Credit Ombudsman warns borrowers are 'stretching themselves too far'

by AB23 Oct 2013

COSL Credit Ombudsman, Raj Venga, has warned that new home buyers may be stretching themselves too far in the pursuit of their dream home.

“Interest rates at record lows are reported to have fuelled a surge in house prices. New home buyers and investors seem to be caught up in a housing frenzy which has already pushed Sydney’s auction clearance rates to record highs. Australians are borrowing more to purchase properties”, he says.

Venga notes that most lenders tightened their lending criteria post-GFC, but that there are now an increasing number of loans available to home buyers with small deposits, some as low as 5%.

“Borrowers may be left with loans they cannot afford when the record low interest rates start to rise, as they inevitably will. As it is, one third of the complaints we receive are about mortgage stress and financial hardship.”

Venga also says the rate of growth in New Zealand house prices had prompted the New Zealand Reserve Bank to impose restrictions on the loan-to-value ratio of housing loans – something which isn’t entirely off the cards here.

“Whether or not this is or should be introduced in Australia, we expect lenders to maintain prudent lending practices and adhere to their responsible lending obligations under the law. In an environment of historically low interest rates, lenders should consider whether they are using appropriate interest rate buffers and margins on living expenses when assessing serviceability.”


  • by not so old broker 23/10/2013 9:09:54 AM

    But Raj, you forget that profit is king, not prudent lending or responsible lending. Now let's sit back and wait for the backlash from lenders and others telling you to butt out.

  • by overtheborderbroker 23/10/2013 9:38:06 AM

    COSL's warning should be heeded as it's the broker in a few years time who will get the first call when rates go back up to the high six percents and borrowers can't pay, and it's the broker who will go through an agonising COSL investigation process to clear their name. I still service my loans at 6.5% plus a 2% margin and make it clear to my borrowers that this is what I do and why I do it. If they don't like the answer they can go elsewhere. Interestingly once I have explained why I do this, I don't lose too many deals. PS If you have never had the dreaded email from COSL let me tell you, you don't want to. In all my years of business I have had one COSL complaint that took three years to finalise. I never want to receive an email from COSL again other than my annual renewal.

  • by Noel 23/10/2013 10:12:11 AM

    Everyone knows that the lenders serviceability claculators are a joke. Get real and service each loan to each individual applicants own circumstances.