Article - Interest Only Loans are Being Restricted

http://www.lexology.com/library/det...=Lexology+Daily+Newsfeed+2015-08-18&utm_term=

"Why interest-only loans are being restricted in Australia "

"A credit assessment is carried out at the start to ensure that the loan is not ‘unsuitable’ by requiring reasonable enquiries about the customer’s ability to repay. In the light of the Cash Store decision, responsible lending practice appears to require that borrowers be assessed on their ability to repay the principal and interest payments during the “residual” period of the loan.

Because loan repayments increase by almost 50% when an interest-only loan reverts to a 25 year principal and interest loan, this approach will significantly reduce the borrower’s capacity to borrow.

For these reasons, it is inevitable that interest-only loans will decline as a loan product in Australia."

 

Hiya

This is nothing new.

IO loans have been calculated like that with some lenders before the recent changes.

Cheers

Jamie

 

Thanks Miked. I hadn't heard of that case so did a google. It appears they were pay day type lenders http://asic.gov.au/about-asic/media...e-of-cash-store-decision-for-credit-industry/

I agree that IO loans will be harder to get

 

I'm not aware of much difficulty when an IO period ends.
Do you think it's possible this will happen here?

 

The difficulty will be if you can't service at the end of the IO period, and/or have multiple coming off IO at the same time. That will get expensive and if you know you will no longer service with your current lender, you need to have options ready - ideally, another bank to refi to, but otherwise a cash buffer, or the ability to pay P&I.

 

I've heard it's generally a pretty straight forward extension of the IO period, are there any particular lenders to avoid who currently make it more difficult?

 

And there in lies opportunity....

 

It's getting more difficult - some lenders who used to be tick and flick are no longer. A couple that require a complete reassessment off the top of my head are NAB and Macquarie plus many of the smaller lenders, however it wouldn't surprise me to see this becoming more normal.

 

Which lender(s) offer the best interest only periods, is it still ANZ?

 

CBA, Westpac, St George (although they'd reduced to 10 years for investors).

FM, Homeloans not too bad for higher serviceability - 10 years.

 

Do you mean that WBC offers 10yr IO for investors straight up? or just 5year term x2? and having to reapply formally every time coming off that 5-yr term?

 

Actually 15 years in one hit

 

What is your definition of best interest only period.
There is more to choosing a lender than just a long interest only period.

 

St George and have changed their policy whereby they only do 15 years IO for IPs and 10 years on PPORs.

The big question is which lender gives you the max IO period without affecting servicing. The problem is that ANZ, CBA, Macquarie all do IO periods but your borrowing capacity decreases as the IO term increases.

You can do longer IO terms with Westpac, St George and RAMS without it reducing your borrowing capacity.

......and then there is the million other policies that come into play when choosing a lender.

 

I think westpac changed this to p&i over remaining term last up date to policy. Not sure if dragon followed.

So many changes it becomes a bit of a mine field