Broker associations press Senate to improve mortgage-market barriers

“What our members see is that intergenerational housing inequity is not caused by any single factor. Australia needs more housing supply, a competitive lending market, and government home ownership initiatives that work effectively in practice,” MFAA CEO Anja Pannek said.

Pannek clarified that the MFAA was not calling for weaker responsible lending requirements, but rather that the focus should be on ensuring borrowers capable of sustaining home ownership were not held back by unnecessarily cumbersome lending arrangements.

“Changes to lending rules will not make housing more affordable on their own, nor are we advocating weaker responsible lending standards or greater borrowing capacity as a substitute for increasing supply.

“Our point is narrower, when someone can sustainably afford home ownership, unnecessary complexity, duplication, or inflexibility in the lending system should not prevent or delay them,” she said.

Refinance friction in focus

A central element of the MFAA’s evidence was the refinancing process, with Pannek noting that its members continued to encounter variation between lenders in discharge time frames and procedures.

“The types of friction that our members report are around non-standardised discharge time periods, that sometimes it is a very manual process, inabilities to locate a lender’s discharge form on the lender’s website, and also instances in which a mortgage broker cannot act on behalf of their client as a result of lender policy,” Pannek said.

“All of this leads to… it slows down the process.”

Pannek said the consequences ultimately fell on borrowers who may be able to obtain a lower rate elsewhere, but encountered barriers while trying to switch.

“It is to the detriment of the consumer, especially if they’re able to avail themselves of a cheaper rate,” she said.

As such, the MFAA CEO called for a clearer and more consistent discharge framework across the home lending system.

“I think having a clear framework for discharges in the home lending system would help level the playing field with what our members are experiencing and what ultimately borrowers are experiencing as well,” she said.

Government schemes must be widely accessible through broker channel

Pannek also noted that government assistance could help narrow the gap, but said that schemes needed to be easier to navigate and widely accessible through the broker channel.

“We see it as absolutely key that borrowers are able to avail themselves of government schemes, but the reality is, there is a vast variety of schemes that exist at the federal and state level,” she said.

“The other aspect of schemes being simpler and easier to access as well is ensuring that schemes are available through the mortgage broker channel.”

Pannek told the committee that Housing Australia data indicated that about 74 per cent of FHBs accessing the schemes did so through a broker.

“It is absolutely critical that as those schemes come to market at either the state or the federal level, that the lenders who participate in those schemes work with the broker channel to allow greater access,” she said.

Referring to the federal government’s Help to Buy program, the association CEO stated that as the “scheme expands and more lenders join, that they are lenders that work with mortgage brokers, so then mortgage brokers can help their clients get access to that scheme.”

FBAA calls for greater flexibility without reckless lending

Meanwhile, FBAA CEO Leo Gagic told the inquiry that the industry should examine whether documentation and credit-policy settings were preventing appropriate access to finance.

“From a barriers-to-entry standpoint, it’s really around making sure that there is flexibility and that it’s not too onerous in terms of how loans are documented,” he said.

The FBAA’s regulatory compliance specialist, David Carson, expanded on that argument, warning that lending decisions could sometimes be heavily based on present circumstances, to the disadvantage of borrowers early in their working lives.

He suggested there may be scope for an arrangement that would provide lenders greater confidence to make responsible assessments of applicants whose future income prospects differed from their current earnings.

“We need some sort of a safe harbour for lenders to be able to look at a younger couple or a lower income couple and project out where they may be in a number of years’ time and say we’re prepared to move outside of our quite conservative thresholds to advance you funds to allow to help you into the market now,” the conpliance specialist said.

“This would acknowledge that you’re young in your career, your incomes will naturally rise over that time.”

However, Carson emphasised that any such flexibility would need to avoid speculative or excessive lending.

“It’s a challenge because we don’t want lenders to be reckless and to forecast unfairly on people, and expect that incomes are going to rise to meet excessive lending capacity,” he said.

“But at the same time the regime as it is now really penalises a lender for taking that risk and trying to extend opportunities.”

Low-deposit costs under scrutiny

Carson also raised the impact of lenders mortgage insurance (LMI) on borrowers with smaller deposits, saying that the cost falls most heavily on buyers who are least able to absorb it.

“The product such as the lender’s mortgage insurance is a very arbitrary product, it kicks in at when you deposit less than 20 per cent. Naturally, that affects people who have smaller deposits, and those payments don’t affect the borrower, they insure the lender,” Carson said.

“I think the evolution of the Housing Australia 5 per cent deposit scheme and the Help to Buy schemes are excellent in that space.”

Gagic separately told the committee that broker feedback suggested a broader decline in loan applications of about 20 per cent and added that brokers were increasingly diversifying into commercial and asset finance in response to changing consumer conditions and lending-policy developments.

Members of the banking industry also gave evidence to the eighth and final hearing of the senate inquiry, with mutual banks showcasing their value to regional and local home buyers - while the major banks were grilled on how they were supporting housing inequality, too.

[Related: Broker market share continues rising to record highs]