The industry association has called on lenders to revise their lending practices, which threaten to undermine efforts to stimulate the economy.
Managing director of the Finance Brokers Association of Australia (FBAA) Peter White has warned that the stimulatory effect of lower mortgage rates could be “wasted” if lenders don’t ease their lending standards that were tightened amid scrutiny from the banking royal commission.
Mr White said the Reserve Bank of Australia’s rate cuts won’t be enough to stimulate the housing market if lenders apply “unrealistic credit criteria” that risk “pushing legitimate buyers out of the market”.
“We need a more considered approach to credit policy because right now there are borrowers with the capability to pay a mortgage that are being rejected for a variety of reasons,” Mr White told members at the FBAA’s annual conference.
Mr White claimed that the Commonwealth Bank of Australia’s recent decision to lower its interest rate floor for the second time in almost four months was a response to subdued demand for its credit products.
“Banks are being forced to act because the market is flat, and we will no doubt see that other banks will follow,” he said.
“The FBAA has said before that the buffer used by banks is ridiculously obstructive to borrowers.”
Mr White also noted the challenges facing small businesses, which he said are struggling to obtain finance due to rigorous lending practices.
“In no way am I suggesting we loosen the credit criteria, but in an economy that needs stimulating, interest rate cuts are only a part of the solution,” he said.
“Denying legitimate and credible borrowers a loan due to credit policies that make no sense doesn’t help anyone.”
[Related: ASIC sheds light on RG 209 guidance]
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