A Perth-based mortgage broker has called on banks to green-light the prudential regulator’s proposed reforms to residential lending guidelines in a bid to remove “over-regulation” and “red tape”.
Last month, the Australian Prudential Regulation Authority (APRA) opened consultation on its proposals to revise its mortgage serviceability guidelines, which would see its 7 per cent interest rate floor removed and its interest rate buffer increased from 2 per cent to 2.5 per cent.
APRA chair Wayne Byres said that the operating environment for ADIs had evolved in the past decade, prompting the regulator to review the ongoing appropriateness of the current guidance.
“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so,” he said.
“In addition, the introduction of differential pricing in recent years – with a substantial gap emerging between interest rates for owner-occupiers with principal and interest loans on the one hand and investors with interest-only loans on the other – has meant that the merits of a single floor rate across all products have been substantially reduced.”
Robert Perks, managing director of Perth-based mortgage brokerage Fifth Avenue Finance, echoed Mr Byres’ sentiment, and called on banks to support the changes as a step towards an overall easing of policies that were tightened in the aftermath of the banking royal commission.
“The banks need to support assessment rates and remove all over-regulation and red tape applied to lending policy in the post-royal commission era,” he said.
Mr Perks said that APRA’s proposals would help increase borrowing capacity for some home loan customers but urged stakeholders to reconsider their approach to the crackdown on income and living expenses.
“While it’s great news APRA is taking a proactive approach to policy in helping the banks to lend more money, the 7 per cent servicing assessment rate hasn’t previously been a problem in home loan approvals prior to the royal commission into banking,” he continued.
“APRA’s very reasonable directive was for mortgage brokers and lenders to make ‘reasonable enquiries’ into living costs instead of using the House Price Index and Household Expenditure Method living expense measurements as a default living expense calculation.
“The banks have overreacted to the directive and taken an overly cautious approach when applying this to updated lending policies. This, as well as the ‘responsible lending red tape’, is the real driver for home loans being declined.”
The broker pointed to policies adopted by some banks, which require a home loan customer to provide a personal statement detailing a list of their living expenses and commitments.
Mr Perks added that in some cases, banks have required customers to provide personal bank statements on their accounts to prove their statement of living expenses to the bank.
“It is tantamount to an audit on a home loan customer’s living expenses statement, and also on their personal lives,” Mr Perks said.
“This disingenuous policy suggests that home loan customers are not capable of telling the truth to the bank or their broker in order to get a home loan approved.
“It is overstepping into customers’ personal privacy. Home loan customers are entitled to their privacy, providing it’s legal, period.”
He continued: “What this policy serves to create is an environment where customers ‘protect themselves’ by having non-disclosed secondary bank accounts where they might have subscriptions or paid from.”
The broker concluded by stating that a “component of making reasonable enquiries into living expenses” is to discuss fixed and non-fixed expenses, and the client’s appetite to reduce or cancel such expenses if it limits their home loan aspirations.
“This could mean having a discussion around cancelling subscriptions like Netflix, Stan and Foxtel, providing they aren’t under a fixed contract, should the need arise,” he said.
[Related: Westpac introduces changes to lending policy]
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