Outdated or ill-judged government policies have turned some borrowers into “collateral damage”, a leading broker has said, arguing that it is brokers’ duty to help clients find solutions.
Xavier Quenon, director at Go Mortgage Corporation, told The Adviser that the Australian Prudential Regulation Authority’s (APRA) blanket crackdown on investor lending was just the latest in a series of government policies that made sense at a specific time, or for a specific region, but was detrimental to the wider home finance landscape and the borrowers that exist within it.
“There is a real disassociation between what the soothsayers are saying about property bubbles and what's actually happening here on the ground,” he said.
Operating in Helensvale on the Gold Coast, he explained that the housing market there was markedly different to those of Sydney and Melbourne, and that speed bumps introduced to slow those surging metropolitan markets were irrelevant for regional areas. “The hype is based on that [Sydney and Melbourne markets] but it doesn’t suit where the Gold Coast and Queensland is at. That’s not the story that’s happened here; we haven’t had doubling prices every three years.”
Repeated policy mistakes
He said that this wasn’t the first instance of a government policy being poorly thought out. Mr Quenon pointed to the 2003 government mandate that all lenders display comparison rates in advertising. The regulation required all comparison rates to be derived from the same loan amount and term; $150,000 over 25 years. Since then the average home price has sky-rocketed but lenders are still working off a $150,000 loan amount in their advertisements.
“The comparison rate is actually less of a good comparison than the actual rate because it's on a loan of $150,000 so if you have a $1,000 fee on $150,000 versus a $1,000 fee on a $3 million loan, well it influences the comparison rate to a different effect.
“It's unfortunate that all these government incentives come out and are passed and industry is not consulted a lot.”
Recent research by finder.com.au backs Mr Quenon up. The research compared three lenders’ advertised comparison rates with a hypothetical comparison rate that would occur under “more realistic” borrowing situations. Finder.com.au used a dwelling value of $880,000 and a 10 per cent deposit, bringing the loan amount to $792,000.
It found that the cheapest advertised rate grew from 3.72 per cent to 3.79 per cent, while the most expensive dropped from 3.81 per cent to 3.78 per cent. The lender advertising 3.74 per cent remained steady.
Finder.com.au said: “The loan with the most expensive advertised comparison rate ends up being $3,557.40 less expensive than the loan with the least expensive advertised comparison rate.”
Find a solution
Mr Quenon says there’s a “real detachment” between government policy and lived experiences, highlighting politicians’ salaries and pension guarantees. He added that as policies change, brokers need to become “chameleons” in order to assist their clients in achieving their financial goals.
As banks tighten lending criteria to fall in line with government directives, more people fall outside of the lines, Mr Quenon said, adding that he’s seen many clients be denied refinancing after getting stung by hikes in interest-only rates.
However, regardless of the financial climate, borrowers still want what they want, he emphasised. “People don’t take no for an answer, they don’t really care which prime minister is in or what the government has decided this time… they’ve only got one life and they want to live it and if that means growing their portfolio, or buying their first home, well, they’re going to do whatever they need to in order to get there.”
“The more complex it gets, obviously the more presence and importance and effectiveness a broker has.”
[Related: ‘The vanilla client doesn’t exist anymore’]