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NAB takes tougher stand on rejecting risky interest-only loans
The Australian 12:00am July 7, 2017
Michael Roddan
Does this mean NABBERS have told their sellers to NOT SELL and sin no more???
Does this mean that NABBERS’ computer has been instructed by its ROBOT not to mark unaffordable loans as affordable in future? As sellers tell me: “if we stopped selling IO’s the banking system would collapse.” Sellers have not received the memo.
National Australia Bank has strengthened its ability to reject risky interest-only loans by using high loan-to-income ratios for the first time to deny borrowers on serviceability requirements.
It is the latest move by the banks to implement more rigorous standards to lending criteria amid a prudential crackdown on interest-only loans, where principal is not paid down for about five years. About 75 per cent of interest-only loans are issued to property investors, who also face tighter prudential limits.
A loan-to-income ratio measures a borrower’s indebtedness against the loan amount being sought. NAB already uses the measurement for all loan applications but, from Saturday, it will deny loans to interest-only borrowers who it believes are taking on too much debt.
“We’re conscious of concerns raised by regulatory bodies about Australia’s household debt-to-income ratio, which has risen significantly over the past decade,” NAB head of home lending Meg Bonighton said.
“It is with this in mind that we are extending the use of this measure, which will be one of a number of assessments we do in order to ensure the customer is able to manage the new lending they’re seeking.”
Australia’s household debt-to-income ratio has climbed above 190 per cent, according to Reserve Bank data released this week, making it one of the most indebted countries in the world. With property prices streaking away in Sydney and Melbourne, the prudential regulator has asked lenders to limit interest-only loans and lending to investors. Both types of borrower are considered riskier than owner-occupiers, who tend to continue to pay their mortgages in times of economic stress.
“With this new measure, we will strengthen our ability to ensure we’re providing our customers with the right home loan for their situation, and that they can meet their home loan repayments today and into the future,” Ms Bonighton said.
The corporate regulator, the Australian Securities & Investments Commission, has also targeted the banks over relaxed lending standards. Chairman Greg Medcraft said recently he was worried about borrowers taking on too much debt when interest rates were low.
As banks grapple with the lending restrictions, interest rates have been rising sharply. In the past month the four major banks, along with Bendigo and Adelaide Bank and ING Direct, have pushed through rate rises of about 35 basis points for interest-only loans. These banks control about 85 per cent of the Australian mortgage market.
