The managing director of a leading brokerage has called on APRA to ensure that any new macro-prudential measures brought in come with appropriate oversight and controls to avoid “injustices” being perpetuated by the banks.
MoneyQuest managing director Michael Russell told The Adviser that he believes APRA’s measures requiring ADIs to curb investor lending to 10 per cent and interest-only lending to 30 per cent have resulted in “an injustice that is continuing to be perpetuated” on consumers as a result of a lack of prescriptive oversight.
Speaking after APRA outlined plans to change banks’ capital requirements for property investors and borrowers with interest-only home loans, Mr Russell cautioned the prudential regulator to take care with any further mortgage curbs to avoid “unintended consequences” that could negatively impact borrowers.
According to Mr Russell, while the financial services regulator (ASIC) undertakes “a good depth of forensic analysis and assessment” when it looks at the mortgage industry, and “talks to all stakeholders”, he did not believe that APRA did the same.
Mr Russell said that the current speed bumps put in place have resulted in the banks increasing their back-book interest rates for investor and interest-only loans that has caused “carnage” for existing interest-only borrowers.
He said: “You’re talking about families and mortgage holders across the country that are being impacted unnecessarily… that have been the victims of interest rate increases.
“There is a zero-sum game to increase the interest rates of existing interest-only customers to pull investment demand of house prices. So, why is it being done? APRA [is] the regulator of the ADIs [authorised deposit-taking institutions] and if they are going to instruct them what to do, they can’t just leave it at that. They need to [have] oversight [of] how the ADIs intend to go about it. Because if they don’t, it’s reckless. It’s not good enough.”
Mr Russell highlighted a case where a borrower took out an interest-only loan in 2013 in order to buy a home and make some home improvements before paying down the principal. During that time, he had married and become a father, while house prices had fallen in the area. When his IO term ended, he sought an extension as he could not make P&I repayments until his wife had returned to work.
However, Mr Russell said that, due to the “banks no longer accommodating previous extension of interest-only terms for fear of breaching APRA’s controls”, his application was declined and he had to sell the house.
The managing director therefore said that as it is “counterintuitive for a business that is in the business of lending money” to pull back on lending, “if you are going to instruct someone to do something that is not in their nature, you have to be a lot more prescriptive in your instructions and have a level of oversight”.
He added: “Because for APRA to simply instruct the banks on what to do, they must realise that this is against the very nature of the banks who are there to lend to people in need and support growth, etc. So, surely some level of oversight was needed.”
According to Mr Russell, APRA [is] “about to tweak the controls”, and he therefore hopes that “next time around, they give far more thought to what the unintended consequences might be and they give far more thought into how the ADIs go about following the lead from APRA”.
He suggested that either Treasury or APRA needs to provide more oversight of the banks, because APRA “cannot be all care and no responsibility”.
“These sorts of issues, unfortunately, don’t get enough air play. We need to make sure that our customers are better protected by more informed decisions from the banking regulator. There needs to be a lot more care taken when you start to intervene in a free market,” Mr Russell concluded.
[Related: APRA mortgage curbs under scrutiny]
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