If your client is over the age of 50 and their main asset is a house, good luck finding them a loan that ASIC deems ‘suitable’, says broker Graham Couper-Smith, co-author of Pay Off Your Mortgage Fast.
“If you are 25, nothing is stopping you from taking two-three years off and travelling around the world and not earning anything… You get your affairs in order before you do it and that’s your choice and you sell the house before you go if you have to. Why is it,” he asks, “that if you’re over 50 that becomes ASIC’s decision?”
Couper-Smith says it’s an issue he faces with clients on a regular basis and that he believes many other brokers will relate.
“I had a couple come in where the bank had done the wrong thing. They were both retired and they wanted to buy a block of land and build a house. So they put all of their assets into that and they bought this block of land. But the people who had financed the block of land didn’t tell them that they can’t finance the house because of their age. So they’ve got a caravan parked on that land now. It’s just not fair.”
While he says he understands that it’s ASIC’s role to ensure that brokers aren’t offering clients unsuitable loans, Couper-Smith believes the current legislation is too general.
“What they’re trying to do is make sure that brokers don’t lend money to people that can’t afford it and that’s great, I’m all good with that, but unfortunately they’ve thrown out some babies with this bathwater.”
However, an ASIC spokesperson says Couper-Smith’s allegations are unfounded and that it doesn’t have power to set rules about age limits or any other aspect of responsible lending.
“ASIC's role is to implement the law established by the Parliament in the National Consumer Credit Protection Act. The law does not contain any assumptions or automatic thresholds about older borrowers.”
“Far from promoting the idea that the law excludes lending to older borrowers, ASIC has been actively working to ensure lenders don't adopt an unreasonably restrictive interpretation of what responsible lending laws require in relation to older borrowers.”
In short, says the regulator:
The law prohibits providing or suggesting loans that a borrower cannot afford to repay or could not repay without undue hardship;
The law presumes that if in order to repay you will have to sell your place of residence that is undue hardship, however that is a rebuttable presumption;
If, even though they won't have the income to continue to pay the loan in the future, e.g. due to retirement, there may be other acceptable ways to repay it, e.g. through using Superannuation pay-out monies or by selling the home and downsizing, (these are the examples given in the Regulatory Guide but they are only examples and there could be other means). If to repay the home loan, the borrower will have to sell up and downsize, it is important that the borrower know and understand that at the time they are taking the loan out.
But Couper-Smith believes age discrimination exists.
“There’s not enough people talking about it; people are talking about age discrimination and I think this is the monster in the kitchen, but no one is talking about it. Nobody wants ASIC to be unhappy with them…I’ve been lending money for 20 years to people who were over 50 and 99% of the time there were no issues whatsoever. People take responsibility for their own actions and now ASIC wants to tell them what to do.”
“Where it can get messy - and there needs to be some sensitivity around this - is when a husband and wife can only afford the payments on the pension if they’re both there and if one dies, then the other one will have to sell house. So that risk needs to be clearly explained. But if they know what the risks are and they’ve taken that into account, then why is there a problem?”
ASIC says it may simply be an issue of miscommunication.
“It should be noted that ASIC has put out detailed regulatory guidance on these and other obligations under the credit laws to help industry understand the obligations and comply with them. If brokers hear that ASIC has taken a particular position on an issue, the best source of ASIC's views are the regulatory guides which are available on the website. They are there to assist and are much more reliable than rumours and hearsay.”