Brokers writing fewer IO loans

by Miklos Bolza16 Oct 2017
Recent allegations by the Australian Securities and Investments Commission (ASIC) that mortgage brokers are writing higher volumes of interest only loans have been shot down by the head of one national broking franchise.

In fact, data drawn from within Mortgage Choice shows that brokers are writing fewer IO loans than previously, said the firm’s CEO John Flavell.

The proportion of interest only loans being written by brokers within the franchise dropped from almost 36% in May to just over 14.5% in September, he told the Australian Financial Review.

“Our brokers aren’t going to put customers in a particular product for the sake of it. They will make sure it’s the right product for them.”

Mortgage Choice brokers currently write one in every 20 residential mortgages in Australia.

In an interview with Australian Broker, Flavell said that interest-only loans were “absolutely not” the disaster portrayed in recent research and media reports.

“There are many reasons why owner occupiers and/or investors may choose to have an interest only product.”

For instance, an owner-occupier may use an interest-only loan to free up some cash-flow when renovating their home, he said.

Flavell noted that both APRA and ASIC wanted borrowers to show good reason for choosing an interest-only product, adding that this was indeed fair.

Regarding ASIC’s recent IO claims, Flavell said he didn’t believe the regulator’s data was wrong. He refrained from commenting on what was happening at a national level across the market, instead pointing to figures drawn from the franchise itself.

“From our own data we can see that the proportion of interest only loans written by our mortgage brokers each month has dropped considerably since April 2017.”

This drop has been driven by rate increases on these interest-only products, he said.

“As such, for some investors and owner occupiers, an interest only loan no longer represents the best solution for their needs.”

Related stories:

IO loans “key tail risk” in market

ASIC releases its review of interest-only home loans

No maths formula for rate repricing, says major bank

COMMENTS

  • by Ray Weir 16/10/2017 1:21:42 PM

    What ASIC and APRA don't realise is that many interest only owner occupier home loans are in fact for construction purposes usually including the purchase of the land. These loans automatically revert to principal and interest payments once the loan is fully drawn down, usually in less than 12 months. I therefore don't believe such loans should be classified as interest only loans, thus enabling banks to profiteer from them by charging a higher interest rate during the brief interest only period. Given that most builders either have an in-house mortgage broker or an alliance with a broker, its no surprise that the broker network originates a higher proportion of interest only owner occupier loans than those arranged direct with the banks.

  • by OzBoy 16/10/2017 2:15:17 PM

    "than previously" those are the 2 words that matter. Everyone is writing less IO loans after the rates went up. Nothing to see here, move on.