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APRA responds to broker's defence of interest-only loans

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Australian Broker | 18 Dec 2014, 08:30 AM Agree 0
APRA has responded to a mortgage broker who defended interest-only loans, saying there are “indications of poor lending” in the mortgage market
  • Barney | 18 Dec 2014, 09:18 AM Agree 0
    Their response tell me that they still don't get it. In most instances these clients have an offset account and so by saving extra they are reducing the principal. They need to factor funds held in off-set account and their profile (accumulation). They also need to understand (re their comments about people with "borrower aspirations") that interest only loans are assessed at the stress rate on a P and I basis over a shorter loan term (factoring the I/O term). Their assumption is that I/O increases your capacity - which is untrue.
  • Andrew L | 18 Dec 2014, 09:47 AM Agree 0
    Barney, you took the words out of my mouth! This is another case of someone not understanding our industry!
  • Vic Regional Broker | 18 Dec 2014, 09:57 AM Agree 0
    This response doesn't tell me anything, not in touch with reality and the response is the stuff of smoke and mirrors.
  • Rocket Scientist | 18 Dec 2014, 10:08 AM Agree 0
    Stop it APRA, you're embarrassing yourself!
  • Trevor | 18 Dec 2014, 10:18 AM Agree 0
    Perfectly stated Barney. It is obvious that they do not understand that actually higher calculation for servicing qualification is required when interest only involved.
  • South coaster | 18 Dec 2014, 10:35 AM Agree 0
    I had a client, come to me wanting to purchase a home sub60% LVR, self employed income was so low they did not service with almost 30 lenders I deal with. They went to a local non big 4 bank.... And they wrote the deal under their in-house authority but only on interest only terms....

    Regulators need to look at not just brokers when it comes to blatant disregard for NCCP.
  • Chris | 18 Dec 2014, 10:42 AM Agree 0
    It needs to be asked - how on earth does APRA keep getting it so wrong. Does anyone there know what they are doing and who is checking the information prior to release?
  • Me | 18 Dec 2014, 11:43 AM Agree 0
    Surely these people understand how loans are assessed? It therefore begs the question, what is the real motivation behind these comments?
  • Broker Chris | 18 Dec 2014, 11:47 AM Agree 0
    If I wanted to make it easier for an investor to borrow money I wouldn't use interest only facilities as the borrower would have to show at application servicing capacity over 25 years rather than 30 years making it harder to qualify for the loan. Also, investor lending is normally below 80%. I think the real issue here is that due to no first home owners grants, the market is now only left with the investor. This would have to be one of the most dumbest things that APRA has come out with. Clearly, they struggle to understand the basics of lending policy???
  • Coast Broker | 18 Dec 2014, 12:09 PM Agree 0
    Well said Barney. APRA are dinosaurs that need to get with it. They have no idea. Sounds like they are trying to make out that this dinosaur should still exist.
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