FBAA Message: Banks Urged to Respond More Quickly

FBAA

Banks urged to respond more quickly to changing borrowing conditions and rates

The Finance Brokers Association of Australia (FBAA) has demanded banks take a more proactive stance in safeguarding the interests of borrowers, citing APRA's latest guidance on assessment rates for loans as an example.

FBAA managing director Peter White claimed many people who should qualify for a loan have been rejected because they are being assessed on advice from 2014 when the economy and interest rates were very different.

"APRA moved to correct this anomaly ten days ago but some of the banks have been slow in responding. I congratulate the ANZ for moving to a more reasonable assessment position last week and Westpac for following suit today. I urge the other majors to move as soon as possible."

On Friday ANZ announced that its current floor rate of 7.25 per cent will be amended to 5.50 per cent. Westpac moved from 7.25 per cent to 5.75 per cent and increased its buffer to 2.5 per cent.

Mr White said other banks seem to be resisting, which is holding the economy back when it desperately needs a boost. "Brokers are trying to help buyers purchase a home, but banks have been holding them ransom."

On July 5 APRA amended its 2014 guidance on residential mortgage lending, stating they now expect banks to assess loans at a rate of at least 2.5 per cent above the interest rate on the loan that is being taken out.

Previous guidance from APRA to authorised deposit-taking institutions (ADIs) was to assess home loan applications using a minimum interest rate of at least 7 per cent with most banks adopting a rate of 7.25 per cent to assess loan serviceability.

"With most lending institutions offering interest rates between three and four per cent an assessment rate on 7.25 per cent was unfair.

"As brokers it makes it more difficult to get approval and creates immense disappointment and confusion for clients if banks use outdated data to assess the suitability of average Australians to pay off their home."

Mr White said the housing market needs a boost and will get it when the banking sector learns to respond quickly to changing conditions and interest rates.

"The reduction in the assessment rate will make it easier for existing borrowers to refinance so they can escape their existing mortgage prisons because of unreasonable rates and conditions."