It is also follows criticism about the rigour lenders have applied to analysing borrowers' income and expenses, particularly in Melbourne and Sydney where the cost of living and mortgage size is much higher than other national capitals.

But the home lending squeeze is also fuelling concerns about a credit crunch weakening aggregate demand, slowing economic growth and driving borrowers to regulation-lite shadow banks.

Under NAB's new system a loan application has to provide an explanation of expenses.

For example, from today a borrower with children will not be able to claim no costs for education and childcare expenses.

The bank's model answer to the information request includes an explanation on why there are no expenses and demonstrates future expenses have been discussed.

A confidential model answer provided by the bank to staff and brokers states: "During the conversation it was uncovered that the applicant has one dependant and who is three months old and therefore no childcare/education costs are applicable at this time.

"When the dependant is old enough to attend childcare the applicant's wife will be returning to full- time work."

Management is warning that applications not completed fully will be returned with requests for additional information, which will delay loan applications.


The lender is also tightening credit card policies to ensure an applicant can repay within three years, regardless of the contractual terms.

NAB affiliate Homeloans, a non-bank mortgage provider, last month introduced the Broker Interview Guide (BIG), which must be completed by applicants and mortgage brokers for all personal, household and residential investment home loans.

"The credit policy changes are made to ensure we continue to lend responsibly," according to a bank memo. "Detailed commentary on customer conversations relating to living expenses ensure NAB captures the right level of commentary regarding living expense values and is critical to our obligations as a responsible lender," it states.

Other lenders, including ANZ, are also introducing changes that deep-dive into a potential borrower's total income, spending and existing loans. Borrowers will also have to provide reasons for the type of loan, such as whether the applicant is an owner-occupier or investor, and respond to various repayment scenarios, which could include asking older borrowers, who might retire before the term expires, how they intend to settle. The applications will be checked by the banks and third-party credit agencies.

The policy changes are in response to the Combined Industry Forum, a high-level industry and regulatory group formed in response to recommendations of the Sedgwick Review, and "responsible lending" policy guidelines developed by prudential regulators to slow lending, reduce domestic debt and ease pressure on the property market.