As brokers complain of unfair age-based policies by lenders , a recent Court of Appeal decision should give clarity around lending to older borrowers, says a NSW lawyer.
Gadens Lawyers partner Kevin Pringle says the decision - involving an elderly couple and a loan of $1.2m - is “good news” both for lenders and for elderly citizens looking to borrow money.
“It’s a good decision in the sense that it gives clarity for the lenders. In the first instance the judgement created some concerns regarding lending to older borrowers, which may have meant it would be problematic for older individuals to actually borrow money,” says Pringle.
“It should give them some more comfort around loans to older members of the community because it gives direction with regard to assessing exit strategies and the like which were previously uncertain.”
The lender in question refinanced the couple’s loan – from another lender – of which there was an outstanding balance of $957,000. The couple borrowed a further $100,000 to give to their daughter and put the remainder of the $1.2m loan towards their business.
The Court of Appeal overturned the Supreme Court of NSW’s earlier decision that stated the lender was unjust in refinancing the loan.
In its decision the Supreme Court varied the loan agreement to put the borrowers in the same position they would have been in if they had maintained their loan and not refinanced their prior loan, says Pringle. The practical effect of this was that the amount the borrowers owed to the lender was substantially reduced.
The original decision relied on the determination that the borrowers were “too old and too foolish to know what was in their best interests”, whereas the Court of Appeal ruled that age alone cannot be evidence of an inability to protect one’s own interests.
The Court of Appeal also dismissed the claim that the couple’s long loan history and numerous refinances were evidence of financial immaturity.
To warrant a finding of financial immaturity, Pringle says the borrowers would have to show that previous dealings had in fact not been in their best interest, whereas in this instance there was no evidence that this was the case.
“It’s a double-edged sword because previous cases have said if someone had entered into a number of financial dealings they’d understand what they’re doing and therefore the onus is actually higher on them. That first decision was somewhat of a change of positioning.”
The appeal also took into account the original decision that the lender “failed to undertake reasonable enquiries” into the estimated value of a commercial property that was included in their application statement of assets, but that was not provided as security.
This was overturned by the Court of Appeal, as there was no evidence to suggest the estimated value of the Marrickville property was incorrect in the borrowers’ loan application.
If it had been upheld this could require lenders to carry out additional enquiries to ensure borrowers’ statements of assets and income were truthful, says Pringle.
“This would be particularly onerous for lenders offering ‘lo doc’ loans and could extend to an obligation on lenders to obtain valuations for assets even where those assets were not being provided as a security,” he says.
“This is good outcome for lenders. It confirms that a lender may rely on the declarations of a borrower contained in a loan application. It also confirms that the age of a borrower, without something more, cannot form a basis to prove a loan is unjust.”
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