ASIC calls out banks on interest-only home loans

http://www.canberratimes.com.au/bus...-interestonly-home-loans-20150819-gj39fj.html

A review of 140 customer files across the lending institutions found that in 40 per cent of cases, lenders wrongly calculated how much time borrowers had to repay the principal when the interest-only period of the loan ended, assuming they had more time than was actually the case.

In more than 30 per cent of files, there was no evidence the banks had properly considered whether an interest-only loan was appropriate for the borrower in question.

And in more than a fifth of cases, the lender had not properly assessed the borrower's living expenses, ASIC said.

Other flaws included inconsistent assessments of irregular income from borrowers, and a failure to properly assess how borrowers' already existing debts, as well as new debts, would be affected if interest rates rose.

Demand for interest-only home loans has jumped by 80 per cent since 2012, accounting for a near-record 42 per cent of all home loan approvals in the March quarter.

While they are most popular with investors, who can claim a tax break on interest payments, the report said there had also been strong growth in interest-only lending to people paying off a loan on the house they live in. Owner occupiers accounted for 41 per cent of interest-only loan approvals in December last year.

Full report here for download: http://download.asic.gov.au/media/3329474/rep445-published-20-august-2015.pdf

 

I think Interest Only loans will be much harder to get soon and there may even be a slight chance that they may disappear.

 

There is talk about interest only loans becoming a 'fully advised' product like it is in the UK. Effectively this means you'd need to visit a financial planner and get a statement of advice to ensure borrowers are fully informed the implications of interest only.

Fortunately there's only only a few broad scenarios to really understand for the implications of interest only loans. It wouldn't be that difficult to put together some basic templates which can be tweaked to fit the individual. Unfortunately this still means additional training, licensing and costs for any broker or banker who wants the ability to set up an interest only loan. This cost would be passed onto the consumer.

The real problem is that most people don't understand the implications of interest only loans simply because they don't take the time to educate themselves. A lot of people only see the difference in day to day cost and make their decision on that. Hence the high number of interest only loans being written, where many should exist.

 

Thats a pretty dangerous environment for financial advisers to be put in, especially if you work in a bank. It may not be in the best interests for a client to gear an investment property, what then? The banker would be breathing down your neck to get it approved so that can meet their targets.

The bank wants your debt, all the advice would be is an expensive rubber stamp

I doubt a bank would send you to an independent adviser, they risk losing business that way.

 

Happens all the time. I had to get both legal and financial advice to sign off on my most recent loan.

 

That is so frustrating.
Happened to us once.
They 2nd time they tried it on, we fought it and got that requirement removed.