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Westpac Banking Corp (ASX:WBC) is about to make it even tougher for borrowers

Westpac Banking Corp (ASX: WBC) only recently decided to increase its variable interest rate, now it is making things even tougher for borrowers.

Westpac, along with Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), have all been put under the spotlight in the Royal Commission.

It is only now, after Australian households have reached record debt levels, that the banks are suddenly deciding too much debt may not be so good.

One of the changes is that Westpac wants to see Afterpay Touch Group Ltd (ASX: APT) screenshots. I think this is a good move. Although Afterpay isn’t technically interest-incurring debt, it is a liability that needs repaying.

A limit of $100,000 is now in place for mortgage insured loan money used for something other than a property, such as buying a boat for example.

Recent changes also include disclosure of all debts and declarations about rental payments, child support, property utilities, rates and so on. I was very surprised that all of these aspects weren’t already covered in Westpac’s lending. I wouldn’t lend hundreds of thousands of dollars to someone without know their full financial picture.

I fully agree with the bank moves to tighten lending requirements. Eventually loose lending criteria will end in pain. But, I think that these policies should have existed all along, not after the horse has bolted. It’s not good for a household, or country as whole, for so much of a budget to be paying off debt.

Foolish takeaway

Westpac is currently trading at just over 11x FY19’s estimated earnings with a grossed-up dividend yield of 9.6%. This yield looks very attractive, it certainly is compared to the interest rates offered by Westpac’s savings accounts. However, the yield is unlikely to grow fast at all – it may fall if there is a serious downturn. I’d only want to buy bank shares at the bottom of a cycle.

For income I’d much rather buy this top share which just increased its dividend by more than 20%.

This top income share is growing its dividend at an incredible rate

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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