By Eleanore D. Sanchez
Lenders are taking their responsibilities more seriously and cracking down on onerous loans, a recently released report by the Australian Securities and Investments Commission (ASIC) found.
ASIC has taken particular exception to the proliferation of interest-only mortgages, which are generally burdensome to borrowers. This type of loan offers lower repayments in the early period of the mortgage, but is more expensive in the long run and can eventually put the consumer under great financial pressure.
The new report outlines and collates data provided by 11 mortgage brokerages. It revealed that interest-only home loans fell from 43% to 36% in the two quarters between June and December 2015, with the total value of these loans declining by 16%.
Further, interest-only loans as a percentage of new home loans approved by lenders dropped by 12% in the pertinent period; and the amount that could be borrowed through these loans also dipped as lenders adjusted their assessment system for determining consumer’s ability to repay, in line with ASIC’s recommendations in a previous report.
“It is vital that mortgage brokers understand consumers' requirements and objectives to ensure they are not placed in unsuitable credit contracts,” Peter Kell, ASIC deputy chairman, told reporters. “ASIC is pleased that our concerns about interest-only loans and responsible lending are being acted on by the home lending industry, but there is still room for improvement.”
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