Non-major bans loans to foreign buyers

by Julia Corderoy06 Jun 2016
Superfund-owned lender, ME Bank is the latest lender to announce severe foreign investment restrictions amid growing fears about fraud and money laundering.

In a confidential note sent to mortgage brokers week, the non-major announced a lending ban on any proposed borrower who is not permanently residing, or employed, in Australia or New Zealand.

In a statement provided by ME, the bank said it has been forced to make these changes following the moves by the major banks to crack down on mortgages to foreign buyers.  

“Last year we formally restricted mortgage borrowing to Australian citizens/PRs and NZ citizens living and working in Australia, although this has never been a major segment for us. Recently, in line with industry moves, we also formalised our restrictions on the use of foreign income used to service mortgages, including Australian citizens/PRs working &/or employed overseas. 

“The primary driver for the latter is the ability to verify the foreign income. For a bank our size, it is difficult for us to put in place processes at suitable costs to manage this segment.

“These are prudential measures designed to ensure our flow of new business in line with our target market. This is particularly important in light of changes by the majors which can increase demand for smaller banks who haven’t also applied the same policy.”
 

COMMENTS

  • by Steve McClure 6/06/2016 11:30:57 AM

    I don't get it. If the issue is verifying employment & ID within the current pricing structure, why not apply an additional fee and take the extra steps to verify? Lenders seem intent on shutting down a large & profitable area of lending, simply because others have. Recent publications revealed these loans have a lower arrears rate, and being 80% LVR or less, they are well secured. It's a niche for a prudent lender.

  • by Troy McClure 9/06/2016 12:01:45 AM

    Consider that LVRs of 80% of less can be achieved by using loan capital from other fraudulent loans. The credit risk is hidden by a merry go round of fraudulent loans between institutions.