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Life on the land in Australia

OLDER BORROWERS TO NOW HAVE MORE LOANS AVAILABLE TO THEM SAY GOVERNMENT REGULATORS

ASIC gives banks green light

to relax loan rules

Houses

ASIC has ruled that retirees have a right to downsize and sell. Picture: Liam Kidston.

THE corporate regulator has ended months of confusion for banks, ordering them to relax the purse strings and resume lending to middle-aged and older Australians.

Since responsible lending guidelines were introduced in January, banks and non-bank lenders have been rejecting credit applications from middle-aged people who lack a substantial retirement nest egg.

The Australian Securities and Investment Commission has now clarified its guidelines and confirmed retirees have a right to downsize and sell.

In a revised guidance note ASIC told lenders they must ask more questions to determine whether a middle-aged applicant will be able to repay a 25-year owner-occupier mortgage loan when they are due to retire in 10 years, for example.

ASIC commissioner Peter Boxall said some lenders were “adopting an unnecessarily restrictive approach to meeting the responsible lending requirements.”

“We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans,” he said.

“The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford.”

Some people in their forties and fifties have had 25-year mortgage applications rejected because they will retire before the loan term is finished.

Re/MAX Real Estate agent Geoff Baldwin said it was a discriminatory practice.

“Responsible lending requirements have led to banks and lenders discriminating against older applicants,” he said.

Lisa Montgomery, chief executive of non-bank mortgage lender RESI Home Loans, told BusinessDaily that mortgage insurers were rejecting loan applications from people in their fifties who lack substantial superannuation savings.

“Our mortgage insurer rejected an application we took for an 80 per cent LVR loan from a 59-year-old woman with $20,000 in super,” she said.

“In that situation the borrower just couldn’t demonstrate an exit strategy from the loan via investments, super, continued income or the sale of other assets.”

The 59-year-old mortgage applicant would “definitely” have been approved for a loan, Ms Montgomery said, had the application been received before the new responsible lending guidelines began in January.

Ms Montgomery said she supported the new responsible lending guidelines and said nobody wanted to hear stories about pensioners facing repossession because they couldn’t repay a mortgage.

Geoff Baldwin said the new guidelines meant borrowers, and even refinancers, who were over 40 years old could be prevented from buying a large family home and downsizing upon retirement.

Dominant mortgage insurance company Genworth Financial told BusinessDaily that all credit decisions were the responsibility of the lenders.

But lenders say that the two big mortgage insurers have shied away from approving insurance for loans to older people with little or no superannuation or other assets.

Mortgage insurance is usually required for any mortgage with a loan to valuation ratio over 80 per cent.

“Let’s be clear about this . . . thanks to compulsory superannuation, most people have a balance they can point to. This affects a minority of people who do not have a lot of money in super or any other investments.”

The average balance for those within 10 years of retirement is about $142,000 according to the Australian Bureau of Statistics and the Association of Super Funds.

But many people have little or no super, including half of all women between 45 and 59 years old who have less than $8000, according to the National Centre for Social and Economic Modelling.

Greg Kirk, senior executive leader for Deposit Taking, Credit and Insurance at ASIC said the law has not changed in relation to older borrowers and lenders are still required to make sure that the borrower will be able to repay the loan without substantial hardship.

“We have issued this clarification to the lending guidelines in response to what Lisa Montgomery and others have been reported to have said recently,” he said.

“If there is a reasonable plan to sell and downsize, for example, and the lender has verified that there is likely to be enough equity to pay off the loan, then that loan would be likely to be suitable.

“While at first view it would seem that the loan would be unsuitable under responsible lending, that initial assessment is rebuttable.

“The lender has to ask questions and make reasonable inquires to satisfy themselves about the borrowers’ financial plan and their circumstances and take reasonable steps to verify that.

“That is what responsible lending is all about.”

The law may not have changed but ASIC’s revised guidelines now directly address the main concern of older borrowers. “It seems we have gained some real ground here,” real estate agent Geoff Baldwin says.

The 59-year-old woman who was recently rejected for a mortgage by RESI may like to reapply.


April 25th, 2011
Topic: GOVERNMENT, HELP ASSISTANCE, HOUSING, Money & Investments Tags: , , , ,

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