SURGE IN LOANS APPROVED OUTSIDE SERVICEABILITY
FROM Australian Broker 13.07 by key media – Page 27
https://issuu.com/keymedia/docs/ab_13.7/27?e=1100026/34919145
New figures released by APRA show $2.8 billion in home loans slipped through the big bank’s approval stages last year.
In the past year there has been a jump of more than 37% in the number of home loans getting the tick of approval despite customers failing to meet their serviceability requirements. The figures released by APRA for the December quarter show almost $2.8bn was lent to borrowers in this category – more than 9,000 loans were approved, based on the average loan of $300,000.
According to News.com.au, Financial Counselling Australia’s executive director, Fiona Guthrie, believes the situation is a “potential time bomb” waiting to happen and comes despite APRA’s massive crackdown on lending practices by the major banks in late 2014.
Australian Bankers Association CEO Steven Munchenberg confirmed the banks were working with APRA on loan serviceability issues.
“APRA is working with all authorised deposit-taking institutions to create more consistency in monitoring of loans approved outside serviceability”, he said. “Banks have comprehensive and rigorous processes to assess a person’s capacity to repay. How banks assess serviceability may vary a little across banks, but what doesn’t change is that banks will only approve loans they think they can be paid back.”
The APRA figures indicate that there has been a similar surge for smaller lenders, with the value of loans approved outside serviceability up 78% to $680, compared to the $382m approved in the December quarter of 2014.
APRA’s newly implemented stricter lending practices may have led lenders introducing independent rate hikes outside of the Reserve Bank making any adjustments to the cash rate.
News reported that the regulator was aiming to have all banks implement one set criteria for loan serviceability to avoid confusion moving forward. However, Guthrie expressed enormous concern over the “rubber-stamping” of these loans.
“It’s a worry people are getting loans approved on wonky criteria,” she said. “You have either got criteria or you haven’t got criteria.” The news report comes following a 60 minutes investigation that suggested banks were possibly loaning large amounts of money to borrowers who were unabe to pay them back due to a collapse in the property market. The expose revealed how one couple were $2.3, in debt after investing in multiple apartments in a remote Queensland mining town, which they have not been able to fill with tenants.
According to reporter Ross Coulthart, the couple believe there was a mistake mde in lending the money to them in the first place.
They are not blaming the bank entirely, but there needs to be a debate that banks, despite what they are saying, are not in fact following due diligence or normal lending practices.
In a similar case, a 24 year-old-ordinary income earner was loaned $6.5m and bought 10 properties that she can’t service, again due to a lack of tenant interest. Documents from the lender show the bank knew her investments were risky when they approved her loan.
“It doesn’t make a great deal of sense why the bank loaned this money,” Coulthart said. “They should have a duty of care to make sure people have the capacity to pay.”