Banks targeting the asset-rich and income-poor (ARIP), combined with a record ratio of house prices to incomes, is precipitating a housing market fall, according to analysis from LF Economics.
LF Economics co-founders Lindsay David and Phillip Soos have joined a chorus of industry figures (including John Hempton of Bronte Capital and Jonathan Tepper of Variant Perception) to issue such a warning. According to David, banks consistently lend to borrowers who will be unable to repay unless they “flip their house for profit”.
David added that asset-rich, income-poor investors with incomes as low as $23,000 have been able to obtain loans to finance property purchases, often utilising negative gearing. Many loans were obtained through application forms manipulated to make borrowers seem more credit-worthy than they are, according to David.
LF’s analysis is based on research by financial services consumer activist Denise Brailey. In reviewing mortgage applications collected over 15 years, she said that lenders were “systematically targeting ‘ARIP’ older investors who owned their home”.
“They were not told these ‘mortgages’ were interest-only loans. They were not informed the loans would implode within five years and they would become homeless,” said Brailey.
Victor Kalinowski, founder and mortgage broker at Brisbane-based Blakk Finance, said he has not experienced this in his firm's nine-year history, and offered another explanation as to why banks will seek out borrowers who are asset-rich.
“I agree that clients who have higher assets are targeted by banks via attractive loan offers, though my understanding is that this is due to the lower risk of these borrowers missing repayments or defaulting on their home loans,” Kalinowski told Australian Broker
“It makes sense that the higher equity that a client has in a home, the more they will work to protect that equity to making repayments on time.”
Both LF Economics and Denise Brailey are to make a submission to the penalties for white collar crime senate inquiry which is due to report in July.