ASIC keeps a watchful eye on interest-only lending practices
Lenders will face increased scrutiny when offering interest-only loans.
ASIC will begin a surveillance initiative to track which lenders are offering interest-only loans to less suitable borrowers. The move is similar to one made by ASIC in 2015 when it last reviewed the lending practices surrounding interest-only loans. That review found that many lenders were not properly enquiring about a borrower's personal expenses in order to determine the borrower's financial situation and ability to repay.
During the current surveillance initiative, ASIC wants to determine which lenders and mortgage brokers are offering a high number of interest-only home loans. The regulator will use data collected under its compulsory information-gathering powers from large banks, other banks, mutual banks and non-bank lenders.
Under the current lending environment, with the cash rate so low, interest-only loans often have a higher interest rate and can become more expensive than loans with both principal and interest repayments. Lenders must ensure that the borrower is suited to this type of loan, as it may be a reasonable option for some but not all.
“Home loans are the biggest financial commitment most people will ever make," ASIC deputy chairman Peter Kell said. "In assessing whether borrowers can meet loan repayments without substantial hardship in the short and longer term, it is important that lenders can collect and rely on information that provides an accurate view of the consumer's financial situation. This is especially the case when interest rates are at record low levels."
Along with this renewed surveillance, ASIC has announced that eight lenders will have to provide remediation for consumers who have suffered financial difficulty due to shortcomings in previous lending practices. These lenders are ANZ, Bendigo and Adelaide Bank, Commonwealth Bank, Firstmac, ING Bank Australia, Macquarie Bank, NAB and Pepper Group.