Earlier this year, the regulator announced new curbs to interest-only lending. We asked five members of the industry to share their thoughts on the new rules.
A welcome change
As part of the team at GPS Wealth, we believe the focus on tightening of credit regulations on interest-only loans is a welcome change as it has encouraged more responsible lending by banks and other institutions to not place customers under undue stress and thus end up paying more on their home loans, particularly if their loan is an owner-occupied loan.
The key is to encourage clients to pay off their home loan as quickly as possible and then focus on creating an asset portfolio outside of the family home and be able to be a self-funded retiree.
Jeanette Cheung, GPS Wealth Limited
You should be paying down
We barely do any interest-only any more. That’s one thing that’s changed. We started off doing quite a few of them because that made sense. But at the moment, if you’re charging three-quarters of a per cent more for an interest-only loan, it really doesn’t make any sense. You should just be paying down your asset rather than paying the bank. And 99 times out of 100, you’re owner-occupied with P&I, unless they’ve got immediate plans to convert that into an investment. But… right now, they should be focusing on paying down some debt if they can.
Lee Wisniewski, Loan Market
Make sure it is appropriate
We are now in an environment where interest-only loans are more expensive, and it’s becoming ever important now for lenders and brokers to explain and justify why they are putting people into more expensive loans.
Investors may have other reasons for getting an interest-only loan — they may be tax reasons, for example, whereas those reasons don’t necessarily apply to owner-occupiers. And that doesn’t mean that owner-occupiers should never been given an IO loan. Of course, there will be cases where that still is appropriate. We just want to make sure that it is appropriate and that you’re documenting the reasons for that.
Michael Saadat, ASIC
It’s made a huge impact
Over the last six months, we’ve actually really focused on the P&I space as well, and now it’s not even a discussion, in a sense that a lot of people are expecting to pay P&I.
We talk about, you may as well pay P&I instead of a high interest-only repayment because it’s going towards your mortgage instead of directly to the bank. So, I thought it was going to be really hard, but it’s actually been really easy. I think it’s made a huge impact, which has been great.
Sarah Thomson, Loan Market
Demand may tick back up
Lenders are acutely aware that they have a 30 per cent cap to adhere to. That is why so many lifted their rates back in April and May this year. However, it seems for some lenders, at least, the pendulum may have swung a little past its centre point and they are now working on bringing it back into place. [Recently], we have seen some lenders start to reduce the rates on their interest-only loans. As a result, we may see demand for this type of product tick back up again over the coming weeks and months.
John Flavell, Mortgage Choice
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