Mortgage brokers urged to use common sense when it comes to interest-only loans

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Mortgage brokers need to display some common sense when working with clients who want interest-only loans, according to a Sydney based buyer’s agent.

Todd Hunter, founder and director of buyer’s agency wHeregroup, believes brokers should be doing more to gauge whether an interest-only loan is in the best interest of applicants.

Hunter made the claim after Your Investment Property Magazine’s sister publication, Australian Broker, revealed that the Australian Securities & Investment Commission (ASIC) will launch a review into the conduct of brokers regarding interest-only loans.

As reported in Australian Broker this week, ASIC senior executive leader – deposit takers, credit & insurers Michael Saadat used the Finance Brokers Association of Australia (FBAA) annual conference in Queensland last week to announce the review.

“Going forward we intend to undertake a further review in the interest-only area moving on from lenders to brokers with a particular focus on brokers’ consideration of consumer requirements and objectives,” Sadat said.

Hunter, who earlier this year said the number of interest only homes being written had reached “scary” levels, backed Saadat’s announcement.

“I think ASIC scrutinising mortgage brokers and interest-only loans in general is a good thing,” Hunter said.

“I think there’s probably some brokers out there who might need to take a look at their best-practice standards and just think a bit more whether an interest-only loan is right for the applicant. I think a bit more common sense would help a lot,” he said.

While Hunter backed the announcement of the review, it has drawn the ire of the FBAA who believe lenders should also be subject to more scrutiny.

“Lenders make the loan and lending rules that brokers must follow and in line with the brokers own responsible lending obligations, the vast majority are not intentionally breaking the law and are applying responsible lending considerations to the loans they arrange for borrowers,” FBAA chief executive Peter White told Australian Broker.
“At all times, brokers have the borrowers best interests at heart while also being aware of the borrowers desires which are not the influencing factor as they are not always in line with responsible lending obligations,” White said.

If a review was to be extended to the practices of lenders, that too would be something Hunter would support.

“Most definitely lenders should be looked at as well. The issue is that banks are answerable to their shareholders, so it’s hard to expect them to do anything that’s going to affect their bottom line or market share.

“That’s not to say they shouldn’t be acting with some morals. It’s good to see ASIC taking a look at what’s going on, but it would be good to see the banks take a bit more initiative and try and lead the way in this area.”

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