Where you live could be one of the factors that determine how successful you will be with home loan approval, according to reports of concerns raised by Financial Services Minister Bill Shorten.
Australians on low and middle incomes that live in lower socio-economic areas may find themselves with fewer banking options compared to other areas. These households are more likely to miss out on home loans and face higher interest rates, according to Mr Shorten, who proposes that banks should be more transparent.
Under Mr Shorten’s proposal, banks would reveal:
– Customer satisfaction information
– Branch locations
– The number of employees in each area
– And which areas commonly miss out on home loans
Mr Shorten said in a speech in Melbourne that he wants to see banks improve their support to struggling suburbs and small businesses.
“We want our banks which have been supported by the government and taxpayers to improve their support and credit and loans and deals for our struggling suburbs, regions and small business.”
Michelle Hutchison, Spokesperson for RateCity, said lenders assess risk using your location similar to the way insurance companies measure risk and set premiums.
“Lenders base their lending criteria on individual circumstances, they don’t necessarily discriminate people against where they live but they may use your location and the number of mortgage defaults in the area as a factor to assess the level of risk, which can result in denied applications.
“Car insurance companies use a similar approach when setting their premiums and measuring risk by analysing geographical statistics such as the number of car thefts and crashes in areas.
“Lenders need to be responsible when providing credit and shouldn’t be pressured to lend to those that can’t afford to pay it back.”
Ms Hutchison said it is more important to improve financial literacy than provide “easy credit” to lower socio-economic regions.
“A survey by ANZ found that people living in low socio-economic areas have lower scores of financial literacy, which means they have little understanding about financial products, less likely to keep track of their finances and generally don’t plan ahead for financial hardship.
“If lenders made more effort to educate their customers and equip them with the tools and information they need to make better financial decisions, this will help improve financial prospects in low socio-economic areas,” said Ms Hutchison.