Home loan applicants face delays after mislabelling transactions as adult entertainment

Lenders are scrutinising suggestive jokes appearing in the bank statements of prospective home buyers, potentially causing delays to their mortgage applications.

Some young first-home hopefuls are in the habit of repaying friends for their share of group dinners at a restaurant, for example, but are not labelling the transaction as “dinner” through their banking app.

Instead, they may describe the funds transfer as for sexual services or illicit drugs.

Although intended as light-hearted humour between close friends, nervous bankers examining home loan applicants’ transaction records are querying the apparent expenses, mortgage brokers warn.

Banks have been clamping down on lending in recent years, under pressure from the regulator and last year’s financial services royal commission. Treasurer Josh Frydenberg last week warned against lenders becoming too stringent in enforcing responsible lending rules, which he says could hit the economy.

Borrowers’ expenses have been in the spotlight as lenders hesitate to offer credit to someone who may struggle to pay it back.

Overuse of Uber and Uber Eats has been cited as a reason to knock back mortgage applicants, with banks also wary of other debts, gambling habits, and subscription services such as Netflix, while a Federal Court judge ruled borrowers could slash their living costs from “wagyu beef” to “more modest fare” to meet loan repayments.

Now, lenders are concerned home buyers are spending too much on sex workers – when in reality the money is spent on dinner.

Joke transaction labels are “maybe not the best idea”, says Chris Foster-Ramsay, principal finance broker at Foster Ramsay Finance.

“If that person happens to be in the property market at that time, the bank’s going, ‘Hang on, what’s this?’ Particularly if there’s $50 here or $50 there,” he said.

“[Banks ask,] ’Is it adult entertainment?’… If that happens over a period of time, the bank is picking up on it.”

He says the issue is most common for Millennial borrowers, citing the example of a home buyer who regularly went to the pub with a group of mates to watch football and left a record of eyebrow-raising transactions. “And the bank said, ‘We think you’ve got a problem’,” he said.

“Bank statements are a legal document,” he added. “You have to be semi-serious about it. As fun as it may be, it’s not advisable to be creative in the transfer text.”

40Forty Finance director Will Unkles, who works with first-home buyers, says banks are checking transaction history “more thoroughly than what they ever have before” and querying unexplained living expenses.

“I’ve seen everything [on bank statements], from things that are pretty outlandish, to things that are ‘dinner’,” he said.

“It is something that’s going to hold up the process but it’s not something that’s going to mean you won’t get a home loan.”

When banks have questions about expenses generally they may ask clients to sign a statutory declaration explaining the use of funds, he says.

“It would assist the smoothness of your [application] should all your transactions be labelled correctly.”

ProSolution Private Clients associate director Jodi McKeown had seen the issue with some younger clients.

When preparing a mortgage application, she looks at clients’ supporting documents and if there are any items that need explanation, she addresses them upfront in a lending submission to the bank.

In situations where an explanation might not be enough, she might advise waiting until the item drops out of the three months of transaction history lenders require.

“If there was something inappropriate or we thought we might get some questions that we thought we would not be able to answer appropriately, we might defer and wait another payment cycle,” Ms McKeown said.

“As soon as one thing’s picked up, they [banks] just keep looking and looking.”

She advises prospective borrowers not to make jokes on their bank statements.

“I’ve got access to my daughter’s account and … they say some silly things between them and they’re just girls,” she said. “I have seen what some of our younger male clients say and I think, ‘Oh my goodness’.”