other benefits that individual employers may choose to provide to their employees. If income is being salary sacrificed then it is not taken as cash and is therefore not available to meet ongoing loan commitments, hence it should be excluded from the amount of income used in servicing assessment. However, if the salary sacrifice is confirmed as discretionary and can cease at any time and be taken as income instead, the following treatment is acceptable: Voluntary Superannuation deduction can be added back, provided it is clear identified by salary sacrifice on the payslip in addition to the employer s contribution. For all other cases where it is unclear if Superannuation deductions represent compulsory superannuation (including PSS contribution for certain government employees only), confirmation from the employer will be required if this deduction is to be added back to income used for servicing calculations. (notes should also be made on the loan file to this effect). Any corresponding debt / commitment that relates to the amount sacrificed must also be included in the applicants' servicing calculation as a commitment. However, the Assessor should also determine how long the related commitment has to run before finalisation - where the debt has less than 6 months to run, it may be disregarded for serviceability assessment. (Refer also Total commitments - Capacity to service loan). Separately, where the applicant is receiving a component of their income as non-taxed, such as for certain occupations including nursing and employees of not-for-profit organisations, the following treatment is acceptable: The 'taxable' income as shown on payslips and income confirmation should be loaded as gross income for servicing calculation The amount of the non-taxed deduction should be loaded as Non Taxed income for servicing calculation Rental income - Capacity to service loan Percentage Page 15 of 136

16 For the purpose of determining income/repayment criteria for tenanted residential securities/assets, an amount equal to not more than 80% of anticipated gross monthly rental income or the true net income may be added to applicant's gross income. The CLAS calculation defaults to 80%. Policy exception: Refer to Inner city (high rise) apartments and Serviced apartments Acceptable Securities Concentrated Risk Postcodes (3232, 3460, 4225, 4717, 4744, 4745, 4746, 4819, 4877, 6516, 6710, 6714, 6713, 6716, 6718, 6720, 6721, 6722, 6723, 6751, 6753, 6754, 6758) are restricted to use only 60% of gross market rental income to assess serviceability Rental Income on ACT residential investments is extended at maximum 80% gross Guaranteed rental is unacceptable for the purposes of serviceability assessment under any circumstances Subject to the commercial property(s) having been held and rent received by the applicants for 12 months, a maximum of 60% of existing rental income from a commercial property may be accepted for loan assessment purposes Rent to be received on a proposed commercial property purchase is unacceptable for home loan assessment purposes. Commitments All commitments eg mortgage repayments on home, rent to be paid (if to continue), hire purchase, etc are to be taken into account for assessment of applicants ability to service the proposed commitments. Documents required A letter from a reputable estate agent or the listing/selling agent advising the anticipated gross rental income is to accompany each application for purchase or construction of a dwelling for permanent leasing Proof of rent currently being received is required (if property is already owned and included in assets and liabilities) and is to accompany an application for finance by way of copies of: o registered residential Tenancy Agreement or; o recent Rental Statement from Real Estate Agent or; o signed Taxation Returns showing the property and rental received and a recent statement issued by a financial institution, evidencing rental income being deposited directly to an account held in the name(s) of the applicant(s), the statement is to be dated within 3 months of the date of this application If the property is not currently tenanted, proof of proposed rent can be obtained via a rental opinion letter from a real estate agent or suggested rental value provided in a valuation report (obtained by the bank) Page 16 of 136

17 See also 8. Income documentation and verification Important: If multiple sources of rental income are provided, the lower amount must be used in all cases. Example: If there is a letter from a real estate agent with rent of $300 and there is a valuation rent assessment of $280, then the lower of the two amounts ($280) will be used. Valuer's report A panel valuer's report on the subject property which shows current rent return or anticipated rent return in current market conditions will satisfy the Bank's requirement for documented rental income confirmation (for properties to be acquired) Additional income - Capacity to service loan Sources Additional income from the following sources may be considered when assessing applicant's income and serviceability, provided this income can be considered of an on-going nature: Overtime/Shift Allowance Overtime/Shift Allowance Where assessed at a maximum of 50% of the total overtime/shift allowance payment in serviceability No LMI required Where up to a maximum of 50% of the total overtime payment is required to service the loan, overtime payments are to be assessed using documents detailed under section 8.1 Evidence of income/employment Income documentation and verification of the CLM. LMI required Where LMI is required, income verification will follow same policy as Overtime/Shift Allowance Where assessed at 100% of the total overtime/shift allowance payment in serviceability all loans described below. Overtime/Shift Allowance Where assessed at 100% of the total overtime/shift allowance payment in serviceability all loans 100% may be used, but only where Overtime / Shift Allowance is a condition of employment, as confirmed by the employer at the time of income / employment verification. Page 17 of 136

18 Average weekly figure to be used with a minimum length of overtime/shift allowance being received continuity. A minimum of 3 pay advices should be produced to confirm continuity where current employment/ role has been more than 6 months but less than 12 months. Where employed more than 12 months in current role and with same employer, additional income is able to be calculated using a Payslip with Year to date income, confirmed by most recent tax year Payment Summary. This should evidence regular receipt of these payments. Where overtime and shift allowance are not a condition of employment 50% may be used provided payments can be evidenced over a minimum of two years. This will be verified through current payslips and tax returns with tax assessment notices for two years or a current PAYG summary. Note: It is critical that the employer confirm this is a job requirement in order to be able to include Overtime or Shift Allowance in servicing as a guide, industries that are expected to have overtime and/or shift allowances as conditions of employment include the following: Emergency Services Firefighters, Ambulance and Police officers Essential Services Nursing, Correctional Officers These groups of workers are presumed to have Overtime and rotating shifts as part of their terms of employment, and a letter will not be required providing above YTD calculations support this presumption. Multiple permanent jobs - full time or part time 100% may be used where it is established that employment is permanent full and/or part time and total hours worked per week do not exceed 60 hours. Where more than 60 hours per week are worked then 50% of that portion of income can be used for serviceability calculations. Minimum length of employment in each job 6 months. Permanent full and part time jobs do not need to be of a similar employment type Casual jobs Casual employment is a permanent position with working hours varying from week to week. Income from this source is acceptable if the applicant has held the position for a minimum of 12 months continuous service with the same employer. Page 18 of 136

19 Income is to be averaged over the last 12 months for serviceability assessment, with standard income documentation and verification to be undertaken as per 8. Income documentation and verification Commission Commission No LMI Required Where commission is < 50% of total income, commission payments are to be assessed using documents detailed under section 8.1 Evidence of income/employment - Income documentation and verification. Commission LMI Required Provided the commission structure is ongoing and can be evidenced over two years use 100% of the average of commission income received over the last two years. Two years history of earnings to be confirmed, and earned from the same employer. Commission > 50% - all loans If commission is > 50% of the applicants total income the applicant needs to be assessed and documented using standard self employed policies under section 8.3. Dividend Income Dividend income that is received from share investments in companies that are unrelated to the borrower can be used at 50%. Evidence that the dividends are received at least annually over a minimum of two years is required. Interest Income Interest income can be used at 80% where LMI is not required and 50% where LMI is required. Evidence that interest income is received at least annually and has been ongoing over a minimum of two years is required. Bonus Bonus income can be used at 100% for all loans, subject to the following: Minimum 2 years history of the bonus payment is required; The lower of the bonus payments over the 2 years must be used in your serviceability assessment; Any applications using annual bonus amounts greater than $30K are to be referred to Credit for manual assessment. Page 19 of 136

20 Industry Allowances When using tool allowances the net figure should be used (.eg. Tool allowance less tool expense). Industry allowances can be used at 100% for the following: Site allowance Role allowance Operations allowance District allowance Location allowance Housing allowance Tool allowance (only to be used where a corresponding expense for tools is included). The verification requirements are as follow: A letter from the applicants employer, OR Last 2 payslips detailing the applicants base salary including allowances, OR A year to date payslip covering the last two pay cycles and detailing the applicant s base salary including allowances. Superannuation Pensions and Maintenance Payments Superannuation Pensions and Maintenance payments are all subject to written verification and 100% may be added to the calculation when assessing the income/repayment ratio (unless otherwise stipulated). Maintenance payments may only be considered for dependent children whose age is: up to, and including 13 years of age for Non Mortgaged insured loans, or less than 11 years of age for Mortgaged Insured loans at the time of application (unless the payment of these benefits can be sustained for the term of the loan), and only in cases where a Court Order is in existence and the following verification is provided: proof of receipt of maintenance for a continuous period of at least six months (i.e. copies of savings passbooks, bank statements or other acceptable verification). Original bank statements are to be reviewed with copies held on loan file. However, an Internet bank statement may be used as the last statement. Where an Internet copy is used it is to be reconciled with prior dated original bank statement(s). Mini statements issued by ATM machines are not acceptable. Page 20 of 136

21 Child Support Agency confirmation is to be obtained and retained on file The maintenance payments mentioned above may only be considered where they are received by an applicant as supplementary income only Government Payments For assessment purposes, the only acceptable Government allowances for the purpose of affordability assessment are Family Tax Benefit Part A, Family Tax Benefit Part B and Large Family Supplement * o Non Mortgaged insured loans: for dependent children whose age is 13 years or under at the time of application, unless the payment of these benefits can be sustained for the term of the loan). o Mortgaged insured loans: for dependent children whose age is less than 11 years, at the time of application, unless the payment of these benefits can be sustained for the term of the loan). Age Pension ** Disability Support Pension Wife Pension, Widow B Pension and Widow Allowance Department of Veterans Affairs Service Pension Other allowances / benefits are unacceptable for assessment purposes and are not to be used - exceptions are to be referred to Credit). Refer to the table below for details of acceptable and unacceptable government payments. All acceptable government payments are subject to written verification and 100% may be added to the calculation when assessing the income/repayment ratio (unless otherwise stipulated). * Proof of Family Tax Benefit Part A & Part B and Large Family Supplement being received is to be provided in writing detailing precise payments made (or to be made) for each child. Assessors are to ascertain acceptability for assessment purposes from this information. Written evidence is to be retained on loan file. ** Pension payments to other family members, eg parents, will not be considered for loan purposes. List of Acceptable and Unacceptable Government Payments Government Payment Acceptable to Bank? Abstudy No Page 21 of 136

22 Age Pension Yes Assistance for Isolated Children (AIC) Scheme No Austudy No Baby Bonus No Bereavement Allowance No Carer Allowance No Carer Payment No CDEP Participant Supplement (CPS) and Supplementary Benefits (Add-ons) No Child Care Benefit (CCB) No Child Care Tax Rebate No Crisis Payment No Department of Veterans Affairs Service Pension Yes Disability Support Pension Yes Double Orphan Pension No Family Tax Benefit Part A Yes Family Tax Benefit Part B Yes Foster Care Allowance No Health Care Card (Family Tax Benefit) No Jobs Education and Training Child Care Fee Assistance (JETCCFA) No Large Family Supplement Yes Page 22 of 136

23 Maternity Immunisation Allowance No Mature Age Allowance No Mobility Allowance No Newstart Allowance No Parenting Payment No Partner Allowance No Pension Bonus Scheme No Pensioner Education Supplement No Pharmaceutical Allowance No Remote Area Allowance No Rental Assistance No Sickness Allowance No Special Benefit No Widow Allowance Yes Widow B Pension Yes Wife Pension Yes Youth Allowance No Equity/savings - Capacity to service loan Applicants' equity/genuine savings 5% genuine savings needs to be verified on all mortgage insured loans where LVR exceeds 85%. Page 23 of 136

24 Generally, the 5% will relate to the purchase price (or land plus construction costs for building loans). However for refinances or where unencumbered residential real estate is offered as security, the 5% will relate to the security value(s). Demonstrated genuine savings behaviour provides evidence of the applicants' capacity to service loans requested as well as their proven ability to meet regular commitment. Acceptable Forms and Evidence of 5% Genuine Savings Form Evidence required Regular savings pattern building up to the required minimum 5% Review last three months savings statements. Any large one off deposit is to be investigated and discounted, if appropriate The following assets (at least equivalent to the required 5%) have been held for a minimum period of three months: Deposits in the personal name(s) of the proposed borrower(s) held with financial institutions. Includes bank accounts, term deposits, debentures Shares in listed public companies Account statements evidencing assets held for a period of three months. Share registry statement Equity in real estate owned by applicants, where such real estate is offered as collateral security or the Assessor is able to satisfy themselves as to the equity held Valuations, (including via our Electronic Valuations provider, APM) account statements, title search Pre-payments made on loans (secured / unsecured) (payments made in advance) Loan statements confirming p repayments made Historical rental payments Consideration of this policy is only to apply for tenants that are the same as the borrowers. Historical rental payments made by an applicant/s will be acceptable where: Verification requires a letter from the Licensed Property Manager / Agent or a copy of the rental/tenancy ledger detailing the following: Full name of tenant/s as per tenancy agreement Page 24 of 136

25 Applicant/s are currently renting A minimum of 12 months satisfactory continuous rental history, and The property leased is managed through a Licensed Property Manager / Agent (excludes family / private) Address of the tenanted property The amount of rent paid per cycle (e.g. weekly, fortnightly, monthly) Confirmation of acceptable 12 month rental repayment history Commencement date of tenancy (minimum 12 months term to apply). Note: Funds to complete can come from any source where 12 months rental history is evidenced as above. * In a married/defacto scenario, it is acceptable only if tenant ledger is in one name and the loan is in two names. Tier two deposits: The following deposit types are also acceptable to use but only if the customer can demonstrate sound repayment behaviour by showing rental payments made without late payments for a minimum of three months. Verification requirements are the same as the Historical rental payments policy above, and must also be verified by sighting regular withdrawals from a personal bank account. Bonus/Dividend/Commission payment Payslip evidencing payment, & Credit to personal bank account Inheritance Only allowable for loans with an LVR < 90% for new and existing customers including capitalisation Credit to personal bank account or Letter from the Executor confirming the amount and date that funds will be received Non-real estate asset sale Only allowable for loans with an LVR < 90% for new and existing customers including capitalisation Credit to personal bank account with borrower declaration Tax Refunds Notice of Assessment and Credit to personal bank account Unacceptable Form of 5% Genuine Savings Page 25 of 136

26 Gifts of any kind * Proceeds of a personal loan or other borrowings** Builders rebate / Incentive First Home Owner Grant (FHOG) Funds held in a business/company trading account Favourable Purchase Note: *Proceeds from gifts / sale of personal assets will qualify if held for three months (see the Acceptable Forms and Evidence table above). **Proceeds of a personal loan or other borrowings are acceptable to use as funds to complete a purchase, provided the liability is disclosed in the application. Recording of Evidence of 5% Genuine Savings Original documents evidencing 5% genuine savings are to be reviewed with copies held on the loan file. Comments relating to savings and/or patterns are to be made on the loan applications systems. Internet statements may be used as the last statement. When used the Internet copy is to be reconciled with prior dated original statements. Mini statements issued by Automatic Teller Machines (ATMs) are not acceptable. Whilst any FHOG amount can be accepted in the Funds Position calculation it is not to be considered as part of the 5% genuine savings. Refer to First Home Owners Grant (FHOG) Loans where the LVR is less than or equal to 85% and / or where LMI is not required (and for Savings Plan loans, when available, due to their nature) The file is to be clearly noted with the nature and source of the equity in the transaction. Credit may require Assessors to verify/ sight that the equity is available. Although the need to prove genuine savings is not required, the applicant is to meet all other Bank lending criteria, and serviceability is not to be in doubt. Equity requirement for residential loan The minimum equity requirement for a secured (residential) loan is 5% (for new and existing customers) of: The lower of purchase price and valuation for existing properties. Page 26 of 136

27 For Building Loans, the lesser of: a) the purchase price or EMV of the land plus building costs and b) the completion value of land and improvements If the loan is for investment purposes, then the criteria outlined under Equity requirement for Investment Loans should be used. Applicants are required to provide equity from their own sources. Although the need to provide evidence is not required for loans with a LVR of less than or equal to 85%, the applicant(s) must clearly show in their funds position the amount available to complete the transaction, including: all fees, legal costs, and stamp duty (where applicable) amounts (to be) contributed from the sale of an existing property amounts borrowed from other sources (NB Personal Loans from other financiers etc are not to be considered as a portion of the equity, and required repayments must also be included in the serviceability assessment) amounts constituting discount or deferment of costs - eg favourable legal fees, stamp duty deferment proceeds from gifts. Note: In all instances the Funds Position Form is to be completed by the Assessor and retained in the loan file. Equity requirement for Investment Loans Any applications for investments loans that have an LVR >90% will require a minimum equity of 10% to be held in another property. Evidence of 10% Equity The 10% equity holding is to be calculated using the applicant s estimated Market Value of their existing properties against their current exposure. Current exposure is to be calculated on loan account limit and not loan account balance. The 10% equity may be held in one or more existing properties held by any of the applicants. The following documents can be used to verify the 10% equity requirement: A copy of the existing properties latest Council Rates Notice is to be provided to validate ownership. Where the property is mortgaged to SGB/ BoM/ BankSA or the Council Rates Notice doesn't contain sufficient detail to validate ownership, an up to date Title Search may be used. Page 27 of 136

28 Where the existing property is mortgaged to an outside Assessor a copy of the most recent loan statement is to be provided to confirm current exposure against this property (loan statement to be within 6 weeks of age, in line with existing aged document policy). Where the existing property is mortgaged to SGB/ BoM/ BankSA, the current security exposure (TSE) can be confirmed by providing a printout generated by SGB/ BoM/ BankSA systems (e.g. CIS). Costs Costs associated with any transaction are to still be evidenced as being available at the time of approval, but this component of the applicant's contribution need not meet the minimum "genuine savings" requirement. Exceptions Refer LVR Table LVR table Shortfalls Irrespective of the LVR, where a shortfall in the funds available to complete is apparent, demonstrated capacity/ability that any shortfall in deposit can be saved in the period allowed for settlement in the following States/Territories eg: NSW - 6 weeks* ACT - 4 weeks* SA - 4 weeks * WA - 4 weeks* QLD - 4 weeks* VIC - 8 weeks* The above refers to generally accepted periods of settlement in each State/Territory nominated. The amount of any shortfall to be saved within the above timeframes is to be realistically achievable and be related to current savings patterns. Appropriate file notes are to be included in the loan file. As a guide, the shortfall should not exceed $2,000 - exceptions are to be referred to Credit Total commitments - Capacity to service loan Page 28 of 136

29 All existing debts are to be declared on the application forms, regardless of whether they are to be paid out or continued after settlement of loan. Repayments Show details of repayments for all commitments including maintenance and any other regular payments. (Where debt has less than 6 months to run, it may be disregarded for serviceability assessments but is to be declared on application forms.) However, any group exposure regardless of remaining term is to be included for Assessor authority purposes. Credit cards For credit cards and store cards use 2% of the approved limit, unless proof of usage (by way of statement) over last three months is less than this. Note: However, where the card is inactive and has been maintained at a zero balance for the last 3 months (as confirmed by credit card statements), it is acceptable for Assessors to fully exclude this from servicing without the need to refer to Credit Serviceability Living expenses Living expenses are incorporated into Serviceability Calculations and include the cost of food, clothing, motor vehicle running costs, rates, insurances, property maintenance/repairs, telephone, gas, electricity, transport, fares, entertainment, basic education. For the purposes of assessing an applicants capacity to repay the Bank has adopted the Household Expenditure Measure ( HEM ) for the allocation of living expenses within an application and applicants are required to provide their post settlement address at the time of application so that regional expense differences can be considered. Note: The HEM living expenses are reviewed quarterly and downward adjustment to the living expenses is not permitted. Additional Discretionary Expenses Whilst living expenses have been provided as a base for serviceability purposes using HEM, Assessors are also required to capture other ongoing discretionary expenses (eg. Private Page 29 of 136

30 education expenses, childcare fees, insurance, mobile phone/internet/pay TV, other expenses) that are not captured by HEM. These discretionary expenses are not used in the serviceability (CCR) calculation but CLAS will use the total expenses figure to calculate a separate expense to income ratio. If this ratio is greater than the expense to income ratio threshold. the file will be referred to Credit for further consideration. In this case, comments should be included in the application and state why the customer has an adequate level of living expenses. Note: The additional expenses do not need to be verified with documentary evidence. Living expense categories by post settlement area Living Expenses amount $(pa) Post Settlement Area Adult expense Core living Sydney $11,040 $3,015 Rest of NSW $11,030 $3,861 Melbourne $11,038 $3,181 Rest of VIC $11,026 $4,227 Brisbane $11,040 $2,949 Rest of QLD $11,045 $2,549 Adelaide $11,031 $3,757 Rest of SA $11,037 $3,243 Perth $11,039 $3,088 Rest of WA $11,046 $2,497 Canberra $11,031 $3,822 Page 30 of 136

31 Rest of ACT $11,031 $3,822 Darwin $11,031 $3,822 Rest of NT $11,031 $3,822 Hobart $11,021 $4,685 Rest of TAS $11,036 $3,354 Australia* $11,039 $3,371 * Used for Non Residents Only Dependant Expense Amounts for Single Adults - All Areas $(pa) First and third Dependants $3,421 Second, Fourth and Additional Dependants $3,043 Dependent Expense Amounts for Couples - All Areas $(pa) First and third Dependants $6,211 Second, Fourth and Additional Dependants $3569 Examples: 1. 1 adult no dependents with post settlement postcode in Sydney Living expenses = $14,055 ($11,040 + $3,015) 2. 2 adults with 1 child with post settlement postcode outside Melbourne Living expenses = $32,490 [(2*$11,026) + $4,227 + $6,211] 3. 2 adults with 4 children with post settlement postcode in Brisbane Living expenses = $44,589 [(2*$11,040) + $2,949 + (2*$6,211) + (2*$3,569)] Note: Page 31 of 136

32 Non residents will use the Australia figures. Post Settlement postcode is a mandatory field in CLAS. No adjustments allowed. HEM can not be adjusted for fully maintained company car or medical expenses. If you are not a CLAS user please ensure that all living expenses are captured within your serviceability calculator. Car Allowances Income source Assessed at % Lenders Mortgage Insurance requirements Car Allowance (include in base salary) 100% No special requirements Fully Maintained Company Car 100% No special requirements Add $5,000 gross per annum to base salary Page 32 of 136

33 7. Self Employed and Contracted Applicants Self employed applicant If either of the following parameters is true of the loan applicant, he/she is defined as selfemployed for the purposes of credit assessment process: >25% of the applicant s total income is derived from a business partially or wholly owned by the applicant/s or if any proportion of business income is required to service the loan Business income Business income is defined to include: profit or profit distributions from the business; PAYG income from the business (e.g. Group Certificates issued by the business). In some cases PAYG income may be paid by the business to a spouse who has no ownership share of the business. Such income should be treated as business income for the purposes of determining whether the applicants are self-employed. dividends from the business; consulting or other fees paid to the applicant by the business; distributions from a business structured as a Trust; interest received on shareholder loans Contracted applicant Dependent Contractors are defined as applicants who are under fixed term salaried employment, but are not full time permanent employees. Standard PAYG Base Income verification can be used provided applicant can show at least 12 months stability with the same employer and this is the only income source. Independent contractors are defined as applicants employed on a commercial contract, and with work arrangements consistent with the definition of a self-employed person. Independent contractors have contract employment in place where they have to execute a current fixed-term contract for the provision of labour services to a single employer, under which the applicant: receives > 25% of their total income from this source; Page 33 of 136

34 is responsible for the payment of all relevant taxation, superannuation and all other statutory costs on their own behalf; and does not receive leave entitlements. The contract agreement may be in personal names or the name of a company owned by the applicant. 7.2 Assessing self employed and independent contracted applicants Assessing self-employed and independent contracted applicants is different from assessing PAYG applicants for a number of reasons. Some key reasons are: salary or drawings taken from a business by a self-employed or independent contracted applicant may not reflect the underlying sustainable earnings capability of the business. The owner may be draining the business of its reserves by paying him/herself an inflated salary, over and above what the business can afford. the earnings of a self-employed or independent contracted applicant may vary significantly from year to year depending on business cycles and how well the business is performing. Significant variations may affect the applicant s ability to repay the loan and therefore the variability of income is to be included as part of the assessment process. private and business expenses can become intermingled self-employed people and independent contractors have a greater opportunity to manipulate their income to indicate servicing capacity that may not exist self-employed people and independent contractors may have a number of sources of income that have to be taken into account when assessing their capacity to service A separate process is necessary for self-employed and independent contractor applications to: determine real income available for loan servicing ensure an appropriate legal structure for the loan ensure appropriate security arrangements for the loan Length of self-employment To be self-employed for at least 12 months in current situation. Applicants that have been selfemployed for more than 12 months but less than 24 months must be able to demonstrate a solid history of experience and expertise in the same industry prior to the commencement of their selfemployment Length of Contracted employment Page 34 of 136

35 To be contracted for at least 12 months in current situation and have a solid history of experience and expertise in the same industry. Applications are also acceptable if the applicant has been in contracted employment less than 12 months provided that: Prior stability (at least 12 months) with the same employer under salaried employment is evident; Their occupation and responsibilities remain the same; and The current contract is for a term of 12 months Working capital If the business is one that requires working capital ie. manufacturing, trading etc ensure sufficient working capital is available. If the proposed equity is being provided from this source, will the loss of funds affect the business? Financial position of not only the business but also its principals should be assessed Type of industry is it one that is dependent upon a particular market? is the market secure or maybe seasonal? Applicant s management skills Age and maturity of applicants may bear relevance to their management skills Depreciation addbacks Generally, the Bank will consider allowing the addback of Depreciation item from Profit & Loss accounts to income used in a serviceability assessment, because these 'expenses' are generally considered not being direct costs to the business but rather accounting entries where no actual funds are outlayed, hence cash-flow should be available to meet loan repayments. However, there are some industries / occupations where the addback of a depreciation expense is inappropriate to assist in servicing a residential loan - this would be in cases where the depreciation is in respect of an income producing asset and that asset is required to be maintained / updated to ensure continuance of the income. Examples of this would include: Page 35 of 136

36 Taxi operators applying depreciation on their cab Truck operators depreciating their truck/s Excavation/Earthmoving operators applying depreciation on machinery. In these types of scenarios not all of the depreciation item claimed should be added back, as the equipment itself will require maintenance and/or replacement at some point, hence funds will need to be apportioned / set aside to be able to do this. 7.4 Documentation - Self employed and Independent Contracted applicants Financial statements/tax returns Refer to 8.3 Financial statements and tax returns (for self employed applicants) income documentation and verification Refer to 8.4 Contract employment income calculation (for independent contracted applicants) - income documentation and verification Comments on financial analysis The following applies to all applications from self-employed applicants: The required schedules are completed with the relevant 2-year analysis (if required) being undertaken for the business. Analysis is to show a surplus (after tax/loan commitments and living expenses), for each of the 2 years, (not merely the most recent year under consideration). Note: Where an application involves a PAYG borrower in addition to a self employed applicant, and inclusion of the PAYG borrower's current income would see servicing evidenced over each of the last 2 years, such proposals would not require referral to Credit for servicing While the decision to approve will be largely based on assessment of the most recent financial statements, business trends revealed in previous years' figures are to be taken into consideration to determine whether current profitability is sustainable etc. The Assessor is to include commentary on reasons and factors contributing to movements in operating performance. Particular attention should be given to whether trends in performance reflect in interim trading and whether they are sustainable. Page 36 of 136

37 8. Income Documentation and Verification Important: All income and employment verification is to be conducted prior to approval. The following procedure applies when verifying income and employment documentation provided by applicant. Refer to Evidence of income/employment. ensure that all applicants/guarantors have signed the Privacy Statement ensure documents furnished by applicant/s conform to policy requirements. Ascertain whether verbal verification is required. where a credit bureau report is required, compare details on credit bureau report to application form/income documents 8.1 Evidence of income/employment - Income documentation and verification Acceptable forms of documentation for income/employment verification PAYG For non mortgaged insured loans, applicants are only required to provide evidence of income used to service the loan, unless if specifically requested by Credit on a case by case basis. Examples: If an application services on base income then it is not required to verify rental income or income from other investments. If an application involves a PAYG and a self employed applicant, and only the PAYG income is used to service the loan (i.e income from self employed is not used in serviceability), then only the PAYG income needs to be verified. If any income from the business is used, then verification of the self employed / company income is required in line with CLM 8.3. Important: For mortgaged insured loans, all applicants are to provide satisfactory documentation to verify employment/ income. For all loans, originals, or certified copies of originals, are to be sighted and copies of all documentation are to be retained in the loan file. Page 37 of 136

38 For Non-Mortgage Insured loans Evidence is considered acceptable where the applicant provides any 1 of the following: Last 2 computerised/electronically produced payslip detailing base salary dated no more than 6 weeks prior to application date*, or A computerised/electronically produced payslip that details base salary and year to date (YTD) figures covering 2 or more pay periods, or Salary/employment letter** dated no more than 6 weeks prior to application date*, or Most recent employment contract, or Account transaction listing generated by a St.George, BankSA or Bank of Melbourne system showing regular deposits covering at least the last 2 pay periods. Salary credit narrative has to be from a specific employer (eg "Westpac"), general narratives such as "pay" are not permitted. Only available for Base Income of Permanent Full Time or Part Time employees. If two salary credits differ the lower amount is to be used to determine serviceability. If the higher salary amount is required for serviceability, then the sole use of salary credits cannot be used as income verification and additional evidence will be required as per standard policies. If one of the Salary/Employment letter or Contract of Employment has a small deficiency (eg: date), the following may be used as an additional acceptable verification of Base Income: Latest PAYG payment summary/group certificate, tax return and ATO Notice of Assessment, or Evidence of consistent income amounts regularly deposited to a bank account. Important: When using account transaction listing generated by a St.George, BankSA or Bank of Melbourne system as source of income verification, Assessors are required to make a clear notation: to explain how income was calculated AND to clearly note which account numbers were used to review salary credits. If salary credits are reviewed via Starlet, a copy is to be printed and included in the loan hard copy file. For Mortgage Insured Loans Evidence is considered acceptable where the applicant provides two (2) of the following: Computerised/electronically produced payslip detailing base salary dated no more than 6 weeks prior to application date*; Second computerised/electronically produced payslip containing base salary dated no more than 6 weeks prior to application date (except for those applicants paid on a monthly basis, where the payslip must be for the pay period immediately prior to the first payslip)*; Page 38 of 136

39 A year-to-date pay slip covering the last 2 pay cycles and detailing base salary; Salary/employment letter ** dated no more than 6 weeks prior to application date; Most recent employment contract; Latest PAYG payment summary/group certificate, tax assessment notice or tax return; Evidence of consistent income amounts regularly deposited to a bank account Taken as a whole, the documents must: Identify the applicant(s) and employer(s) name. When applicable, identify ALL components of income the applicant receives and which the bank considers acceptable to include in the serviceability assessment of the loan (e.g. base income, overtime, commissions, bonus, allowances, etc). If applicable contain details of current and YTD gross and net income. * Payslips and Salary/employment letters can be dated up to 2 months prior to application date if up to date evidence of income amounts being deposited to a bank account is obtained or verbal verification of employment and income details is undertaken. ** The employment Letter must have the following: Be on letterhead with employer s address and listed telephone number Applicant name Gross income Net income Basis of employment (casual, full time etc) If applicable Pre / Post tax deductions Important: If ANY additional income such as bonus, overtime, allowances, dividends, rental etc, is used for serviceability purposes, then additional evidence may be required and should follow existing policies and procedures as per Additional income - Capacity to service loan. If there are significant differences between information on application form and submitted income/employment documents, verbal verification is to be conducted with notes of details recorded. Where verbal verification is required, refer to Verbal verification - Evidence of income/employment. Note: Page 39 of 136

40 Family member If a customer applying for a loan is employed by a family member or through a friend's company, employment and income verification will follow standard PAYG base income policies, plus one of the following supporting documents: Account transaction listing generated by a St.George system covering the last 2 pay periods, or Bank statements/passbook covering the last 2 pay periods, or Latest tax return and ATO Notice of assessment. Assessors are required to verify that the applicant is not the owner or part owner of the business by checking their Credit Bureau report for Directorship. If employment is to a business-trading name (e.g. Bluey's convenience store) but not a company (Blue Star Pty Ltd), then an ABN search on the employer should be performed. If the applicant shows directorship to a company, then a company search will reflect their Shareholding of that entity. Assessors should also check information such as names on payslips, letters from employer and bank statements to determine possible relationship between applicant and who pays the income. Important: Any degree of ownership of the employer's business is to be treated as self employed Pre-approvals - Evidence of income/employment Where a pre-approval has been issued, any income/employment documentation held and verification completed will be valid for 90 days from the date the pre-approval was issued, subject to undertaking one of the following validations at the time of issuing Formal approval: up to date evidence of income amounts being deposited to a bank account is obtained; or verbal verification of employment and income details is undertaken Where income/employment verification has not been completed previously, or the above conditions cannot be met, satisfactory income/employment documentation is to be provided per 8.1 Evidence of income/employment - Income documentation and verification. 8.2 Rental income income documentation and verification Requirements Proof of rental income is to also be obtained and can be any of the following: Page 40 of 136

41 For a new purchase, verification requirements will be as follows: Rental opinion from real estate agent (selling agent) in the form of a letter; or Suggested rental value provided in a valuation report (obtained by the Bank); or Copy of existing residential lease agreement (only if existing lease arrangements are to continue). For an existing investment property owned by the borrowers for this loan application, verification requirements will be as follows: If currently tenanted: Recent rental statement from managing real estate agent; or Signed taxation returns showing the property and rental received and a recent statement issued by a financial institution, evidencing rental income being deposited directly to an account held in the name(s) of the applicant(s). Statement to be dated within 3 months of the date of this application; or Copy of existing residential lease agreement. If not currently tenanted: Rental opinion from a real estate agent in the form of a letter; or Suggested rental value provided in a valuation report (obtained by the Bank). Important: If multiple sources of rental income are provided, the lower amount must be used in all cases. Example: If there is a letter from a real estate agent with rent of $300 and there is a valuation rent assessment of $280, then the lower of the two amounts ($280) will be used. 8.3 Financial statements and tax returns (for self employed and company applicants) income documentation and verification The following policy outlines the Bank's specific requirements for verifying income for self employed and company applicants. Please note that the need to obtain company financials will vary depending on the company's role in the loan - the diagram below should be used for Assessors to determine what information about the company needs to be sought, and whether the policy as outlined in this section, needs to be applied. Page 41 of 136

42 Is the company a borrower? Rely on company / self-employed income to service? NO Is the loan mortgage insured? YES YES YES NO Requirements as per Sections 7.4 and 8.3 Company / self- employed income does not need to be verified. Only income required to service the loan must be verified Applicants met selfemployed definition? NO Letter from the company accountant confirming the company is trading profitably and meeting all commitments NO YES All directors are applicants? Directors are related (husband and wife?) NO YES YES Section 8.3 to apply in relation to company financials Company profitable each of last 2 years? Section 8.3 to apply in relation to company financials YES NO Section 7.4 to apply in relation to schedule F & G No further analysis required. Note on the loan file regarding co s profitability over last 2 years and profit figure for each year. Last two years Financial statements (balance sheet and profit and loss statement), AND taxation returns for applicants, business and / or company for the last two (full) financial years are to be obtained. Page 42 of 136

43 The tax returns and financials statements are to be supported by: ATO Notice of Assessment and Tax Return end of last financial year (after 1 December it is mandatory to supply previous 30 June financials). Financial statements / accounts after 1 December, supply the previous 30 June financials. Note: Interim returns or financials as at 31 December for the respective year (subject to review and acceptance by Credit) may be considered in lieu of a full financial year return or financials, including circumstances where the borrower has been self-employed for more than 12 months but less than 24 months, however at least one full financial year return or financials must be provided. Projected income from a business being purchased cannot be used in the serviceability assessment. Exceptions for non NCC regulated contracts Where the applicant has been in business in excess of 5 years and the LVR is less than 70%, only the latest complete financial year figures are required. If the LVR is greater than 70%, OR the contract is to be regulated under the NCC, the last 2 years complete financial year figures are required. Tax file numbers Important: It is a requirement of the Privacy Act that tax file numbers shown on copies of taxation returns (or any other documents) which are retained by the Assessor, are to be cut out before the documents are placed on the Borrower's file. Company loans and commitments Details of company loans and other company commitments must be included when using any income from the company in serviceability - standard policy requirements will apply in relation to loan information required. In all other cases Assessors will not be required to obtain this information, unless it is specifically requested by Credit for loans referred to those areas. Page 43 of 136

44 8.4.1 Contract employment verification To ensure that the applicant satisfies the definition of an independent contractor, the following verification requirements are to be completed: Assessors are to sight the contractor s copy of the current contract to confirm employment and contract amount, with a copy to be retained on file. The contract is to include the following to be deemed acceptable: To be in the applicant s name, or the name of a company owned and operated by the applicant; To state the term and expiry date of the contract (Note: the contract must be current as at the date of application); To detail all components of income, including remuneration amount and payment frequency, minimum hours of work, any non-cash components, and any other conditions that relate to payment for service; and Be signed by the applicant and either personnel or management staff of the employer Contract employment income calculation Where contract employment has been for a term of 12 months or more, tax returns are to be obtained to confirm the applicant s taxable income and consistency with the contract remuneration structure, as well as financials and tax returns for the company (where income is run through a company structure). Where contract employment has been for less than 12 months and applicants are able to satisfy the requirements as detailed in Section Length of contracted employment, their taxable income is to be based on the lower of: the applicant s previous PAYG income (gross salary), immediately prior to changing to contract employment; or 80% of the contract remuneration figure (allowing 20% for superannuation, unpaid leave and other nominal business costs). 8.5 Government payments - income documentation and verification Requirements Page 44 of 136

45 Where deemed acceptable for assessment purposes (refer section 6.4.3), proof of Government payments is to be obtained via either of the following methods: Copy of the annual Centrelink / Family Assistance Office statement, together with printout of direct credits into an account (printouts no older than 4 weeks old) which verify current receipt of Centrelink / Family Assistance income and that amounts are in line with the letter; or Obtain an Income Statement from Centrelink / Your Family Assistance advice from the Family Assistance Office that is no older than 4 weeks prior to the application date. Page 45 of 136

46 9. Non-residents 9.1 Applications from non-resident individuals for A$Loans Nonresidents Definition of non-resident individual Any person who: Permanently resides out of Australia and is not an Australian citizen, or Is an Australian citizen living and working out of Australia for more than 6 consecutive months, or Is holding any type of Australian Permanent Resident visa and is not an Australian citizen and is not residing in Australia, or Is the spouse of an Australian citizen, and is not residing in Australia Bank s objective There is a commitment to be involved in lending to non-residents with the objective of becoming the preferred financier to non-residents for the purchase of residential real estate in Australia. This policy addresses lending to individuals who are classed as being residents of foreign countries for tax purposes and applies to loans for Australian dollar amounts only. Where the Assessor has reason to believe that an applicant is subject to an offshore tax regime, this policy is to be invoked. The Bank wishes to make loans to such persons but manage the risk associated with any interest withholding tax liability. A non-resident's home country (ie. the country a resident resides in for tax purposes) has the right to tax income earned by St.George Bank Group (ie. interest on loans) that is sourced in that country. Withholding Tax and Tax advice Page 46 of 136

47 Assessors are to inform customers that they may have a potential liability to pay Withholding Tax in their country of residence and that they should undertake their own investigations in this regard and should always seek their own tax advice. Note: Tax advice of any nature must NOT be offered to applicants/borrowers under any circumstances. Income supporting the loan Loans to non-residents may be either self-supporting in Australia or not self-supporting in Australia. Loan self supporting in Australia Self supporting in Australia means that 80% of rent plus other income generated in Australia provides a minimum times coverage for all commitments in Australia after any Australian tax liability at a minimum 1.15 CCR. The requirement for living expenses can be dispensed with only if overseas income is evident to cover all overseas living expenses. Overseas income is to be verified using standard supporting documents for non resident lending. If self-supporting in Australia, normal LVRs apply Note: LMI through MI is not available for loans to non-residents who are not Australian Citizens. Loan not self supporting in Australia Loans that are not self-supporting in Australia, as defined above, may be approved under the following strict guidelines: Maximum LVR 80% unless the borrower is an Australian Citizen (or the spouse of an Australian Citizen in a joint application). Any loans requiring LMI to be referred to Non Resident Lending to process. Debt cover ratio is to be greater than or equal to 1.15 times Page 47 of 136

48 General AssessorNB It is unacceptable for unsupported guarantees to be provided by non-residents, i.e. the guarantee is to be supported by a mortgage over Australian Real Estate in all cases. Approval from foreign investment review board (F.I.R.B.) the onus for obtaining prior approval of the F.I.R.B. rests with the purchaser - not the Assessor. Applicants with enquiries or doubts regarding their qualifications to purchase real estate should be referred to the F.I.R.B. see any person purchasing real estate without approval when not qualified to do so, is liable for heavy penalties if F.I.R.B approval is not required due to the customer holding an Australian passport or permanent resident visa, then a copy of the passport or visa should be retained on loan file. Where F.I.R.B approval is required the Assessor should instruct CMS to obtain evidence of the approval from the customers solicitor. Non-resident lending process Please complete the following before sending the loan to Non Resident Lending for approval: Non-resident foreign currency income is to be converted to $AUD via the St.George Foreign Exchange Calculator. Select the options for Sell Foreign Currency and Cheques. For rates not available on this calculator use the exchange rate calculator at Print a copy of the calculation and attach it to the loan submission. Undertake a servicing assessment as per standard policy, with the exception that repayments on any foreign debts can be assessed at their actual (overseas) interest rate plus 2%, in lieu of the Bank s standard benchmark rate Minimum CCR for Non Residents is 1.15 times Customers must be a resident of a country on the approved list below Countries Presently the Bank will lend to individual residents of the following countries: Austria (subject to conditions refer to Non Resident Lending before proceeding with the application) Bahrain Belgium Bermuda Brunei Canada Page 48 of 136

49 Cayman Islands China Denmark East Timor Falkland Islands Fiji France Germany Hong Kong Hungary Iceland (subject to customer providing a copy of a Withholding Tax Exemption from the Iceland Revenue Authority) India Indonesia Iraq (lend in AUD only) Ireland Japan Kenya Kuwait Latvia Lebanon Macau Malaysia Malta Mauritius New Caledonia New Zealand Norway Oman Papua New Guinea Philippines Qatar Russia (subject to conditions refer to Non Resident Lending before proceeding with the application) Samoa Saudi Arabia Singapore South Africa (subject to South African Exchange Control Regulations being complied with refer to Non Resident Lending for further information) South Korea Sweden Switzerland Page 49 of 136

50 Tahiti Thailand The Netherlands Trinidad and Tobago Turkey UK United Arab Emirates USA Vanuatu Vietnam In addition, please note, Australian diplomatic personnel are treated as Australian residents for tax purposes. Presently the Bank will not lend to individual residents of the following countries due to taxation liability to the Bank unless the loan is self-servicing in Australia: Bangladesh Italy Spain Taiwan Applications from residents of countries not shown on this listing are to be referred to Non Resident Lending who will inform the Assessor whether the application may proceed. This list may change from time to time and will be updated as necessary. Applications, which fall outside the non-resident policy, are to be referred to Credit via Non Resident Lending Page 50 of 136

51 14. First Home Owners Grant (FHOG) 14.1 General information - First Home Owners Grant (FHOG) Applicants are to meet the criteria set out in the FHOG Checklist/Eligibility Criteria on respective States Application forms and may apply for the grant at the same time as they apply for a home loan. FHOG application forms can be accessed direct from respective State Government websites. Whilst the FHOG amount can be factored into the Funds Position calculation it is not considered as part of the Bank s 5% genuine savings criteria Refer to Equity/savings. If the grant is declined by the State Revenue Office, Customer Mortgage Services will contact the Assessor who is to contact customer and establish whether loan is to proceed. The Assessor is to investigate impact on customers Funds Position resulting from the declined grant and whether customer is still able to proceed with loan. Where the FHOG is wholly or partly required to complete settlement, the FHOG special condition is to be included on the loan offer document, and applications for FHOG are to be lodged through the Bank Policy/procedures - First Home Owners Grant (FHOG) Policy/procedures - First Home Owners Grant (FHOG) - QLD Requirements To satisfy Queensland Office of State Revenue s requirements for supporting documentation Assessors are to ensure that customers provide the documents outlined in the attached link. (pages 10 and 11) Each applicant and their spouse is required to supply 1 form of Primary ID and 1 form of Secondary ID. These are listed on the checklist and must be certified. They must be attached to the FHOG application and forwarded to Qld CMS for processing along with the Contract of Sale. Brokers are not able to certify the documents as being copies of originals so applicants will need to supply certified copies to the brokers. Page 51 of 136

52 Copies may only be certified by a solicitor, justice of the peace, Commissioner of Declarations or Bank officers. Page 52 of 136

53 16. Loan Terms 16.1 General Loan terms Ability to repay The loan term depends on the applicant's ability to repay. Normal maximum loan term The normal maximum term for P & I loans is thirty years, however this will depend on the applicants age (refer to Applicant age and loan term policy below). Applicant Age and Loan Term Policy When assessing loan applications and structuring the loan term, the applicant s ability to retire or service the new debt post retirement age must be considered. Applications meeting the following rules should be referred to Credit unless the applicant can show a net equity position that covers the new loan amount: Any applicant is aged 55 years or over at the time of the application, AND The applicant will be aged 75 years or over at the completion of the loan term, AND The application contains a single owner occupied security If the applicant s net equity position is negative the application is referred to Credit for consideration. Assessors are to include comments in notes as to how the applicant will service the loan post the age of 75 years. Examples could include Superannuation or other investment income, or sale of other assets (excluding owner occupied property). Credit may not approve the application if the applicant cannot clearly demonstrate that repayments will be met after retirement, or the age of 75. Combination loans These loans are to have a minimum loan term of the requested interest only term and at least a 1- year P&I term eg. If a customer has requested a 1-year interest only loan, then the total loan term can only be for 2 years (1 year interest only then 1 year P&I). Note: The interest only period may be for a minimum of one year up to a maximum of 15 years Page 53 of 136

54 The contract loan term will be the total of the interest only period plus the P&I period the maximum total term is 30 years Page 54 of 136

55 17. Acceptable Securities 17.1 Overview - Acceptable securities Only the following assets may be accepted as security for secured consumer loans: residential real estate - for full details refer to 17.5 Residential real estate non prime lending areas (residential and rural) for full details Refer to 17.6 Non prime lending areas (residential & rural) Non Real Estate - for full details refer to Non Real Estate Secured consumer lending policy is primarily directed towards residential real estate secured loans. Note that commercial security is not acceptable as residential security these properties should be referred to IBB and should not be written as residential loans. The security is to meet the objective of having marketability sufficient to offset the Bank s exposure during the term of the facility. When assessing the market value of assets offered as security, the following contingencies are to be taken into account: downturn in market values resulting in decreased margins decrease in the present income stream with resulting serviceability and (capitalised) valuation problems increased impact on serviceability where highly geared proposals are concerned the potential impact of any of the above occurring at any time during the Bank s exposure is to be considered at the time of credit assessment The current Security Value (SV) of residential property is in terms of Valuation Policy. Refer to 19. Valuations policy & procedures. The amount the Bank will lend against the SV is determined by the Bank s loan to value ratio (LVR) policy. Refer to LVR calculation Loan to value ratio (LVR) Third party security/guarantees Acceptable securities Third party security is when the Bank is offered security by a person (or persons) other than the borrower/s. The Bank does not take a third party mortgage, but takes: Page 55 of 136

56 a first party mortgage from all mortgagors a guarantee from the mortgagors who are not borrowers Note: Under no circumstance is a 3rd party security to be taken without a supporting guarantee. For full details Refer to 3. Guarantees 17.3 Landslip areas/mine subsidence Acceptable securities Landslip The Bank will consider proposals where the property is within a recognised landslip area on the basis of a valuer s report. The report is to comment on land movement and the necessity for a geotechnical report. If the valuer recommends a geo-technical report, customer(s) should be informed of this requirement prior to approval. The Loan Agreement is to be conditioned accordingly. Mine subsidence Proposals where the property is within a prescribed mine subsidence area will be considered subject to panel valuer recommending the property as an acceptable security to the Bank Flood prone area - Acceptable securities Generally, properties that are located in a floodway or direct current are not acceptable as security. Proposals will be considered, however, for properties in flood prone area, provided: full flood cover insurance is available and satisfactory valuer or surveyor reports are held 17.5 Residential real estate Acceptable securities Residential real estate includes the asset types listed below. Specific policy requirements for each asset type are detailed in the following sections. Page 56 of 136

57 Completed residential dwellings residential real estate The Bank s total exposure against completed residential dwellings is limited to a maximum of 20% of all the dwellings within the same development/complex/subdivision. This is then further restricted to a maximum of 4 dwellings in the same development/complex/subdivision per borrower group. Generally, loans for developments of more than four dwellings per borrower group are to be submitted to Corporate and Business Banking. Note: Relocatable homes/transportable homes on their own are unacceptable as security unless they are fixed to the site with all services connected. This means that the land on which they are located must form part of the security to be provided and over which a mortgage is to be registered. Refer to 21. Building loans. For applicable Loan to Value Ratios refer to LVR table Residential dwelling to be erected (Building loans) Residential real estate For owner occupied and investment loans Building loans policy/procedures are to be followed. Refer to 21. Building loans. Loan applications for construction of investment properties costing $1mil or more and developments of 4 or more dwellings, are to be initially directed to Corporate and Business Banking. Where construction is considered to be 'unusual' for a retail proposal, the deal should be referred to Credit in the first instance for additional instructions before proceeding. 'Unusual' in this context would include the following: Construction costs of greater than $1mil Developments of 3 dwellings in one line Where the construction costs equate to more than 80% of the total end value of the property Where the construction itself is of unusual design eg. pole house construction, or the building site requires access or ingress/egress (both during and on completion of construction) via cranes or inclinators. A Quantity Surveyor is also to undertake the review of cost and quantities for the proposed construction in addition to a valuer. Page 57 of 136

58 Note: Relocatable homes/transportable homes on their own are unacceptable as security unless they are fixed to the site with all services connected. This means that the land on which they are located is to form part of the security to be provided, and over which a mortgage is to be registered. Refer to 21. Building loans For details of LVR calculations refer to 18.1 LVR calculation Vacant land Residential real estate Land is to be zoned for residential usage. Different LVRs apply, depending on the valuation and size of the land. (Refer LVR table) For combination loans and for proposals above an LVR of 90%, LMI cover (through MI) is restricted to capital city metropolitan areas only. To be acceptable as security, vacant land must satisfy the following conditions: the property to have reticulated power service connected, water - tank/town, sewer/septic, etc property to have direct vehicular access on appropriate all weather surfaces for two wheel drive vehicles must be zoned for residential usage, irrespective of the actual zoning type (Rural Residential, Rural etc.), as confirmed by the valuation report or a zoning certificate maximum LVR depending on land size as per LVR table Serviced apartments, Hotels & Student Accommodation Residential real estate Definition Serviced apartments, Hotels & Student Accommodation generally have one or more of the following characteristics: contract of sale involves sale and leaseback (rental agreement) arrangement property managed by management company/operator for the purpose of providing shortterm accommodation /occupation, eg hotel, motel, tourist resort, student residence often includes a restriction on permanent occupancy by the owner and or restricted occupancy rights the complex generally meets the definition of a "Managed Investment Scheme" (as defined in Section 1012E of the Corporations Act) property s value is dependent upon rental returns the specialised nature of the property limits resale opportunities Page 58 of 136

59 Note that this policy excludes Hotels / Motels converted to Residential strata units refer Conversions to residential from other usage Residential real estate Criteria Serviced apartments are only accepted as residential security if the following characteristics are evident: The property must be self-contained. The property must be residential in nature and include kitchen, bathroom, living area and bedroom. Securities that have communal bathrooms or kitchens are not acceptable. The property must contain full kitchen facilities including oven, cook top, sink and fridge at a minimum. A microwave oven by itself is not acceptable. Permanent occupancy must be permitted by the local government regulations, zoning classifications and or resort/property manager conditions. Any lease is less than 2 years. Any rental does not form part of a pooled rental income scheme. Purchase contract or property management agreement allows the bank to act on its security without limitations other than leaseback arrangements (i.e. right of permanent occupancy is not encumbered in the case of mortgagee sale). Minimum floor size of 50sqm (excluding balcony) is required. Any new developments are to be referred to Credit for prior approval. Approval to lend against a new serviced apartment, hotel or student accommodation development Credit s prior approval is required for each new complex or development. Full assessment of the operator is required to ensure they have a sound history in this type of business and is financially stable. Proposal submitted for consideration is to include the following information: full details of the security property and development, including address/location, size, type, title details etc; Copy of the "Product Disclosure Statement" (PDS) if the serviced apartment investment property is deemed to be part of a "Managed Investment Scheme" (as defined by Section 1012E of the Corporations Act). If a PDS is not available, it is the applicant's responsibility to advise why it is not a "Managed Investment Scheme". Generally, this would be where there are less than 20 purchasers/$2 million ceilings. copy of the contract of sale including any leaseback arrangements; and council zoning, identifying restrictions on property use; and owner/developer/operator details; and completion dates (where being built, refurbished or converted); and maximum exposure per complex to be 20% Page 59 of 136

60 Approval to lend against an existing serviced apartment, hotel or student accommodation complex When security offered is within an existing serviced apartment, hotel or student accommodation complex and where the original development was not approved and funded by the Bank, applications may be approved on an individual loan basis, as identified below. These properties have historical performance measures, which can be used to approve the security. The valuer s report will identify a market value based on comparables and rental history. The report will also identify the property and market risks. Where appropriate the valuer will comment on any adverse risk ratings. Maximum Exposure Maximum exposure will generally be restricted to 20% per complex. Maximum exposure per borrower group within a single complex will be restricted to the lower of 20% and four units. Approval of individual loan applications Where a new serviced apartment, hotel room or student accommodation unit is being offered as security, submit all loan applications to Credit for approval. Where an existing serviced apartment, hotel room or student accommodation unit is being offered as security in a development which has already been reviewed and approved by Credit (as noted on the Approved Developments Register), these may approved by Assessors within their authority provided any conditions imposed on the development, as well as the requirements set out in this policy, are complied with. Any exceptions must be referred to Credit for consideration. LVRs A maximum LVR of 70% will apply. Refer LVR policy section LVR table Size restrictions A minimum floor size requirement of 50 square metres (excluding balconies) applies. Anything with a floor size less than this is a policy exception and will require prior referral to Credit for consideration. Page 60 of 136

61 Serviceability Use 60% of gross market rental income for serviceability, based on market rental for the serviced apartment minimum serviceability ratio to be 1.25 times cover Valuation A full (short form) valuation is required for each property (excluding chattels) based on marketability as a serviced apartment, hotel room or student accommodation unit. Documentation Documentation is completed by Customer Mortgage Services in the normal course as per the standard process for home loan proposals. CMS will review the Contract of Sale and Lease Agreement to ensure the Bank's interests as mortgagee are fully protected Conversions to residential from other usage Residential real estate Non-residential properties (warehouses, hotels/motels, commercial offices etc) that are converted for residential use are often smaller than normal strata units or have unique features. As such, there is a limited resale market and lower LVRs apply to address this risk. LVRs A maximum LVR of 70% will apply. Refer LVR policy section LVR table Size restrictions A minimum floor size requirement of 50 square metres (excluding balconies) applies. Anything with a floor size less than this is a policy exception and will require prior referral to Credit for consideration Inner city (high rise) apartments Residential real estate Definition Inner City Apartments are defined as apartments exceeding four stories in the following postcodes: Page 61 of 136

62 State Postcodes NSW Victoria Queensland South Australia Western Australia Northern Territory 0800 Note: ACT and Tasmania are excluded For the purpose of this policy, inner city apartments are apartments that are not serviced apartments (as defined in Serviced apartments) in the Central Business District (CBD) and/or immediate surrounding area. Size Restrictions (Including securities located in inner city postcodes and other postcode categories) A minimum floor size requirement of 50 square metres (excluding balconies) applies. The only exceptions are for securities located in specific postcodes as shown in the table below: Non LMI LMI State Postcode Min Size Max LVR Min Size Max LVR NSW 2010, 2011, sqm 80% 40sqm 90% VIC 3121, 3141, 3181, 3182, 3183, sqm 80% 40sqm 90% QLD 4000, 4001, 4002, 4003, 4004, 4005, sqm 80% 40sqm 90% NSW 2000, 2001, 2002, 2004, 2006, 2007, 2008, 2009, 2012, 2015, 2016, 2017, 40sqm 80% 40sqm 90% Page 62 of 136

63 2077, 2138, 2140, 2205 VIC 3000, 3001, 3002, 3003, 3004, 3006, 3008, sqm 80% 40sqm 90% SA 5000, 5001, sqm 80% 40sqm 90% WA 6000, 6001, 6003, 6004, sqm 80% 40sqm 90% NT sqm 80% 40sqm 90% TAS sqm 80% 40sqm 90% Note: For all other postcodes not listed above, standard policy applies. The following policy requirements must be met for all loans: Residential zoning only. Minimum unit size excludes balconies and car spaces. Maximum LVR: 80% LVR (Non Mortgaged Insured) and 90% plus LMI Premium Capitalisation (Mortgaged Insured). Unit must contain full living facilities including Kitchen and Bathroom facilities within the unit. Securities that have communal bathrooms or kitchens are not acceptable securities. Communal laundry facilities must be available at a minimum, if not located within the confines of the security property. Short Form valuation required Maximum four (4) units in any one development for any one Purchaser. Maximum 25% exposure to any one development 80% of gross rental income allowed for servicing purposes (standard policy). All other standard policy and procedures apply. Unacceptable Security Properties Serviced apartments (min 50sqm). Managed apartments with restrictive on-sale covenants. Time share apartments. Any property bound by exclusive management agreements or rental guarantees. Properties used for business purposes. Company title. Hotels / Motels. Page 63 of 136

64 Third-Party security. Student accommodation. Aged care facilities. Residential properties having a commercial use, other than residential rental income. Anything with a floor size less than the minimum required is a policy exception and will require prior referral to Credit for consideration. Valuations For securities with less than 50sqm that meet the postcodes restrictions as explained above in Size Restrictions, a short form valuation is required in all cases. For all other inner city apartments, Standard Valuation policy is to apply, with the exception of using a Current Local Council Rates Notice to ascertain value. Please refer to Serviceability Rental Income Use 80% of Gross rental income in serviceability calculation. The amount of gross rental income is to be taken from the valuer's assessment in the valuation report. A letter from real estate agent is unacceptable. Loan to Value Ratio (LVR) LVR is 80% without Mortgage Insurance or up to 90% plus LMI premium capitalization with Mortgage Insurance. Refer LVR policy section LVR table Residential properties up to 8Ha Residential real estate Residential allotments of up to 8 Ha that have been submitted and are zoned for the purpose of residential use irrespective of the actual zoning (eg Rural), will be classified as 'Residential Real Estate for consumer lending purposes. LVRs and credit policy for normal residential property will apply. Refer to LVR table Residential properties greater than 8Ha Residential real estate Includes: Page 64 of 136

65 Residential property greater than 8 Ha up to 50 Ha Residential property greater than 50 Ha. For Residential property up to 8 Ha, refer to Acceptable Securities To be acceptable as security, residential properties where land size is greater than 8 Ha are to satisfy the following conditions: the prime purpose of the property is for residential occupancy, including properties where work is to be undertaken to bring the property up to residential occupancy standard. a satisfactory short form valuation is required for all properties. Any report with a property or market risk rating of 4 (medium to high) or 5 (high) is to be regarded as a policy exception. All policy exceptions are to be approved by Credit the property is to have reticulated power service connected, water - tank/town, sewer/septic, etc land to be improved (ie. existing dwelling, or to be erected). If 'to be erected', the valuation is to include confirmation that there are no restrictions against building a residential dwelling (for vacant land refer Vacant land Residential real estate ) property to have direct vehicular access on appropriate all weather surfaces for two wheel drive vehicles must be zoned for residential usage, irrespective of the actual zoning type (Rural Residential, Rural etc.), as confirmed by the valuation report or a zoning certificate maximum LVR depending on land size as per LVR table All residential properties where land size is greater than 50 Ha are to be referred to Credit for approval. Note that residential properties where land size is greater than 8 Ha may also be impacted by their location refer to 17.6 Non prime lending areas (residential & rural) Acceptable securities Serviceability Cash Flow generated from activities carried out on the residential property (such as farming) is not to be included in a serviceability assessment. If income is required for serviceability, refer application to Credit for consideration. Unacceptable Securities Specialised rural properties Specialised rural properties are generally not acceptable as security for secured consumer lending. Specialised rural properties are those that cannot be readily adapted to alternative uses and retain their current market value in the process. Page 65 of 136

66 Types include intensive poultry, piggeries and boutique ventures (eg emus or llama grazing, banana plantations, vineyards). Where specialised rural properties are offered as security, refer application to Credit for consideration. Low Doc Home Loan and Low Doc Portfolio Loan Residential properties greater than 8 Ha Refer to LVR table Off the Plan Strata Purchases As with package deals for newly constructed houses, progress payments will not be made for construction of units. Loans for individual units purchased off-the-plan' may be approved, and will be subject to satisfying the following conditions prior to settlement: new statement of Assets and Liabilities from each borrower; new Income and Employment statement for each borrower; updated credit bureau report on each borrower (and guarantor) updated Valuation Report/s on the security property/s settlement is to occur within 17 months of approval/disclosure date A special condition stating the above is automatically added by Clas/LIS to the loan offer* Additional supporting information may also be found in 21.5 Package deals Building loans. Note: Extended settlement not available via Portfolio Loan Over 55 s developments Definition Residential properties held under clear title in designated communities where age restrictions (generally greater than 55 years old) must be met in order for individuals to own and reside in the property. These properties are not a retirement village as defined by the Retirement Villages Act 1999 nor are they any residential facility that provides assisted living in the form of nursing care, meal support or housekeeping. Loan to Value Ratio (LVR) Page 66 of 136

67 A maximum LVR of 70% will apply. Occupancy The property purchased must be owner occupied. Investment proposals involving this type of security are unacceptable. Valuations A full (short form) valuation is required with Assessors to ensure that: There are no suggested restrictions on re-sale Clear title will be obtained on the property by the purchaser The property is readily saleable on the open market The property is not part of a retirement village or subject to a management agreement Serviceability Standard serviceability requirements to apply, including ensuring that the applicant has the ability to meet repayments over the full term of the loan sought Display Homes Residential real estate Definition Display Homes have one or more of the following characteristics: Contract of sale involves sale and leaseback (rental agreement) arrangement to developer The specialised nature of the property limits resale opportunities Mortgage insurance is not available to properties to be used as display homes. In addition, St.George requires the following assessment prior to approval: Residential Shortform valuation Market rental figure in valuation to be used in serviceability test Leaseback term to be no greater than 2 years LVRs A maximum LVR of 75% will apply. Refer LVR policy section LVR table Page 67 of 136

68 Security Restrictions Security to be an Improved Home. Vacant land and car parks are unacceptable security types. Serviceability Market rental from short form valuation is to be applied. Valuation A full (short form) valuation is required for each property (excluding chattels) based on marketability and also showing market rental. Documentation Documentation is completed by Customer Mortgage Services in the normal course as per the standard process for home loan proposals. CMS will review the Contract of Sale and Lease Agreement to ensure the Bank's interests as mortgagee are fully protected National Rental Affordability Scheme (NRAS) Definition The National Rental Affordability Scheme (NRAS) is a Government backed incentive scheme that seeks to address the shortage of affordable rental housing by offering financial incentives to the business sector and community organisations to build and rent dwellings to low and moderate income households at lower levels compared to market rates. NRAS aims to increase the supply of new rental dwellings and improve rental affordability. There are two distinct NRAS structures: Head Leases and Non-Entity Joint Ventures (NEJV). List of approved consortiums Approved Non-Entity Joint Venture Consortiums Yaran Affordable Management Corporation (AMC) Aspire Questus Quantum Housing Group (QHG) Urban Affordable Housing Association (UAHA) via company structure '4 Walls Ltd'. Ethan Affordable Housing Page 68 of 136

69 Affordable Housing Consulting Pty Ltd ( AHC ) Queensland Affordable Housing Consortium Ltd (QAHC) Providence Housing Pty Ltd Community Housing Canberra Limited (CHC) Crown Properties Pty Ltd Coast2Bay Housing Group Ltd Approved Head Lease Structured Consortiums Queensland Affordable Housing Consortium Ltd (QAHC) Brisbane Housing Company (BHC) Providence Housing Pty Ltd At this time applications cannot be accepted from any other consortiums. Head Lease All applications from approved consortiums must be referred to Credit and/or LMI for decisioning. The following policy applies to all applications: Vacant land purchase or refinances are excluded; Low Doc and Super Fund Home Loan proposals are not acceptable; Short form valuations undertaken in all cases under standard valuer instructions - valuers to exclude any price premium that may be attributable to NRAS; Construction loans are permitted for house & land packages where the Contract of Sale for the land purchase & Fixed Price Building Contract for construction are provided at the time of loan approval; Rental income used for serviceability assessment reflects the consortium arrangement of a 25% discount on the normal market rent for the property. Tax free incentive payment to be excluded from servicing; o In the case of NRAS security not currently owned or rented, the market rental stated on rental income verification documentation is to be discounted by 25%. Where the security is being purchased: o A fully completed, correctly witnessed 'NRAS Statutory Declaration of Financial and Legal Advice' has been provided by all borrowers prior to Unconditional Loan Approval. Note: The customer is to complete the declaration for the state in which the declaration is being made. Maximum LVR 70% (non LMI) or 85% plus capitalisation (LMI); Page 69 of 136

70 Maximum exposure of 25% in any NRAS individual development; All other standard Bank policy and LMI underwriting guidelines to apply. Verification of Head Lease The QAHC and BHC legal agreement requires a Head Lease to be signed between QAHC / BHC and the investor. In all cases Assessors must forward the signed Head Lease to Credit for verification. Credit will verify that the Head Lease has the following: QAHC HL BC for properties which have a body corporate; and QAHC HL for properties with no body corporate. Brisbane Housing Company Limited template NRAS headlease 23 November version 1 in the footer. "Providence Head Lease agreement (version 14). Non- Entity Joint Venture (NEJV) The following policy applies to all applications: NRAS tax incentives are excluded from serviceability assessment; Maximum exposure of 25% in any NRAS individual development; All other standard Bank policy and LMI underwriting guidelines to apply. For NEJV where NO Lenders Mortgage Insurance is required: Applications can be processed using standard Consumer Lending Policy. For NEJV where Lenders Mortgage Insurance IS required: All applications from approved consortiums must be referred to LMI underwriters for decisioning. Vacant land purchase or refinances are excluded; Construction loans are permitted for house & land packages where the Contract of Sale for the land purchase & Fixed Price Building Contract for construction are provided at the time of loan approval; Full Valuation mandatory; NRAS tax incentives are excluded from serviceability assessment; Approval confirmation via LMI Underwriters; Max LVR 90% plus LMI cap; All other standard LMI underwriting guidelines to apply Non prime lending areas (residential & rural) Acceptable securities Page 70 of 136

71 A non-prime lending area is defined as a town with population <500, except if: the town is situated within 20kms of another town/centre with a population >1000 there is St.George group (SGB/BSA) full service branch representation Zoning may be Residential, Rural, Non-urban and may also include Village/Hamlet Non real estate Acceptable securities The following classes of assets are also acceptable as security for bridging finance only (i.e. Relocation loans) in order to assist customers to transition between properties while still waiting for the sale of their existing property to occur: term deposits or interest bearing deposits (IBD St.George Bank Group only) The following should be noted when considering acceptance of term deposit as security for Relocation Loans: A hold must be placed on the term/interest bearing deposit account to ensure funds are not released to, or accessed by, the customer(s) whilst the loan is still in existence Acceptance of term deposit security is intended for instances where multiple securities are involved, including residential property, or where a simultaneous sale and purchase transaction cannot be arranged The IBD s term should be in line with the relocation loan term Any substitutions involving the taking of term deposit security will require individual assessment and approval by the Security Variations Unit, and Credit consent (where applicable) For existing loans which are mortgage insured, LMI cover is not available where this type of security is involved. However, for existing loans on which LMI cover is in place and the loan's existing (residential) security is to be varied to be replaced in part or whole by cash security, prior consent from the insurer is to be sought in order to suspend cover pending a substitution for real estate occurring in the future. Suspension of existing LMI cover will only be considered under the following circumstances: o where a signed contract for the purchase of another residential property is held at the time of putting term deposit security in place; or o up to a three month period from the date that term deposit security is accepted by the Bank as interim security pending its replacement with residential property; and o it is a clear substitution proposal and there are no additional borrowings (when replacing the term deposit with real estate); and o the residential real estate that will be brought on within 3 months is a 'like for like' property to the one originally insured by MI. Page 71 of 136

72 In all other cases where the above requirements cannot be met, any future substitution replacing the term deposit with a residential property that requires LMI will be subject to full assessment by the LMI provider, and a full premium being paid. Any other non real estate security is to be referred to Credit for consideration prior to proceeding with an application. Page 72 of 136

73 18. Loan to Value Ratio (LVR) 18.1 LVR calculation Loan to value ratio (LVR) The Loan to Value Ratio (LVR) is calculated and expressed as a percentage by dividing the loan amount by the lower of either the purchase price or the Security Value (refer Sect Definitions Valuation methods ) except where detailed below. Exceptions In the following circumstances the Security Value may be used to calculate the LVR: 1. Purchase price is either not available or not applicable, eg: second mortgages (behind other financial institutions) add-on loans/increases/additional loans dual/multiple securities (existing plus new security) refinances favourable purchase (preferential purchase price) for sales between family members favourable purchase (preferential purchase price) other than between family members - subject to prior referral to and final acceptance of such proposals by Credit land value for Building Loans where the residence is being erected on land owned by the applicant, ie. the purchase price of the land may not be applicable (refer full details below). The original date of the contract of sale is more than 3 months old and the loan amount does not exceed the purchase price stated on the contract of sale. 2. Building loans Land already owned by the applicant For Building loans where the applicant owns the land, the purchase price is not applicable. In these instances the valuation amount for LVR calculation is to be based on the valuation amount of the land plus the lower of either the cost (tender price) or the 'on completion' value of the Building loan improvements. Refer to Building loan on land owned by applicant in Example 4 To be erected (Building loan) applications in Attachment A examples. Page 73 of 136

74 Land purchase and house construction Where the land is being purchased as part of the Building loan application, normal policy to apply i.e. use the lower of the 'on completion' valuation or purchase price (sum of land purchase price plus cost to construct). Refer to Land purchase and house construction in Example 4 To be erected (Building loan) applications in Attachment A examples. 3. Multiple residences Where more than one residence is to be erected eg duplex, villas, town houses, the LVR will be based on the lower of either the cost or the 'in line' valuation amount. Note: Any 'on completion' valuations for each residence are not to be used to calculate the LVR Second mortgages LVR calculation Second mortgage behind first mortgage to other financial institutions A 20% buffer for contingencies is to be used in the calculation of the LVR. The 20% buffer amount is calculated by multiplying the amount outstanding under the 1st mortgage by 20%. To assess the LVR, use the total of all loans, including the amount of the 20% contingency buffer. A special condition of settlement for our (2 nd mortgage) loan will be that consent from the prior mortgagee be obtained (the Bank s mortgage preparers will write to obtain the consent from the prior mortgagee). A component of the consent is that the prior mortgagee establishes their priority amount. This amount can be no more than the amount initially used to calculate the LVR for our loan i.e. balance outstanding plus 20%. If this occurs, additional approvals will be required (refer Credit). Refer to Example 3 1st and 2nd mortgage security in Attachment A examples. Note: MI LMI is not available for second mortgages. Second mortgage behind first mortgage to St.George Bank Group Normal LVRs apply where the St.George Bank group holds 1 st, 2 nd or subsequent mortgages. There is no requirement for a 20 % buffer to be added. Page 74 of 136

75 Examples LVR calculations The following are examples only. Refer policy for details of acceptable security types and LVRs. All examples are based on LVRs applicable to P & I Loans. Example 1 single residential property Security type Estimated LVR % P&I Loan Extended value Security Value Without LMI With LMI Without LMI With LMI Residential Property Owner Occupied detached house $350,000 80% 95% $280,000 $332,500 Example 2 (a) multiple security (property) types with different LVRs applicable to each type of security Security type Estimated Security Value LVR % P&I Loan Without With LMI Extended Value Without With LMI LMI LMI Residential Property owner occupied $250,000 80% 95% $200,000 $237,500 Residential Property Company Title $250,000 80% 85% $200,000 $212,500 Serviced Apartment floor size > 50sqm $150,000 70% n/a $105,000 - Page 75 of 136

76 Other Rural (not a hobby farm) $100,000 50% n/a $50,000 - Totals without LMI $555,000 Totals with LMI $450,000 Example 2 (b) multiple security Illustrates how revised policy has removed the need to write a 'stand-alone' loan due to previous $750,000 TSE restrictions Extended Value Calculations Security type Value LVR Percentage Extended Value Without LMI With LMI Without LMI With LMI Residential Property A owner occupied $500,000 80% 95% $400,000 $475,000 Residential Property B Investment $600,000 80% 90% $480,000 $540,000 Total $880,000 $1,015,000 Example 3 1 st and 2 nd mortgage security Two residential properties (A &B) offered as security with: Page 76 of 136

77 1 st Mortgage to St.George Bank Group over property A 2 nd Mortgage to St.George Bank Group over property B. 1 st mortgage held by another financial institution (National Australia Bank [NAB]) Security Estimated Security Value (EMV) LVR Maximum Extended Value Property A $350,000 80% $280,000 1st Mortgage over Residential Property Property B $350,000 75% 262,500 2nd Mortgage over Residential Property Sub Totals $700,000 $542,500 * Less: ($180,000) 1st Mtge to NAB over property B $150,000 20% buffer ($150,000x20%) $ 30,000 Total Maximum Lending Value for St. George Group $362,500 Note: MI LMI is not available for second mortgages Example 4 Building loan applications The following examples are illustrated for Building loans: Example 4.1 Building loans on land owned by applicant Example 4.2 Land purchase and house construction Page 77 of 136

78 Building loan on land owned by applicant Use lower of: The cost (tender price) of the residence to be constructed plus the valuation amount of the land. OR The On Completion value of the land and building. Assessors must capture construction costs on land already owned by the applicant as per the table below to ensure that the correct LVR is calculated. Security type Estimated Security Value LVR% Maximum extended value Purchase price of land & On Completion Use Without LMI With LMI Without LMI With LMI building valuation Residential property: Land (cost $150k 12 mths ago) $150,000 Land (cost $150k 12 mths ago) $200,000 $200,000 Building $145,000 $150,000 $145,000 (tender price) Total $345,000 Tender + Land Valuation $350,000 $345,000 (USE LOWER OF TOTAL OR VALUATION) 80% 95% $276,000 $327,700 Land purchase and house construction Where the land is being purchased as part of the Building loan application, use the lower of the; On Completion Valuation. Page 78 of 136

79 OR The Purchase Price (Assessors must record the sum of the land purchase price plus the cost to construct. Assessors must capture the land purchase and house construction costs as follows to ensure the correct LVR is calculated Security type Estimated Security Value LVR% Maximum extended value Purchase Price of land & building On Completion valuation Use Without LMI With LMI Without LMI With LMI Residential property: Land $195,000 $200,000 $195,000 Building $145,000 $150,000 $145,000 (tender price) Total $340,000 $350,000 $340,000 80% 95% $272,000 $323,000 NB: (Assessors must record the sum of land purchase price plus cost to construct in this field) Uses of LVR Loan to value ratio (LVR) LVR is used to determine: the maximum amount the Bank will lend against the current security value (SV) of acceptable assets offered as security. This amount is called the Extended Value (EV). Where there are multiple securities the sum of the extended values of each proposed security is the maximum amount the Bank will consider lending. the amount the Bank will lend to manage exceptional credit risk eg applicant type, location, loan purpose Page 79 of 136

80 when Lender s Mortgage Insurance (LMI) is required 18.3 Multiple securities - LVR Acceptable residential properties/cash multiple security Where different types of residential properties and or cash are offered as security, apply the relevant LVR to each type of security to determine the Extended Value (EV). The sum of the EVs is the total amount the Bank will consider lending against all securities. Refer to Example 2 multiple security (property) types with different LVRs applicable to each type of security. Residential properties/cash/other assets multiple security Where a mix of acceptable residential and or other types of acceptable security is offered, refer the loan application to Credit. NB Commercial properties are generally unacceptable as security for a consumer loan 18.4 LVR table LVRs for acceptable assets offered as security and applicant/ purpose risks are detailed in LVR table. The table does not exhaustively list or replace any other credit policy contained elsewhere in this manual or LMI acceptance criteria. The table identifies the maximum LVRs for when: lender s mortgage insurance (LMI) is not required (without LMI) lender s mortgage insurance (LMI) is required (with LMI) lender s mortgage insurance (LMI) is not available with MI. Lender s Mortgage Insurance Where LMI is required, refer LMI policy. Refer to 22. Lenders mortgage insurance (LMI). All policy exceptions are to be submitted to Credit for approval in all instances, prior to seeking approval for LMI cover through MI. For loan applications that are to be submitted to MI for approval, lower LVRs may apply. Page 80 of 136

81 Acceptable securities policy The LVR table is to be read in conjunction with Acceptable Securities policy. This policy identifies the acceptance criteria for each type of asset offered as security Refer Overview to 17.7 Non real estate LVR table Legend: 1. refer to appropriate LMI insurer for prior approval in all cases 2. all policy exceptions are to be referred to Credit for a credit decision, before seeking LMI approval 3. not available through MI 4. new customers with max LVR of 95% are subject to all standard LMI >90% policy restrictions plus: maximum loan amount of $750,000 no Auto Decline overrides will be considered genuine savings policy applies, with the exception of Inheritance and Sale of nonreal estate assets which are capped at 90% LVR 5. any applications for investment loans that have an LVR >90% will require a minimum equity of 10% to be held in another property. Note: Maximum LVRs may be exceeded to cover the cost of the LMI premium refer to: 18.5 Exceeding maximum LVR LVR Risk Factors Max LVR Max LVR Max LVR Max LVR Without Without LMI LMI LMI LMI required required P & I Int. Only P & I Int. Only Non Prime Lending Area refer 17.6 Non prime lending areas Page 81 of 136

82 A Non Prime Lending Area is, defined as a town with population <500, except if: the town is situated within 20kms of another town/centre with a 50% 50% Policy exception Policy exception population >1000. there is St.George group (SGB/BSA) full service branch representation Single Security Property Any security property <= $2.0 million (all locations) 80% 80% 95% 90% (Note: Acceptance at the maximum LVR subject to review and approval by Credit in all cases) Any security property >$2.0 million and <= $2.285 million Max borrowings Max borrowings LVR determined LVR determined (all locations) * Sliding LVR scale between of $1.6million* of $1.6million* case by case case by case 70% and 80% limiting max borrowings to $1.6m Applications can be Applications can be referred up to max One referred up to max Obligor Total (OOT) of OOT of $2.5million $2.5million Any security property > $2,285,000 (all locations) 70% 70% LVR determined case by case Applications can be referred up LVR determined case by case Applications can be referred up Page 82 of 136

83 to max OOT of $2.5million to max OOT of $2.5million Loan Products Portfolio Loan Not applicable 80% Not applicable 90% Re-Location Loan with 80% of 80% of 90% of 90% of end debt peak debt peak debt peak debt (owner peak debt (owner occupied only) occupied only) Re-Location Loan with no end debt 80% of peak debt 80% of peak debt Not available Not available Residential Real Estate refer 17.5 Residential real estate Completed Residential Dwelling Detached House Semi detached / terrace / duplex Townhouse/villa/unit (strata title) Residential property < 2.5 HA) Owner Occupied - 1 st Mortgage 80% 80% 95% 95% All refinances from other financial institutions 80% 80% 90% 90% Non-Owner Occupied (Investment) 1 st Mortgage 80% 80% 95% 95% 2 nd Mortgage security, Owner Occupied / Investment loans: refer Second mortgages LVR calculation Page 83 of 136

84 Behind St.George Bank Group 80% 80% 95% 95% Behind other financial institutions 75% 75% Not Available Not Available Note: LVR applies to the combined 1st and 2 nd mortgage loan amounts (Refer to Example 2 multiple security (property) types with different LVRs applicable to each type of security in Attachment A - examples). Company Title 80% 80% 85% 85% NRAS security under a Head Lease arrangement 70% 70% 85% 85% NRAS security under a Non- Entity Joint Venture (NEJV) 80% 80% 90% 90% Stratum Title security 80% 80% 85% 85% Owner Builders (refer Owner builders Building loans) 60% 60% Policy Exception Policy Exception Moiety Title (BSA only) 70% 70% Policy exception Policy exception Non-Resident borrower: refer - 9. Non-residents Self supporting (in Aust.) 80% 80% Both policy Not self supporting 80% 80% exceptions Both policy exceptions Vacant Land refer Vacant land Security Value > $50,000 and size <= to 8 Ha 80% 80% 95% 95% Security Value < $50,000 and / or size > 8 Ha but <= 50 Ha 70% 70% Policy exception Policy exception Page 84 of 136

85 Land size > 50 Ha (Refer all deals to Credit) Not acceptable Not acceptable Not acceptable Not acceptable Inner City Apartments refer Inner city (high rise) apartments Min size requirement 50sqm except if noted in % 80% 90% (as defined in ) 90% (as defined in ) Serviced Apartments, Hotels & Student Accommodation refer Serviced apartments, Hotels & Student Accommodation Residential real estate 70% 70% Both Policy exceptions Both Policy exception Display Homes refer Display Homes Residential real estate 75% 75% N/A N/A Conversions to residential from other usage (eg warehouses, hotels/motels, commercial offices) refer Conversions to residential from other usage 70% 70% Both Policy exceptions Both Policy exceptions Residential Real Estate located in Concentrated Risk Postcodes New loans and increases in the following postcodes for investment and portfolio loans only (excludes owner occupied): 70% 70% 90% 90% 3232, 3460, 4225, 4717, 4744, 4745, 4746, 4819, 4877, 6516, 6710, 6713, 6714, 6716, 6718, 6720, 6721, 6722, 6723, 6751, Page 85 of 136

86 6753, 6754, 6758, 6760, 6762 Residential property > 8 Ha refer Residential properties greater than 8 Ha Residential real estate Residential property > 8 Ha but <= 50 Ha 80% 80% Policy exception Policy exception Residential property > 50 Ha (Refer all deals to Credit) 50% 50% Policy exception Policy exception Other Specialised Residential Real Estate All other specialised residential property eg Resort style developments Boarding houses Leasehold property located in the NSW & VIC snowfields Refer to Credit for instructions, prior to proceeding with any applications. Acceptability and LVR will be considered on a case-by-case basis. Non Real Estate Assets refer Non real estate Term Deposits St.George Bank Group 100% 100% N/A N/A Low Doc Home Loan and Low Doc Portfolio Loan Max LVR Without LMI Max LVR Without Max LVR LMI Max LVR LMI P & I LMI required required Int. Only P & I Int. Only and Portfolio Loans Maximum Total Security Exposure (TSE) Security and Borrower Restrictions Page 86 of 136

87 To $1 million 60% 60% 80% 80% >$1 million to $1.5 million 60% 60% N/A N/A Security Type Residential properties <= 50 Ha 60% 60% 80% 80% Vacant Land <= 50 Ha 60% 60% N/A N/A Residential properties / vacant land > 50 Ha (Refer all deals to Credit) 50% 50% N/A N/A Note: Credit will consider higher loan amounts on an exception basis, generally at lower LVRs The maximum OOT (One Obligor Total) when LMI is required is $2.5 million. LVRs can be increased by the amount of the LMI premium. ## Effective 4 May 2009, an existing customer is defined as any one of the loan applicants having one of the following: 1. A CIS record of greater than 6 months and be Sole or Joint Owner of an open facility with the St.George Group (St.George or BankSA only*) at the time of application; or 2. For greater than 6 months (as at the date of application) have had any one of an existing St.George Group Commercial facility or Margin Lending facility or Auto-Finance loan. Otherwise the application is to be considered being from a new customer, and the lower LVR (or the higher minimum equity) thresholds apply. *This does not include either a Westpac customer or a RAMS customer. Page 87 of 136

88 Seniors Access / Seniors Access Plus Home Loans Age of youngest applicant Maximum loan amount Brisbane Metro, Sunshine Coast, Gold Coast, Melbourne and Sydney Metro See Attachments: Attachment B suburb boundaries for Seniors Access Loans Maximum loan amount other allowable lending areas years $150,000 or 15% of the value of the property, whichever is the lower. N/A years $150,000 or 15% of the value of the property, whichever is the lower $150,000 or 15% of the value of the property, whichever is the lower years $200,000 or 20% of the value of the property, whichever is the lower $200,000 or 20% of the value of the property, whichever is the lower. 80+ years $250,000 or 25% of the value of the property, whichever is the lower $250,000 or 25% of the value of the property, whichever is the lower If loan is a joint application and one customer is 63 and the other is 80+, then use the younger applicant's age to determine LVR and maximum loan amount available. There are no exceptions to these limits Exceeding maximum LVR The maximum LVRs, identified in section 18.4 above, may be exceeded to cover the cost of Lender's Mortgage Insurance (LMI) premium to a maximum cap of 2% over and above the maximum LVR (per standard policy) [effective 4 May 2009]. This means that, when the maximum LVR is 95% as per policy and where LMI is being capitalised, the total maximum LVR will be 97%. Note: Page 88 of 136

89 The loan amount minus the LMI premium is to meet LVR policy. This is defined as the net loan amount. Serviceability / LVR / LMI premium Normal serviceability and LVR policy will apply i.e. serviceability and LVR will be assessed on the loan amount including the LMI premium. The LMI premium band is based on loan amount (excluding capitalised LMI premium) LVR. This is defined as the gross loan amount. Processing and Approval Where this option is chosen, process the loan on LIS and submit to Credit for approval. Where required, Credit will submit to MI for LMI cover. Attachment B suburb boundaries for Seniors Access Loans NSW SYDNEY METRO Brooklyn Kurrajong Springwood Warragamba Camden Campbelltown Waterfall VIC MELBOURNE METRO Melton Werribee Lilydale Cranbourn Mornington Page 89 of 136

90 QLD BRISBANE METRO Loganholme (South) Kippa Ring (North) Ipswich (West) Cleveland Bay (East) SUNSHINE COAST Noosa (North) Caloundra (South) Nambour (West) Montville/Mooloolah (South West) Otherwise, all areas east of the Highway GOLD COAST Tweed Heads NSW (South) Coomera (North) Nerang (West) Page 90 of 136

91 19. Valuations - Policy 19.1 Introduction Valuations policy The security value (SV) of residential real estate property offered as security is to be determined for each residential consumer mortgage loan Real estate valuation methods Valuations policy For customer service and cost, the valuation method to be used is to be considered in the following priority: 1. existing security values 2. local council rates notice 3. purchase price 4. electronic market value estimate 5. restricted valuation 6. valuation report Definitions Valuation methods Security value (SV) Security value (SV) is the value assigned to residential real estate offered as security and used by the Bank for its lending purposes. The SV, determined in accordance with the methods defined in this policy, is used in the calculation of loan to value ratio (LVR). The resultant LVR determines the maximum amount the Bank will lend against the security. Refer to 17. Acceptable securities The SV and the date the value is assigned are held in the Bank's lending systems for future use in terms of this policy. Page 91 of 136

92 Note: The SV used to calculate an LVR may not be the same as the amount shown in a Valuation itself, but may be another amount (eg. A Customer s Estimated Market Value), and which is validated by one of the Valuation methods in accordance with this policy. New security New security is defined as residential real estate property not already mortgaged to the Bank, (proffered by the borrowers (applicants/mortgagors) including any property(s) being purchased. Existing security Existing security is defined as residential real estate property over which the Bank already holds a mortgage from the borrowers (applicants)/mortgagors. The security value and the date the value is assigned are held in the Bank's lending systems. Customers Estimated Market Value (CEMV) The estimated dollar value the customer gives (us) of their residential real estate property. Total security exposure (TSE) TSE is the total of all loan exposure against the (proposed) new and/or existing residential real estate security property(s). Note: TSE was previously referred to as the OOT (one obligor total) against the security property(s). Example: Customer has three loans with the Bank. Total OOT is $650,000. Loan 1 is an owner occupied loan of $150,000 against stand-alone security with Security Value of $200,000. TSE is $150,000. Loans 2 & 3 are investment loans totalling $500,000 against another three security properties with combined Security Values of $625,000. TSE is $500,000. However, if the security for all loans is common across each of the above facilities, then the TSE would be $650,000, the same as the customer's OOT. Page 92 of 136

93 Holiday Home A holiday home is an investment property that is leased to a resort to manage. It is not a home purchased as an investment and which is used predominantly by the borrowers for their holidays (and personal use). Confidence Score A confidence score is returned from the E-Val provider as a rating from 1-5. Rating 1 denotes that the E-Val provider is confident that the value returned is not an over estimate if compared to the result of a full valuation (if one were to be performed). A confidence score of 5 indicates the E-Val provider is less confident in the result returned. Page 93 of 136

94 21. Building Loans 21.1 Contract builders Building Loans Independent builders A contract builder must be an independent licensed builder. Where the builder is not known to the Assessor, confirmation is required from the borrower that their builder is licensed. In the situation where the builder is a relative of the applicants, have a known personal relationship or the applicants are Directors/Proprietors of the entity undertaking the construction; they must be treated as Owner Builders. Please refer section 21.2 Owner builders Building loans Payment stages Where a contract builder is involved, the stages of construction at which progress payments are made, are determined by the Bank and are in accordance with relevant State/Territory Laws and standard contract terms by the HIA or MBA. Generally, building contracts payment requirements correspond with the completion of basic stages of construction, which are: 1. Foundations 2. Frame 3. External Lining 4. Lockup/Internal Lining 5. Practical Completion Note: Please refer to Guide to Residential Building Loans for relevant information on payment stages and percentages. When a Non-Standard Building Contract is to be used please refer to relevant section (21.1) of this manual. Once each stage of construction is completed each borrower must sign the Bank s progress payments request, which confirms that the particular stage has been completed to their satisfaction. All requests for progress payments are to be forwarded to the Progress Payments Team for processing. An inspection by the Bank s original panel valuer is required prior to the bank releasing the final progress payment. The final inspection is arranged by requests are organised the Progress Payments Team on receipt of the final progress payment Page 94 of 136

95 request from the borrower(s). Final progress payment will not be released until this, and any other outstanding items, are received. Documents required prior to valuation / approval Council approved Plans and Specifications (or if not available a copy of those which have been, or are to be, submitted to council for approval) Fully itemised tender or signed building contract Tender or contract must: include address of the (security) property on which construction is to occur; be for the cost of building in accordance with approved plans and specifications include the builder s licence number be a firm tender for a minimum of 60 days not, at the date of application, be more than 2 weeks old for a 60-day tender or, more than 6 weeks old for a 90-day tender Note: Please ensure the building contract is not a Cost Plus Residential Building Contract. Marketing Material is not to be accepted in lieu of Plans & Specifications for valuing securities. Borrower's contribution Contract builder loans Where the loan amount applied for/approved, is less than or equal to the costs/tender, borrowers will be required to have the difference between the tender/contract and loan amount available in a savings account, prior to the bank authorising commencement of construction as these funds must be contributed in full, prior to the release of any loan funds. Refer to Equity/savings - Capacity to service loan. Changes to council approved plans Note: Before the Borrower make any changes to council approved plans, they must inform St.George and obtain our consent. If there are significant changes, such as to the structure or the projected costing, we will require the details in writing. The Progress Payments Team will refer the loan back to the original Assessor to reassess. The Assessor is required to order a short-form valuation to Page 95 of 136

96 confirm the property s value against the new (amended) Council Approved Plans and Specifications. Borrower's responsibility Borrowers have sole responsibility to ensure construction complies with Local Council approval conditions and, that the Construction of their dwelling meets their satisfaction before submitting each request for progress payment. The Bank and/or its valuer, has no responsibility for the quality of work undertaken by the borrower's builder / contractors. Borrowers should be encouraged to engage an independent party (at their expense) who is suitably qualified, to monitor progress of construction. All progress payments will be paid to the builder direct & not to the borrowers. Borrowers funds must be contributed in full prior to the release of any loan funds. Ascertain from borrower/s if a Non Standard Building Contract applies. It is the borrower s responsibility to forward our Commence Building Operations letter to their builder. Completion of the construction / and or final progress payment is to be made within six months from the initial advance. If a building contract is varied after the loan drawdowns have commenced, then the customers must ensure that they have access to sufficient funds to pay for any increase in the cost of construction Prior to any progress payment being made All borrowers must sign the Application for Progress Payment form (these forms are issued with the Loan Agreement) applicable for the stage of construction that has been completed. These forms MUST NOT be pre-signed. Receipt/sighting of Council approved plans & specifications must be confirmed by the Bank s (original) valuer The Bank s (original) valuer must confirm receipt/sighting of building contract, contract price, builder s details as per the supplied tender - Any shortfall of funds (Insufficient building funds (shortfall) to complete security) i.e. difference between borrower s contribution + loan amount being less than contract, will require Assessor follow up. The Assessor will need to ensure that the borrower has sufficient funds to complete & send confirmation to the Progress Payments Team. Until the shortfall has been addressed by the Assessor the Commence Building Operations Authority will not be issued Standard Building contract must be confirmed as conforming to Bank requirements (refer to Non fixed / cost plus residential building contracts & Non standard building contracts) Page 96 of 136

97 The Progress Payments Team must have issued a Commence Building Operations Authority. This occurs once title has been certified & settlement requirements met & there is no evidence of shortfall. If requested by the original valuer (NSW only), a copy of the Survey Report identifying the land and showing where the foundations/slab are located in relation to the boundaries is to be provided. Note: Generally, progress payments will be made to correspond with completion of the 5 construction stages. Please refer Guide to Residential Building Loans booklet for more information on stage setup & payments. Prior to making the final progress payment A satisfactory, final inspection report from the Bank s (original) panel valuer is required confirming all works have been completed. Progress payments department will arrange for the final inspection report. The borrower is to provide: An Application for Progress Payment, authorising payment to the builder, signed by all borrowers. Evidence of householders (building) insurance on a replacement and reinstatement basis (cover notes or broker s letters are not acceptable) for the minimum amount of cover as stated in our Loan Offer Document, with the Bank noted as mortgagee. Note: Some Insurance Companies have an unlimited reinstatement/replacement policy covering the Repair or Rebuilding costs. These insurance policies are acceptable. ACT, Victoria & NT only - copy of the Certificate of Occupancy & Compliance For properties located in Qld, St.George may require a certificate of completion/occupancy issued on behalf of the local council if stated as a requirement in the valuer s report Non fixed / cost plus residential building contracts These types of building contracts are exceptions to bank policy. A Non Fixed Price Building Contract and Cost Plus Building Contract differ to a Standard Fixed Building Contract. The main difference is materials are not a fixed price therefore the overall cost of the contract can vary. This can result in a significant increase in the contract price prior to or during construction and therefore may adversely affect the Bank s lending and security position. Assessors must view the building contract to ensure it is a standard fixed building contract. Page 97 of 136

98 If a Non Fixed or Cost Plus building contract is received, Assessors are to assess in line with Owner Builder policy (i.e. LVR criteria & valuers progress inspection reports are required prior to the payment of each completed construction stage) and the loan must be approved by Credit. Building loans not fully drawn within six months It is a condition of the loan on all residential building loan proposals, including Owner Builder loans, that construction is completed and loan is fully advanced within six months from the first loan draw down. Failure to do so may mean the bank refuses to make any further loan advances. If requested by the bank, the borrower/s will be required to provide an estimated date of completion and a reason for the delay, in order to determine continued support for the extended construction period. Progress Payment Teams will monitor loan accounts. Quantity Surveyor If total cost of construction is over $1,000,000 the borrowers may also be required to provide a quantity surveyor s report. Assessors are to refer these cases to Credit for approval. Non standard building contracts Non Standard Building Contracts are those where the Bank s standard construction stages and payment percentages differ to those outlined in the Guide to Residential Building Loans. Any Non Standard Building contracts where payments are requested outside of the Bank s standard payment percentages cannot be approved by a Assessor and must be referred to Credit for approval. Incomplete securities If a request for a final stage payment is received and the final inspection report indicates that there is work outstanding (i.e. not completed to contract specifications), the final payment will only be released with the approval of: Progress Payments Team Leader for amounts <= $5,000; National Manager Shared Services for amounts <= $10,000; or A Progress Payments Team Leader can authorise payment of outstanding work valued less than or equal to $5,000. The National Manager Shared Services is authorised to approve any payment where the value of work to be completed is up to $10,000 Where work outstanding exceeds $10,000 Credit approval is required. Page 98 of 136

99 Insufficient building funds (shortfall) to complete security Any shortfalls identified by the Progress Payments Team, prior to issuing the Commence Building Operations Authority letter, will be returned to the processing/approving Assessor. The calculation used to identify a shortfall is as follows: (A) + (B) < (C) Where (A) = Borrower s Contribution (B) = Loan Amount (less any fees) (C) = Building Contract Price Borrower s Contribution may include cash, savings held in bank accounts, shares and the First Home Owners Grant (where eligible), and must always be fully utilised towards the construction before any progress payments are made. Shortfalls will be referred back to the Assessor for investigation and re-assessment. Following this assessment of the borrower/s position, the Assessor must notify the Progress Payments team of the outcome, so that an amended schedule can be issued together with the Commence Building Operations Authority (CBO). Note: Shortfalls may also occur after construction commences & the same steps process applies i.e. Assessor to investigate and re-assesses. Requests for multiple stage payments Where multiple stage payments (more than one stage payment at a time) are received, the Progress Payment Team will contact the borrower, and confirm that work has been completed. When the borrower/s confirm that the builder has completed the work, a notation is to be made on the LIS 600 Diary and the requested stage payments made. If the borrower/s do not require the stage payments, the Progress Payment officer will destroy the surplus claim forms. Borrower/s will be advised to re-submit upon satisfactory completion of the construction stage Owner builders Building loans Applications In the situation where the builder is a relative of the borrowers, or the borrowers are Directors/Proprietors of the entity undertaking the construction; the Bank will treat the application as an owner builder loan. Page 99 of 136

100 If constructing a 21.3 Kit homes Building loans, the borrowers will need the financial ability to purchase the kit up front (the Bank will not authorise the release of funds until construction reaches a stage where the kit is adding value to the Bank's security). Approval of owner builder loan application is subject to the following Approval only by Credit, or specific Assessors holding a Owner Builder authority (Credit will advise relevant Assessors directly of their Owner Builder authority) Maximum LVR 60% (LVRs up to 75% may be considered if at least 1 applicant is a registered builder employed in the building industry) Minimum CCR of 1.25 times cover Evidence of funds to complete A fully itemised Owner Builder cash flow statement being supplied to our Panel Valuer (Note also that the Progress Payments Team will require a copy prior to making any progress payments). Assessor is to ascertain the borrower s experience & background to undertake the construction, and provide notes in their submission accordingly. Assessor is to assess/comment on any large variations between Owner builder cash flow statement and Panel Valuer check costs shown on the valuation report. Note: Check costs are Valuer s estimates of the cost of the project under contract builder conditions. Documents required prior to valuation / approval Fully completed Construction Loan/Owner Builder Cost Estimate form and/or cost of kit (if applicable) Evidence of funds to complete Council approved plans and specifications (or if not available a copy of those which have been, or are to be submitted, to council for approval). Borrower's contribution owner builder loans Borrowers will be required to have the difference between the Owner Builder cash flow statement and loan amount in a savings account(evidence is required), prior to the Bank issuing a Commence Building Operation authority as these funds must be contributed in full, prior to the release of any loan funds. Refer to Equity/savings - Capacity to service loan. Page 100 of 136

101 Borrower's responsibility Borrowers have sole responsibility to ensure construction complies with Council approval conditions, and Construction of their dwelling meets their satisfaction before submitting the request for progress payment. The Bank and/or its valuer, has no responsibility for the quality of work undertaken by the borrower's builder / contractors. Borrowers should be encouraged to engage an independent party who is suitably qualified, to monitor construction at their expense. Borrowers own funds must be utilised in full prior to the release of any loan funds Completion of the construction / and or final progress payment is to be made within six months from the initial advance. For any variation to cost estimates after the loan s first advance, borrower/s should ensure they have sufficient funds to cover the difference from the original contract (where there is an increase in costs to construct). Assessors are to ensure borrowers are made aware during construction that LVR will not exceed 75% of the value of the partly completed dwelling. The panel valuer may request additional documentation to support the on completion valuation and this will be set out in the valuation report. This may include: o Engineer s details re slab/footings o Engineer s Certificate re slab/footings o Pest treatment or pest prevention confirmation o Roof truss details from manufacturer For properties located in NSW: Before the final progress payment the Bank requires to sight a copy of the updated Survey Report showing the position of the improvements in relation to the boundaries, and that all improvements comply with the Local Government Ordinances (The survey should be updated after completion of eaves and guttering.) Prior to the first progress payment the Bank may request to sight the survey report showing the location of the footings/slab (or the pegged out survey). If total cost of construction is over $750,000 the borrowers may also be required to provide a quantity surveyor s report. (Assessors are to refer these cases to Credit for approval). Prior to any funds being advanced A current Owner Builder s licence/permit to be provided to the Bank; Builder s All Risk Insurance (Contractor s Risk Insurance including Public Liability). The insurance should cover the minimum replacement cost. It must remain current during construction, and St.George must be noted as the mortgagee. Receipt/sighting of Council approved plans & specifications must be confirmed by the Bank s (original) valuer Page 101 of 136

102 Any shortfall of funds i.e. difference between borrowers funds + loan amount being less than Owner builder cost estimate worksheet, must be followed up by the Assessor. The Assessor will need to ensure that the borrower has enough funds to complete and confirmation sent to the Progress Payments Team. A satisfactory valuation report detailing value of construction on an as is basis & remaining funds to complete. A satisfactory Survey Report showing the location of the completed footings / slab identifying the land and showing where the foundations / slab are located in relation to the boundaries Owner builder cash flow / cost estimate worksheet to be held by the Progress Payments Team. Note: Before the Borrower/s make any changes to council approved plans, they must inform St.George and obtain our consent. If there are significant changes, such as to the structure or the projected costing, we will require the details, including how these will be funded, in writing. The Progress Payments Team will refer the loan back to the original Assessor to reassess. The Assessor is required to order a short-form valuation to confirm the property s value against the Council Approved Plans and Specifications. Owner Builder LVR is not to exceed 75%. Progress payments Owner builder progress payment stages are not pre determined. When the borrower requests a progress payment, an inspection by the Bank's panel valuer is required, prior to any payment being released. Each inspection report will determine the value of the work completed. At all times sufficient loan funds are retained to ensure practical completion of the dwelling based on the owner builder s original cost to complete and valuer s assessment of completed work. Assessment is based only on fixed work completed, and not materials purchased eg PC items/white goods etc. Inspections are compulsory prior to the release of any funds on all owner builder loans and, they must be carried out by a panel valuer. Prior to making the final progress payment A satisfactory final inspection report by the Bank s panel valuer will need to be obtained The borrower is to provide: o evidence of householder s (building) insurance on a replacement and reinstatement basis for the minimum amount of cover stated in Loan Offer Document (cover notes or brokers letters are not acceptable) with the Bank noted as mortgagee. Some Insurance Companies have an unlimited reinstatement/replacement policy covering the Repair or Rebuilding costs. These insurance policies are acceptable. Page 102 of 136

103 o o o For properties located in NSW: Copy of the updated Survey Report showing that the position of the improvements in relation to the boundaries, and that all improvements comply with the Local Government Ordinances (The survey should be updated after completion of eaves and guttering.) ACT, Victoria, NT only - copy of the Certificate of Occupancy & Compliance Qld properties St.George may require a certificate of completion/occupancy issued on behalf of the local council. St.George panel valuer will note this as a requirement on the valuation report. The panel valuer may request additional documentation to support the on completion valuation and this will be set out in the valuation report. This may include: Engineer s details re slab/footings Engineer s Certificate re slab/footings Pest treatment or pest prevention confirmation Roof truss details from manufacturer Inspection fees A total of four inspection fees are to be collected from the borrowers together with the applicable establishment fee. Additional inspection fees will be debited to the loan account and will be processed by the Progress Payments Team. Note: The inspection fees will be waived for any Building Loan applications received from 14 June 2011 to 16 September Incomplete securities If a request for a final stage payment is received and the final inspection report indicates that there is work outstanding (i.e. not completed to contract specifications), the final payment will only be released with the approval of: Progress Payments Team Leader for amounts <= $5,000; National Manager Shared Services for amounts <= $10,000; or A Progress Payments Team Leader can authorise payment of outstanding work valued less than or equal to $5,000. The National Manager Shared Services is authorised to approve any payment where the value of work to be completed is up to $10,000 Where work outstanding exceeds $10,000 Credit approval is required. Page 103 of 136

104 Insufficient building funds (shortfall) to complete security Any shortfalls identified by the Progress Payments Team, prior to issuing the Commence Building Operations Authority, will be returned to the processing/approving Assessor. The calculation used to identify a shortfall is as follows: (A) + (B) < (C) Where (A) = Borrower s Contribution (B) = Loan Amount (less any fees) (C) = Building Contract Price* *For an owner builder loan this would be the owner builders documented cost estimate work sheet Borrower s Contribution may include cash, savings held in bank accounts, and the First Home Owners Grant (where eligible), and must always be fully utilised towards the construction before any progress payments are made. Shortfalls will be referred back to the Assessor for investigation and re-assessment. Following this assessment of the borrower/s position, the Assessor must notify the Progress Payments team of the outcome, so that an amended schedule can be issued together with the Commence Building Operations Authority (CBO). Note: Shortfalls may also occur after construction commences & the same process applies i.e. Assessor to investigate and re-assesses. Building loans not fully drawn within six months It is a condition of the loan on all residential building loan proposals, including Owner Builder loans, that construction is completed and loan is fully advanced within six months from the first loan draw down. Failure to do so may mean the bank refuses to make any further loan advances. If requested by the bank, the borrower/s will also be required to provide an estimated date of completion and a reason for the delay, in order to determine continued support for the extended construction period. Progress Payment Teams will monitor the loan accounts Quantity Surveyor If total cost of construction is over $1,000,000 the borrowers may also be required to provide a quantity surveyor s report. Assessors are to refer these cases to Credit for approval Page 104 of 136

105 Owner builder cash flow / cost estimate worksheet Borrower/s as owner builders are required to complete a comprehensive cash flow worksheet budget covering such items as material and labour supplied by sub contractors, materials supplied by borrower and their labour costs, time frame to complete construction - start and finish date and size/sqm of dwelling. Both our Panel Valuer and Progress Payment Team as part of the loan file management are to receive a copy of the owner builder cash flow / cost estimates worksheet. This will allow us to; Compare the estimated expenditure to actual expenditure throughout the construction; Identify any major variances to the initial costing; and Identify any potential shortfalls Building contingency funds When an owner builder is deemed to have little or no experience in constructing a dwelling, there is a requirement to add a 5% contingency into the owner builder cash flow to cover any potential cost overruns or budget blow out. Owner Builders face significant cost blow out in the length of time with identification and engagement of suitable trades people, coordination and continuity of work and completion of the project. Where a qualified property supervisor and or a home building service company is engaged this can be reduced or eliminated. Authority to commence construction Once the Bank's legal requirements have been satisfied and security is in place, the Progress Payments Team will issue a Commence Building Operation Authority (CBO) to the borrower/s Kit homes Building loans Definition A kit home can be either: Wholly or partially constructed offsite (i.e. in manufacturer's premises to a specific stage) then delivered to borrower's land for affixing to the borrower's land; or Page 105 of 136

106 all building materials necessary to construct the home delivered to the borrower's land for constructing on site. Policy Kit homes are to be treated exactly the same as an Owner Builder loan. The Bank can lend for: purchase of land plus cost of assembled kit ready for use on the construction site plus cost of construction where land is partly owned, refinance land component plus cost of assembled kit ready for use on the construction site plus cost of construction where land is owned, cost of assembled kit ready for use on the construction site plus cost of construction where land owned and kit already purchased, cost of construction Note: The Bank will not lend/advance any funds for purchase of the kit against value of the (unassembled) kit or, offsite construction costs. For applicants who own/partly own land, an advance may be available of no more than 80% of land value/equity to assist with purchase of kit, if required. Normal procedure for progress payments to Owner Builders will apply & maximum LVR is 60% (LVRs up to 75% may be considered if at least 1 applicant is a registered builder employed in the building industry). Example: Customer owns land and wants to borrow money to buy a kit home plus construction costs. Valuation of the property = $500k ($150k land value, plus $350k value added by construction) Max amount Bank can lend = $300k (60% of total valuation) Out of the Max amount, the Bank can advance funds to assist customer purchasing the kit up to 80% of land value, $120k. The remaining funds are released as per normal owner builder progress payments. Page 106 of 136

107 21.4 Transportable homes Building loans Definition An existing dwelling is purchased from one site and wholly transported to borrower's land for affixing to another site. It is not to be confused with relocatable home (which is not acceptable for Bank lending purposes). Policy The Bank can lend for: purchase land plus cost of home plus cost to complete construction where land is partly owned, refinance land component plus cost of home plus cost to complete construction where land is owned, cost of home plus cost to complete construction where land owned and home already purchased, cost to complete construction Note: No funds will be made available for the cost of home plus transport unless land owned. Funds for "house" to be made on progress payment basis, and only after house has been re-located to the site with services connected (ie power and water). Where borrowers do not own the land (or have insufficient equity), Assessors are to ascertain the borrower's source and availability of funds for the purchase of the `house', costs of transportation, transit insurance and site fixing prior to approval of loan Multiple dwelling developments Residential Building Loans where more than one dwelling is being constructed i.e. a duplex, townhouses or units, fall within the multiple dwelling policy. Multiple dwellings will be charged a progress payments administration fee per loan. The fee payable will vary dependant on whether the loan is owner builder or contract builder. This fee will assist to cover the additional administration required in these instances. If total construction costs exceed $1,000,000 or construction is considered to be 'unusual' for a retail proposal, a quantity surveyor is to be engaged by the borrower/s at their expense - refer All other requirements will continue to apply as for single dwelling construction. Where the number of dwellings to be constructed exceeds four, these are required to be submitted to Corporate and Business Banking division refer Page 107 of 136

108 21.6 Equity release loans for construction Assessors may receive applications from time to time where applicants are seeking to borrow funds via an equity release against the current value of an existing property in order to undertake the demolition and re-construction of the property, or significant renovations and improvements to the property that change the existing floor plan. Where Assessors are advised or become aware that funds are to be used for either of these purposes, the loan MUST be treated as a Building Loan with relevant policy requirements applied as outlined in the Consumer Lending Manual Settlement period building loans Settlement for all building loans is defined as the first draw down (eg for land settlement) or where no initial draw is to occur, satisfactory completion of all the bank s legal requirements to register a mortgage over the land and funds are ready to be made available. Settlement is to occur within three months of approval/disclosure date shown on the bank's loan offer before the bank's offer to lend lapses and is withdrawn (includes Portfolio Loan with construction sub-accounts). Exceptions are: Building loans for Contract/Owner Builders have 5 months from disclosure date to settle, and then 6 months from first drawdown to complete construction and final drawdown (purpose codes "B" and "O"). Loans for Off-The-Plan strata purchases have 17 months from the disclosure date noted on the LOD (purpose code T ). Unregistered vacant land has 6 months from the disclosure date noted on the LOD (purpose code X ). Portfolio Loans are only available for construction by contract builders House / land package deals A House & Land package deal is the purchase of a newly erected home on land owned by the builder. The house and land are purchased in one parcel and contracts can be entered into for the purchase either on completion of the home and before construction commences or once construction is complete. All House and Land package deals are treated as purchase on completion applications and progress payments will not be made during construction. Page 108 of 136

109 In the case of a home that is yet to be built, the valuer will make an initial assessment and provide the Bank with an 'on completion' valuation. In all cases, a final inspection is required when building works have been completed and settlement will be effected upon receipt of a satisfactory final inspection report. Council approved plans and specifications When applications are accepted for House and Land package deals where the home has not yet been built, a Council approved copy of the plans and specifications are to be sent to the Valuer with the usual documentation. Valuation and final inspection Valuation report to be requested in accordance with valuation policy - Refer to 19. Valuations - policy & procedures. A satisfactory final inspection will always be required (as a condition of the loan) prior to releasing the final payment to the builder (Refer to the Residential Loan Agreement General Terms and Conditions, and highlight to borrower/s). Portfolio Loans For these facilities, "settlement" is defined as the satisfactory completion of our legal requirements before the bank makes any credit available, and is to occur within 3 months of the disclosure date shown on the bank's loan offer, before the offer lapses. For Portfolio loans with Building loan subaccounts, borrower/s then have a further 6 months to complete construction and final drawdown 21.9 Off the plan strata purchases As with House & Land package deals for newly constructed houses, progress payments will not be made for construction of units. Loans for individual units purchased off the plan may be approved, and will be subject to satisfying the following conditions prior to settlement: new statement of Assets and Liabilities new Income and Employment statement updated credit reference report updated Valuation Report/s on the security property/s settlement is to occur within 17 months of approval / disclosure date. A special condition stating the above is automatically added by Clas / LIS to the loan offer provided the correct purpose code is selected. These are not available under a Portfolio Loan Additional supporting information may also be found in Off the Plan - Strata Purchases Page 109 of 136

110 TBE Improvement loans Assessors are requested to ascertain the type of work to be completed i.e. Internal renovation, new kitchen, bathroom, pool, extension etc, and note the LIS 600 diary accordingly, as well as undertake the following actions: Complete LIS 255 screen with the progress payment schedules Note the LIS diary re any contractor details if applicable and whether Council Approved (certified) plans are required and will be provided by our customer/s in due course. Confirm whether property inspections are required and at what stage of the constructions prior to releasing funds. For these proposals, payments will be made upon receipt of the supplier s invoice together with our application for progress payment form duly authorised by our customer/s. Payment will be made to the supplier and bank account details need to form part of the suppliers invoice TBE loans where there is additional build work outside the fixed builder s contract Where work is to be undertaken under a TBE loan over and above the fixed building contract, and the valuer has included these additional works being completed in arriving at a figure for the 'on completion' value of the property, the Bank must control funds to ensure this work is completed. To this end, Assessors are requested to ascertain the type of additional work and note the LIS 600 diary indicating the following: Builders tender/contract amount and the itemised listing of additional works and costs over and above the contract amount; Details of the supplier/sub contractor undertaking the additional work eg. electrical work, pool, air-conditioning, carpets etc if available; and Any other special conditions that need to be considered i.e. property inspection requirements other than the final property inspection. For these proposals, payments will be paid directly to the supplier / sub contractor once our customer/s have provided a signed authorisation to action and the relevant invoice. Additional build work is not required to be itemised in the 255 screen however needs to be noted in the diary as per above. By Assessors following the above steps this will ensure that no shortfalls occur, funds are being released direct to suppliers / contractors and our control points are consistent for the disbursement of funds per the loan approval. Page 110 of 136

111 22. Lenders Mortgage Insurance (LMI) 22.1 Definition - LMI Lender s mortgage insurance protects the Bank against loss in the event the borrower defaults which results in the sale of the security property, and there is a shortfall in the sale proceeds to cover the debt owing to the Bank Cover - LMI Who is covered? Lender s mortgage insurance protects the Bank only. The LMI policy does not provide any protection for the borrower. The policy is a contract between the Bank and the Mortgage Insurer, with the insurance premium payable by the borrower. LMI is not to be confused with life insurance, mortgage protection insurance or property insurance. Note: The brochure ' What is Lender s Mortgage Insurance?' answers questions generally asked by borrowers. A copy of the brochure is to be given to customers whenever LMI is required on a loan. Type of cover The total loan (100%) is to be mortgage insured. Top 20% cover is not available Premium and duration of cover A once-only premium is payable, and the amount of premium payable is based on the level of risk as evidenced by the lending value ratio (LVR). The lower the risk, the lower the premium. Refer to 22.8 LMI premiums for details. For all loans, LMI cover is valid for the duration of the loan contract (i.e. Portfolio loan), or the expiration of the loan term (i.e. residential principal and interest loans, or residential Combination Loans) unless a variation to the contract s terms and conditions are agreed to, which may necessitate an additional premium being payable. Page 111 of 136

112 For Re-location loans the period of cover applies for the Re-location period and will continue on the end debt situation if LMI cover is still required. Changes to the loan contract - LMI premium A further premium will apply where the loan is increased or the risk represented by the loan to the mortgage insurer changes. This could occur where joint borrowers, who are jointly and severally liable under the loan contract, legally separate. A single borrower, albeit the primary borrower under the loan contract, may not represent the same risk to the mortgage insurer as did the joint borrowers under the original loan contract. In these circumstances, a new premium (or an additional premium) may be required When LMI is required The need for LMI is determined by the loan to value ratio (LVR) applicable to the risk associated to the property offered as security, and or the borrower risk. The Assessor is to determine whether LMI cover is required under the Bank s credit policy before approval of the loan. LVR policy (refer to 18.1 LVR calculation Loan to value ratio (LVR)), identifies when LMI is required. The credit policy does not attempt to address MI s (or other mortgage insurers ) requirements on the acceptability of the risk. For MI, completion of the Risk Assessment Profile form (RAP) will determine whether automatic cover (under Open Policy) is available, or whether prior approval is to be obtained from MI. LMI is not available LMI is not available for loans secured by non-residential security property, eg commercial real estate. Standard Cover (Owner Occupier and Investment) P & I loans Interest Only loans Portfolio Loans Page 112 of 136

113 Notes: Stamp duty is to be added to calculated premium before system input. The minimum premium is $600 plus Stamp Duty. Separate premiums apply to Low Doc. Refer to 18.5 Exceeding maximum LVR LMI premiums Low Doc Home Loans P & I loans Interest Only loans Portfolio Loans Note: Stamp duty is to be added to calculated premium before system input. Page 113 of 136

114 Note: CLAS will incorrectly apply the LMI premiums for loan amount ranges > $750,000 to $1 million. Credit will manually calculate and apply the correct amount. Note: The minimum premium is $600 plus Stamp Duty. Stamp duty LMI premiums Stamp Duty rates are: NSW % VIC % QLD % WA % ACT % Page 114 of 136

115 TAS % SA % NT % Stamp duty is added to calculated premium to determine the total amount payable Add ons (loan increases) premiums calculation LMI insurers or Credit will confirm all premiums for add ons to existing insured loans. Loan increases or further advances using existing security (and where LMI has been previously paid) will follow the outside open policy process. Assessors need to refer to MI or Credit (where the request is outside Bank credit policy) for manual calculation of the premium. If the term of the loan is extended, a new contract will be issued for the additional amount. The premium is calculated on the total exposure less the amount already previously paid. Example LMI Premium Calculation: Customer s outstanding loan amount is $500, and the new loan amount is $600, The LMI is calculated on the total exposure amount ($600,000.00) by the LMI Rate based on the LVR. The total premium is calculated to be $5, As the customer has previously paid an LMI premium of $3,100.00, this is credited, resulting in a total LMI premium payable of $2, Important: For loan increases or further advances using existing security (and where LMI has been previously paid) do not quote the amount in CLAS. A RAP condition will display in the CLAS LMI Calculation Detail tab alerting LMI is to be referred for manual calculation. The RAP decision will be set to outside open policy and need to be referred to the LMI approver. Further to this, CLAS LMI premium calculation cannot be used for building/tbe loans where the existing land loan is already insured. Where an existing land loan (settled within the previous 6months) is already insured by BT LMI (former MI) and additional funds are to be provided for construction, the premium is calculated as follow: 1. Add the amount of the land loan and the amount of the building loan to arrive at a total loan figure; Page 115 of 136

116 2. Divide the total loan figure by the value of the security (being the lower of tender price plus land value or valuation amount) to arrive at an LVR figure; 3. Multiply the total loan figure by the applicable LMI Premium band to arrive at a LMI Premium amount; 4. From this LMI Premium amount deduct the amount of the original LMI Premium (excluding Stamp Duty) paid on the land loan to arrive at the new premium required to be paid for the building loan. Note: The minimum premium is $600 plus Stamp Duty. Credit should be contacted if any queries Transfer of a mortgage insurance premium to new loan A LMI premium may be transferred to a new loan when the existing loan is being paid out and the current LVR and loan balance is not increasing. This may occur when: there is a transfer from joint to single name or vice versa the new loan is used to payout existing St.George Bank Group facilities loans involving transfers, where LMI was paid on existing loan and LMI is required on new loan, are to be referred to MI for calculation of premium. For loans processed via CLAS please ensure 'LMI paid previously' field on Loan Application screen has premium shown. MI staff will calculate /input any increase in premium and also input relevant MI code. The minimum premium is $600 plus Stamp Duty Capitalised LMI What is Capitalised LMI? Capitalised LMI allows the LMI premium amount (including stamp duty) to be added to the gross loan amount*, and thereby extend the LVR above the "normal" maximum LVR for the applicable product or policy. The LMI premium amount is calculated on the loan amount without LMI, and is then added to the loan amount (*called the "Post-Cap Loan amount" in Clas). Page 116 of 136

117 Primarily, capitalised LMI is used when a customer with a loan on or near the maximum LVR would like to include the LMI premium in the borrowed funds. Policy limits are still applied to the loan amount that does not include LMI, but the Capitalisation process allows that LVR maximum to be exceeded by the LMI premium (although there is a ceiling on the maximum LVR, including Capitalised LMI, that can be accepted - refer below). This is referred to as the Post-Cap LVR. For example, a customer applying for a loan of $300,000 with an LVR of 95% would pay an LMI premium amount (including stamp duty) of "$x". Using LMI capitalisation, the allowable loan amount would be increased by the amount of the LMI premium "$x" and the customer's new loan amount would be $300,000 + "$X", with a new LVR in excess of 95% providing it does not exceed the max post cap LVR limits (see table below). What loans can be capitalised Capitalised LMI in CLAS can be offered to customers with the following products: Standard or Negotiated variable rate loan Standard or Negotiated fixed rate loan Discount variable rate loan 1 Year Introductory fixed rate loan Basic home loan Low Doc standard or negotiated variable rate loan* Low Doc fixed rate loans* Portfolio Loan and Low Doc Portfolio Loan* *Note: Capitalisation is allowed for these products however the total LVR, including the capitalised LMI, cannot exceed the normal product maximum All other loan products (including loans with Family Pledge) are not eligible for Capitalised LMI. Capitalisation exceptions Please be aware that capitalisation of LMI is not available in all circumstances. For any proposals >$1.5m capitalisation is not available. If there are any exceptions to Bank policy capitalisation is not available. Capitalisation will be considered on a case by case basis where proposals are outside Open Policy to a maximum loan amount of $1.5m provided there are no Bank policy exceptions. Where capitalisation is required for the loan to be able to proceed (i.e. insufficient funds are available to complete without LMI capitalisation) the matter should be referred to the MI underwriters prior to a conditional / pre-approval being provided to the Broker or customer to ascertain whether capitalisation is available. Page 117 of 136

118 Note: Automated capitalisation in Clas is only allowed for single sequence loan structures. Flexible Choice loans (splits) can be written in Clas but the required premium adjustment to the Clas file can only be completed by the MI underwriters and a manual LMI Capitalisation Worksheet will need to be completed for a Flexible Choice loan. For those proposals which have to be completed manually in LIS a Capitalisation Worksheet is required to be completed in all cases. For loan increases or further advances using existing security (and where LMI has been previously paid). Assessors should not enter the pre-cap loan amount in the Capitalised LMI screen, this will be completed by the LMI approver. The pre-cap loan amount and pre-cap LVR should instead be indicated in CLAS notes by the Assessor before referring the CLAS file to the insurer. Capitalisation Limits A ceiling applies to the maximum LVR, including Capitalised LMI, that can be accepted. The current Post-Cap LVR ceiling rates are as follows: Product Type Post Cap LVR Ceiling Rate Resi Loan non-low Doc (new customer##) 97% 97% (existing customer##) Resi Loan Low Doc 80% Portfolio Loan non-low Doc 90% Portfolio Loan Low Doc 80% ## - as defined in Section 18.5 Page 118 of 136

119 23. Property Insurance 23.1 Overview Property insurance The Bank requires acceptable insurance cover on a replacement and reinstatement basis over the insurable collateral taken to secure its assets. Insurance cover will protect the value of the secured asset in the event that the Bank is required to rely upon it. Adequate insurance cover is to be maintained for the duration of the loan Application Property insurance Insurance policy requirements newly approved loans Insurance policies are to be obtained for insurable assets taken as security before loan funds are disbursed (at settlement). This is undertaken by the Bank s mortgage preparers. Cover Notes and Brokers letters are not acceptable. The insurance policy is to detail: the owner of the asset, policy number, insurance company, expiry date of the policy, adequate description of the location of the asset, the Bank s interests as mortgagee and amount of cover, on a replacement and reinstatement basis, for at least the amount specified in the Loan Offer. Minimum building cover residential housing loans Minimum cover is to include protection in the events of damage caused through fire, explosion, earthquake, storm and tempest with flood cover required in flood prone areas. Minimum amount is to be quoted in the loan offer for each security property*.the minimum insurance amount may be obtained from short form valuation report. To calculate an indicative replacement amount where short form valuation has not been undertaken: Page 119 of 136

120 1. ascertain approximate area of each house (total area under main roof plus outbuildings plus detached garages) to be taken as security (in square metres) 2. access the home building estimated replacement cost to assess indicative replacement amount. 3. discuss indicative replacement amount with customer and agree on replacement amount 4. enter replacement amount in CLAS/LIS Under no circumstances are Loan Offers to be issued showing minimum insurance amount as $0.00 except where minimum insurance requirements do not apply.* * Minimum insurance requirements do not apply to: strata, or company title properties vacant land securities or improved securities where the Bank is relying solely on the (vacant) land value Note: Where insurance cover is arranged prior to settlement through the Bank's Insurance Services, Assessors to ensure they inform Bank s Mortgage Preparer. For matters allocated to Customer Mortgage Services, Assessors to make a suitable note on LIS diary. For matters allocated to panel solicitor, Assessor to provide details to the panel solicitor, under separate cover Owner occupier/investment loans Property insurance Types of cover Whilst minimum property insurance is a condition of the loan, you cannot ask a borrower to take insurance with a particular company; borrowers have the right to select their own insurer. Building insurance on a replacement and reinstatement basis for at least the amount of cover specified in Loan Offer and noting the Bank s interest as mortgagee to be received prior to settlement. Cover notes and brokers letters are unacceptable Constructions loans Property Insurance Page 120 of 136

121 Building Insurance on a replacement and reinstatement basis for at least the amount of cover specified in the Loan Offer and noting the Bank s interest as mortgagee to be received, prior to final progress payment being released. Owner Builders Owner builders are to take out builders all risk insurance covering the building work (during construction). Kit Homes/Transportable Homes Borrowers are to take out all risk insurance during periods of manufacture (Kit), transport/delivery (Kit and Transportables), and construction. In each of the above: the insurance cover is to cover the whole period until practical completion (lock up), and the Bank s interest as mortgagee is to be noted on the policy (owner builders only) borrowers are to provide the bank with a copy of the insurance policy or, a certificate of currency, prior to settlement (first advance) Page 121 of 136

122 24. Debt Refinance and Repayment History 24.1 Overview Debt Refinance and Repayment History Debt refinance involves loan proposals where some or all of the loan funds are being advanced to repay and refinance loans with the St.George group and/or other financial institutions. This may involve processing and approving a new loan or could include an increase on an existing home loan to repay other debts. Repayment history on existing debts is a critical indicator of a borrower s credit worthiness and ability to meet commitments. In this regard evidence of a satisfactory repayment history on debts to be refinanced, as well as any existing St.George home loans, must be established in order to approve any new or increase home loan proposal - specific requirements apply as outlined in this policy Maximum LVR The maximum LVR for a proposal involving refinance of external debts is outlined in LVR table - any exceptions must be referred to Credit for consideration Confirmation of satisfactory loan repayment history external debt The last six months' loan statements for Secured Debt, and last 3 months for Unsecured Debt, with the date of the last transaction no more than 6 weeks prior to application date, are to be obtained and examined. Statements are to be reviewed to confirm that: The applicants have a satisfactory loan repayment history and that all loan repayments are up to date. There are no undisclosed liabilities or outgoings There is no conflict with the information disclosed by the customer regarding marital status or dependants There is no other information contained in the documents that conflicts with information disclosed by the customer on the application Page 122 of 136

123 Documentation required* is as follows: At least one original loan statement is to be obtained and reviewed with copies held on the loan file. For the remainder of the statement period required, internet statements / transaction records are acceptable if they disclose the borrower name or account number, and the transaction history can be reconciled to current loan balances. Internet transaction history is not acceptable for credit cards and Assessors are to check that the last payment to the credit card did not cover arrears from the previous period, and that the card is not overdue or in default previously. * Assessors, Credit and/or MI may request additional statements to be obtained for their assessment over and above standard policy requirements, which may include copies of statements for debts not being refinanced, in order to satisfy themselves as to the borrower s repayment and credit history. Note: Where loan statements are not issued by the Assessor, such as for motor vehicle and personal loans, evidence of repayments being debited from a bank account may be used. Examples of poor loan repayment history include the following: Credit limit exceeded on a revolving facility (eg. Line of Credit, credit card, overdraft) Missed loan repayments Arrears Dishonours Late payment fees Loan statement messages. Applications where there is evidence of poor repayment history are to be treated as Policy Exceptions. As such, Assessors cannot approve under their authority, unless the following is evident: Where the credit limit on a revolving facility has been exceeded once in the last 6 months, provided that the facility was brought back within the limit by the next monthly interest cycle, and the last 2 months has shown no over limits and no missed payments; or Where there has been one missed repayment on a term loan or revolving facility in the last 6 months, provided that the missed loan repayment was made up by the next month s due date, and the last 2 months has shown no over limits and no missed payments. In all other cases, applications showing evidence of poor repayment history are not considered eligible for a St. George home loan. Such applications will only be considered on an exception basis where the poor history can be explained and there are strong risk compensating factors - such proposals will need to be submitted to Credit for consideration. Other exceptions requiring referral to Credit include: Page 123 of 136

124 Where there are no credits or deposits evident on loan statements supplied, such as where interest is being capitalised; and Where loan or credit card statements as required above cannot be supplied. Where any conflicts arise between documents or account histories examined and the information provided by the customer the Assessor is required to: Clarify any potential conflicts or potential undisclosed liabilities/outgoings with the customer Update the application where it is identified that application input does not correctly reflect the customer s position and re-run the credit decision as required Enter system comments detailing the outcome of any related customer discussion. This will provide an audit trail and prevent rework Enter system comments that the review of all supporting documentation has been completed. Note: Company loans and commitments Details and evidence of the conduct of company loans and other company commitments must be obtained in cases where the company is a borrower and / or the company's debts are being repaid by St.George - standard policy requirements will apply in relation to loan information required. In all other cases Assessors will not be required to obtain this information, unless it is specifically requested by Credit for loans referred to those areas Confirmation of satisfactory loan repayment history existing St.George loans Evidence of satisfactory conduct on all existing St.George Secured and Unsecured facilities (credit cards, unsecured and secured personal loans) should be established, for internal debt refinances, when a new loan is being written, or an increase to an existing loan is to be approved. Note: For unsecured facilities only 3 months history needs to be reviewed. Where satisfactory conduct is not evident and only one payment has been missed or one limit has been exceeded, the application may still be acceptable as an exception. This will be dependent on having a satisfactory customer risk grade (ARG), that is, there is not an LDS decline decision stating Poor Account History. These applications and any other exceptions to the above should be referred to Credit for consideration. Page 124 of 136

125 25. Validation of Information Provided by the Customer Responsible Lending requires Assessors to scrutinise: the last 3 months of all St.George/BankSA account Debit/Withdrawals any supporting documentation obtained to comply with normal policy requirements (e.g. bank statements for evidencing genuine savings, pay documentation). This examination is required to ensure that there: are no undisclosed liabilities or outgoings* is no conflict with the information disclosed by the customer regarding marital status or dependants is no other information contained in the documents that conflicts with information disclosed by the customer on the application. *Note: Outgoings are defined as Rent/Board and Child Maintenance / Alimony To comply with the above, Assessors are to: review St.George/BankSA account transaction listings (generated by St.George/BankSA systems) for all accounts, except passbook accounts and personal loans, displaying the last 3 months transactions scrutinise the transactions and all other supporting documentation for undisclosed information clarify any potential conflicts or potential undisclosed liabilities/outgoings with the customer update the application where it is identified that application input does not correctly reflect the customer s position and re-run the credit decision as required enter system comments detailing the outcome of any related customer discussion. This will provide an audit trail and prevent rework enter system comments outlining that the scrutiny of three months of statements has been completed. When scrutinising account statements or transactions the Assessor must clarify any debit/withdrawals with a description/narrative which suggests a potential undisclosed liability, outgoing or a potential conflict with disclosed information. For example: a direct debit to a credit card or a GE finance payment that has not been disclosed a child maintenance payment that has not been disclosed as an outgoing, or where the applicant has not disclosed a dependant recurring Debit/Withdrawals to the same party or for the same amount. Page 125 of 136

126 27. Assessment Period Under Responsible Lending Formal Approval: Responsible Lending (RL) guidelines specify that a credit contract is valid for 90 days. Loan Offer documents signed and returned after 90 days should not be accepted. Once the Offer document has expired the application must be reassessed if the customer wishes to proceed. Approval In Principal: Approval in Principal s (AIP) are also valid for 90 days. CLAS will trigger a reminder to Assessors when 75 days have passed since the issue of an AIP. If the applicants wish to maintain their AIP Assessors must: Confirm with the customer that their needs have not changed since the time of application Confirm with the customer that their financial circumstances have not changed (e.g. employment and income). Page 126 of 136

127 28. Super Fund Home Loans Serviceability Assessment 28.1 Purpose This document aims to provide guidance on specifics areas of Super Fund Home Loan (SFHL) credit policy which differ to, or require more detail than is present in the Consumer Lending Manual (CLM). Standard credit policy still applies to areas not covered in this document. The SFHL product is designed to provide loans to authorised Self-Managed Super Funds (SMSF) for the purpose of purchasing residential investment property. The loan is secured against the residential investment property and while the loan is ideally self-servicing from the rental income derived from the property, servicing may also come from any other income received or assets held by the SMSF Trustee. The loan is limited in recourse, with the Bank s right against the SMSF Trustee limited to the Bank s right as mortgagee in relation to the mortgaged property. There is no recourse to any other assets of the SMSF or to either the SMSF Trustee or Security Custodian Processing SFHL applications are processed within Broker Mortgage Services (BMS). Applications and supporting documents to be sent to BMS by: Fax: to or [email protected] If the deal is standalone resting solely upon the proposed rental income and past superannuation contributions, then the One Obligor Total (OOT) can be calculated solely on Super Fund borrowing. However, if the deal requires additional concessional or non concessional contributions to service, then the client's own Financial Position needs to be examined. In this case then client s existing SGB facilities would need to be taken into consideration to the overall OOT. Page 127 of 136

128 28.3 Product Features 1. Loan Amount: Min: $100,000 Max: $2,000,000 (larger amounts considered as exception by Credit Risk) 2. Loan Term: Min: 4 years Max:30 years 3. LVR: Individuals: Maximum: 72% for standard homes (90% of the normally extended value for different security types without LMI i.e. (80% * 90%)), where an individual(s) are acting in the capacity of SMSF Trustee or 63% for a serviced apartment (70% * 90%) where an individual(s) is acting in the capacity of SMSF Trustee Companies: Maximum: 80% for standard homes, SMSF where a Company is acting in the capacity of SMSF Trustee or 70% for a serviced apartment, SMSF where a Company is acting in the capacity of SMSF Trustee 4. Repayment types: Principal & Interest: 4-30 yrs Interest Based: Up to 15 yrs. At the end of the interest based period, the next 12 months (at least) must be P&I. 5. Loan Increases: Page 128 of 136

129 Increase loan amount: Not permitted Further Loan: Not permitted 6. Switching: Permitted only between SFHL Fixed and SFHL Variable rates 7. Refinancing: External refinance of existing SMSF loans allowed Internal refinances not permitted 8. Redraw: Not permitted 9. Interest Offset: Customers with a SuperFund Fixed Rate Home Loan have the choice of a Partial Interest Offset facility. There are no fees payable for the Partial Interest Offset option. Customers with a Super Fund Variable Rate Home Loan may have a Full interest offset facility linked to their Loan Account. The offset type is dependent on repayment type. o Mortgage Equaliser Offset is available where the customer has Principal and Interest repayments. o Repayment Offset is available where customer has interest based repayments. 10. Splitting: Split is only allowed between the Super Fund Fixed and Super Fund Variable Home Loan. 11. Personal Guarantees from beneficiaries of the SMSF: Are permitted and must always be taken when the super fund requires additional contributions for servicing requirements Assessors should ensure the beneficiaries have been given sufficient independent financial advice to understand the consequences of a giving a personal guarantee Page 129 of 136

130 in the event of default. The guarantors normal common law right of indemnity to recover any loss from the Borrower is limited by the SIS Act (Superannuation Industry Supervision Act) to only the rights in relation to the mortgaged property. 12. Loan Purpose Loans considered for SFHL should be residential investment properties only. Off the plan purchases and building loans are not permitted. 13. Security National Rental Affordability Scheme (NRAS) properties are excluded from SMSF Security Location All properties being purchased must be completed (i.e. not purchase off the plan, note also SFHLs are not available as a Building Loan), and have the location checked for eligibility against the SFHL Locator. This will disclose whether lending is permitted within the proposed postcode and also what the max loan amount is. This is intended only as a guide, and unacceptable properties may be referred for consideration as an exception. The details within the SFHL Locator are owned and reviewed periodically by Credit Risk Serviceability Assessment Allowable Sources of Servicing The loan amount is to be serviced from a combination of: 1. Rental Income: 80% of the rental income received by the Superannuation Fund from the purchase property or other properties held directly by the SMSF (60% if property is classified as a serviced apartment, or high-density apartment, in line with standard credit policy) Page 130 of 136

131 2. Regular Contributions: 80% of regular contributions (current or proposed) to the Superannuation Fund by the beneficiaries of that SMSF. Not to be included where the member is less the 5 years from retirement age unless debt is structured to fully amortise prior to retirement. No exceptions will be made to this requirement. 3. Additional Contributions to Super from PAYG salary 80% of stated contribution. Should the customer wish to make additional contributions out of their salary to assist in servicing the SFHL debt than a full verification of the customers financial position must be undertaken as per the standard retail assessment process. Note: Guarantees must be taken from beneficiaries that are providing additional superannuation contributions to meet serviceability 4. Super Fund Investment earnings: 80% of existing proven income of the SMSF from existing fund investments provided those investments are not being used to complete the property purchase. These income streams should be evidenced for a period of 2 years. No exceptions will be made to this requirement. Where investments are being liquidated to fund the proposed purchase, care should be taken to ensure that only earnings from remaining investments are used in the servicing calculation. The return on remaining investments and/or cash/shares should be calculated using the prevailing SGB DIY Direct Saver prevailing interest rate at the time of application. Note: The Guarantor s (Custodian s) income may not be used in the servicing assessment Where borrowers are relying on either Concessional or Non-Concessional contribution in excess of the Superannuation Guarantee to service the loan, care must be taken to ensure the same amount is not relied on for both funds to complete and servicing When assessing the amount of any extra contributions above 9% care must be taken to ensure that the amount of any extra contributions do not exceed the current thresholds ($25k for concessional, and $150k for non-concessional, with a maximum of 450k over a three year period) Self Managed Super Funds requiring no additional contributions PAYG Will be serviced on the contributions evident on the 2 current payslips provided. Page 131 of 136

132 Self Employed Will be serviced on the contributions evidenced by the current 2 years superannuation fund statements. Where no past superannuation contributions can be evidenced self employed financials should be reviewed to confirm that capacity exists to make the repayments based on historic income and profit this is aligned to current servicing requirements. Self Managed Funds Requiring Additional Contributions The proposed property purchase can be negatively geared inside the SMSF. Normal superannuation contributions can be used to offset any shortfall between the rent received and loan payments and outgoings. In some situations the loan will not be sufficiently serviced by current contribution levels, and additional contributions from the SMSF beneficiaries will be proposed. Where additional contributions are required to meet servicing requirements a personal guarantee must always be taken and assessment must be made on the ability that any contributions can be made on an ongoing basis. All applications involving additional contributions are an exception to the bank policy & are viewed on a case by case basis. When assessing the amount of any extra contributions care must be taken to ensure that the amount of any extra contributions do not exceed the thresholds of $25k for concessional, and $150k for non-concessional, with a maximum of 450k over a three year period. PAYG Any additional contributions by the beneficiaries of the SMSF above the base salary will be considered as per standard bank policy for acceptable additional income. Self Employed Where no past superannuation contributions can be evidenced self-employed financials should be reviewed to confirm that capacity exists to make the repayments based on historic Business Activity Statements this is aligned to current servicing requirements. Where there is no history of superannuation contributions for self-employed applicants, their ability to meet that obligation should be assessed in line with standard bank policy, with sufficient evidence over a 2 year period. SFHL Commitment Cover House: A commitment cover of 1.1:1 applies based on the most recent year s figures for standard homes. Page 132 of 136

133 Serviced apartment: If the property is classified as a serviced apartment then a commitment cover of 1.25:1 applies. This aligns to standard credit policy for serviced apartments. Exceptions: If this is not met, or if the previous year s figures provide a lower cover, then the application must be referred to Credit for review. Costs Where costs to the fund are perceived as immaterial to the ability of the fund to service these should be not be included in the servicing calculations with servicing at 1.1x cover and the income weighting used perceived as adequate in accounting for these expenses. Examples of these expenses would include life insurance, management fees to the fund, Auditor fees etc. Below are examples of expenses perceived as material and should be considered in the servicing of the loan Benefit Payments All cases where a fund is paying benefits required special attention and review due to increased complexity. The same considerations should be applied to funds where the members will reach retirement age within the next 5 years. Benefit payments and/or pensions will need to be accounted for as a commitment when assessing a SMSF and its ability to borrow money. The amount to be included will be dependent on what the member elects to receive, within the required parameters each Financial Year. NB: The payment will vary each year. In this instance it would be necessary to have all benefit payments noted in fund accounts clarified by the Fund Auditor / Accountant and a statement provided by the same authority outlining pension payments going forward. In cases where there is reliance on ongoing member contributions who are within 5 years of retirement age and the debt is reliant on this member contributions to service as mentioned previously these contributions should NOT be included unless debt is structured to fully amortise prior to retirement. Page 133 of 136

134 Examples SMSF Home Loans: 1. Self employed customer starting a new fund: Scenario John, 40, a self employed brick layer has decided to start his own superannuation fund. Within the fund he plans to purchase a residential investment property financed by a Super Fund Home Loan. John has no history of superannuation contributions however has been running his own business for the last 2 years with solid financial performance. John takes out a SFHL on which the repayments will be $5000 per month. He expects to generate $2500 in rental per month leaving a short fall of $2500. John provides the bank with the following detail of his business activity which he has provided to the ATO for the past 2 years. John's Brick Layers Revenue $ 500 $ 600 Expenses $ 350 $ 400 of which Income to John $ 100 $ 150 Net Profit Before Tax $ 150 $ 200 Tax $ 45 $ 60 Net Profit After Tax $ 105 $ 140 Income/BAS 20.00% 25.00% John plan to contribute an additional $3200 dollars a month into his self managed fund to meet the requirements. John agrees to sign a guarantee as the bank requires guarantees to be taken from beneficiaries that are providing additional superannuation contributions to meet serviceability. Servicing of this loan: The Assessor recognises that this is a self employed deal, where a new fund is being created and additional contributions are required to service the debts within the fund. The Assessor reviews the BAS statement over the past 2 years and finds a solid set of results. Page 134 of 136

135 In working through the servicing requirements the Assessor recognises that the deals will require an additional $3600 (as the rent is taken at 80% and any additional contributions will be taken at 80%) to meet the 1.1x cover needed for super fund home loans. The Assessor consults the SFHL policy guide and discovers that the policy states; Where there is no history of superannuation contributions for self-employed applicants, their ability to meet that obligation should be assessed in line with standard bank policy, with sufficient evidence over a 2 year period. The Assessor reviews the business in line with bank policy and approves the deal. The Assessor informs John that his contributions are adequate and the deal proceeds. 2. Two members servicing the fund one 5 years from retirement age Scenario James, aged 64, and his partner Amanda, aged 50, are quickly approaching retirement age and have decided to consolidate their current superannuation and share portfolio into a self managed super fund. They have consulted their financial advisor and have decided to also obtain an investment property within the fund using a SFHL where the repayments are to be $2400 per month, and will generate $2000 in rental income per month. James earns $2600 per month ($234 in PAYG super), while Amanda earns $2500 per month ($225 in PAYG super plus an additional $300 in additional contributions out of her salary which she has been doing over the past 2 years). From the assets in the fund including interest from cash and dividends from shares they earn $1000 per month. With James approaching retirement age he is planning on drawing a small pension from the fund in 3 years of $400 per month to help supplement Amanda while she continues to work. They sign a personal guarantee as this is required by the bank. Policy guidance on the servicing of this loan: The Assessor notes that the SFHL policy states that Regular Contributions are not to be included where the member is less than 5 years from retirement age unless debt is structured to fully amortise prior to retirement. Amanda and James have no plans to amortise the debt so James income is not included in the servicing. Income: Rental: $2000 Permitted at 80% - $1600 per month Super Contributions: James Excluded due to age 5 years from retirement Amanda = 525 permitted at 80% - Page 135 of 136

136 $420per month Other income: Dividends and Interest and Cash from within the fund $1000 per month permitted at 80% = $800 per month Total Income $2820 Expenses: SFHL Repayments $2250 per month Pension: To be paid to James in the amount of $400 per month Other expense (Insurance, management fees etc) Not perceived as material and covered in 1.1x and income weights Total Expenses $2650 per month Coverage Ratio: 1.06x This is a marginal fail. Amanda is upset to hear this and tells the Assessor that she will increase the contributions from her salary to the fund to allow it to reach the 1.1x. Amanda commits a further $85 per month to the fund from her salary which will push the CCR to the necessary level. The Assessor consults the SFHL policy and discovers that in order to make sure that Amanda can make the additional $85 contribution a full assessment of her income and financial situation is undertaken. The Assessor performs this in CLAS and discovers Amanda has adequate funds to provide the additional contribution. Page 136 of 136