Brokers responsible for more than half of interest-only lending, ASIC reveals

by Julia Corderoy18 Dec 2015
More than half of interest-only loans come through the third party channel, corporate regulator ASIC has revealed ahead of its forthcoming review of mortgage brokers in regards to interest-only lending.

Speaking at the FBAA conference held on the Gold Coast in November, ASIC senior executive leader – deposit takers, credit & insurers, Michael Saadat announced that the regulator would turn its focus to mortgage brokers following its recent review of banks in regards to interest-only lending.

Saadat has now revealed to Australian Broker that the shift in focus has come after its review of lenders found that interest-only loans through the broker channel increased by 8% over two years. 

“Since 2012, the proportion of interest-only loans sold through the broker channel has gone up from 49% to 57% as of the fourth quarter of 2014.”

However, despite writing more than half of the interest-only loans in the market, Saadat said the review found that the average value of an interest-only loan submitted by a broker was less than that of a bank.

“Clearly brokers are involved in arranging interest-only loans but the other thing we noted in our report was the size of interest-only loans also varies by channel, and actually, it is the direct channel rather than the broker channel where the larger interest-only loans have been provided.”

ASIC’s forthcoming review will analyse quantitative and qualitative data of around 10 to 12 large broking groups, according to Saadat. The review will also have a focus on record-keeping practices.

“We will also be looking to get individual customer files to see how brokers are meeting their responsible lending obligations, and how they go about recording the information they obtain and the verification they conduct on the file,” Saadat told Australian Broker.

“One of the findings of our review of lenders’ files was that record keeping practices were not as good as they could be, so we are quite interested to see how brokers are going with record keeping as well.”
 

COMMENTS

  • by Chappo 18/12/2015 8:44:16 AM

    More breaking news "Survey shows 100% of Interest Only loans approved and funded by lenders".

    Is it maybe because brokers are giving borrowers sound advice on loan structuring?

    Note to ASIC, APRA, RBA, ATO and NKOTB, you need to show you CAN afford P&I to borrow the money, you then chose how to structure the loan/s.

  • by Robert H 18/12/2015 9:00:08 AM

    ASIC views interest only loans as a risk?? A risk to what?? Doesn't it make sense for 1st home buyers to structure their loans interest only so they make minimum payments to the Bank initially and have a little extra cash available to buy furniture, carry out repairs/renovations etc in those initial years. They would then start principal repayments at the expiration of the interest only period at which time you would expect them to have higher incomes. In relation to interest only on investment loans doesn't it make good sense for negative gearing purposes to keep the debt high and use extra funds to repay personal debt? Maybe this is the issue?? Maybe the ATO wants to reduce the negative gearing benefits to investors? Maybe we need a broker in ASIC that can actually explain the real world.

  • by Ken Crawford 18/12/2015 9:18:21 AM

    Maybe the reason brokers write more interest only loans is that they follow the KYC process more closely and find out more about the requirements of the borrower. The superior experience of the brokers over the younger, less experienced bank loan staff would suggest that they are more in tune with the needs of the borrowers and know what questions to ask rather than dictating to borrowers what loans are to be taken and what structures are available.