Are tougher lending rules on the way? - The Adviser (12 March 2014)
Brokers fear they may write fewer loans if the Reserve Bank of Australia follows through on an idea to raise loan buffers.
Governor Glenn Stevens told the parliament last week that one way to reduce risk in the housing market would be to force lenders to set a higher benchmark for borrowers.
Mr Stevens suggested that borrowers might have to prove they could repay their loan not just at the current rate but at 300 or 400 basis points higher, compared to the current buffer of 200 points.
Vow Financial chief executive Tim Brown was critical of the Reserve Bank's idea because "you cannot protect a consumer from themselves".
"The buffer only works if the consumer does not commit themselves to new debt once the mortgage is completed," he said.
"Unfortunately, in my experience, once the consumer has their new home, they then decide they need new furniture, new appliances and a new car.
"None of the institutions that supply credit for these retailers are required to apply the same interest rate buffer that mortgage lenders do when calculating the customer's ability to repay now and into the future."
Raechel Weaver of SGW Financial Services said the current buffer was already working and did not need to be increased.
"They've got to be realistic with people in terms of their borrowing. Why should they have to increase it excessively?" she said.
"It makes it more unlikely that people are going to be approved for a loan. Raising it is going to make it harder and harder for people to realise the dream of owning their own home."
EXP Financial Group partner Angelo Lekkas toldThe Adviserhe believed in strong industry regulation and would accept any decision to raise loan buffers.
"Obviously a mortgage broker has a duty of care to your client. From a business perspective, you want to get loans through, so this would mean that it could be harder to get approval for those borderline applications."
Enrizen managing director Trent Franklin said he was open to a sliding scale, with the buffer being increased now and then reduced as interest rates started climbing.
"What would be disappointing is if what's already a fairly healthy margin on people with, say, two kids, had it bumped up even further," he toldThe Adviser.
"It would make it more difficult for people to get loans. But the concept in general is a good one, just because of where interest rates are at the moment."
Future Finance Group director Amie Tennant said she could see pros and cons in an increased buffer, but wasn't worried that it would lead to her volumes fallings.
"I think maybe there need to be income tiers with assessment rates, so your lower income earners need to have a higher assessment rates and your higher income owners have a lower assessment rate," she said.