Australia’s financial services regulator will investigate lenders and mortgage brokers who write relatively high volumes of interest-only loans.
ASIC said this would form part of the second stage of its review into whether lenders and brokers are inappropriately recommending interest-only loans.
The regulator will probe specific lenders and brokers, who have been chosen, in part, because of their “relative share” of interest-only home lending.
“ASIC will examine individual loan files to ensure that lenders are providing interest-only home loans in appropriate circumstances,” according to the regulator.
“ASIC will carefully review cases where owner-occupiers have been provided with more expensive interest-only home loans, to ensure that consumers are not paying for more expensive products that are unsuitable.”
Big four banks cut back on interest-only lending
ASIC also announced the results of the first stage of the review, which involved collecting data from the big four banks, as well as 12 smaller banks and non-bank lenders:
- Bank of Queensland
- Bendigo & Adelaide Bank
- Commonwealth Bank
- La Trobe Financial Services
- Liberty Financial
- Macquarie Bank
- ME Bank
- People’s Choice Credit Union
- Suncorp Bank
- Teachers Mutual Bank
ASIC found that the big four have reduced their interest-only lending from $19 billion in the September 2015 quarter to $14.3 billion in the June 2017 quarter – a drop of 24.7 per cent.
“However, other lenders have partially offset this decline by increasing their share of interest-only lending,” the regulator added.
The review also found that borrowers who used brokers were more likely to get interest-only loans than those who went directly to a lender.
Another finding was that borrowers approaching retirement age “continue to be provided with a significant number of interest-only owner-occupier loans”.
‘No excuses’ for doing the wrong thing
ASIC deputy chair Peter Kell said that any party that offers interest-only loans must make thorough inquiries into the financial status and needs of their clients.
“The spotlight has been firmly on interest-only lending for some time, and there are no excuses for lenders and brokers not meeting their legal obligations,” he said.
“While interest-only loans may be a reasonable option for some borrowers, lenders must make appropriate enquiries into the needs and financial circumstances of their customers, and they must be able to demonstrate that they have done so.”
In March 2017, APRA, the banking regulator, told lenders that no more than 30 per cent of their new loans should be interest-only loans.
This was part of a broader edict, which was designed to “reinforce sound residential mortgage lending practices in an environment of heightened risks”.