Shiraz and Wagyu beef David Wylie considers the impact of the recent “Shiraz and Wagyu case” on UK lenders
I’ll bet that’s a headline you never thought you would see. But believe it or not, this is a serious matter which lenders and regulators need to start considering when planning their affordability policy. In August, a loan affordability case - now dubbed the “Shiraz and Wagyu case” - was heard in the Federal Court in Australia, brought by ASIC (the equiv- alent of the FCA in the UK) against Westpac of Australia, one of the coun- try’s “big four” banks. ASIC alleged that Westpac breached responsible lending laws when assessing the suit- ability of 261,987 home loans for cus- tomers between December 2011 and March 2015, using its computer-oper- ated loan approval system. They also claimed that Westpac relied solely on an expenses benchmark and did not take proper account of the customers’ declared living expenses.
The judge, Justice Perram, found Westpac did have regard to the declared expenses and went on to make an extraordinary and fascinating narrative opinion. When referring to the custom- ers’ declared income and the lender’s assessment of the customers’ bank statements, he said this: “I may eat Wagyu beef every day washed down with the finest Shiraz but, if I really want my new home, I can make do on much more modest fare”. He added, “the fact that someone takes an annual first class holiday to the US is not relevant to assessing whether the repayments will put them into circumstances of substantial hardship”, and “the fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship, nor for that matter does knowing that the consumer spends $500 per week on basic food items”.
Essentially, the judge was stating what, to most people, is a perfectly com- mon-sense view. Customers often live a certain lifestyle prior to a major life changing event, but they modify their behaviour afterwards. When a couple get married, I would hazard a guess that their expenditure profile will look very different to that of their “dating” phase (fewer posh restaurants, fewer expensive holidays, more mortgage and credit commitments). If they go on to have children, again, their spend- ing habits and priorities will most likely change significantly (more nappy pur- chases and nursery bills). So, it is rea- sonable to conclude that if a person takes on the responsibility of a new home or a dream car, they too are likely to make some sacrifices in other areas of spending. It is also worth noting that this case only went to trial after the judge refused
08 | Metrics Monthly
January 2020 | UK Edition
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