Aussie corporate watchdog to examine risky interest-only home loans

SYDNEY • Australia's corporate watchdog said on Wednesday it will scrutinise individual home loan records to ensure that mortgage providers are not unfairly selling risky interest-only loans to make quick profits.

Interest-only loans are massively favoured by speculative property investors taking advantage of generous tax breaks, driving rapid gains in housing prices in recent years.

Regulators have intensified pressure on the country's biggest banks in recent months to slow down lending, worried that excessive debt in the property market will hurt spending elsewhere in the economy and lead to financial stability risks.

The Australian Securities & Investment Commission (ASIC) said it would examine individual loans, including to owner-occupiers, to ensure that lenders are providing interest-only home loans in "appropriate circumstances".

"The spotlight has been firmly on interest-only lending for some time, and there are no excuses for lenders and brokers not meeting their legal obligations," ASIC deputy chair Peter Kell said.

The first stage of the ASIC review, announced in April, showed the four major banks had cut back on risky interest-only loans but smaller players had offset that decline by increasing their share.The review also found borrowers who used mortgage brokers were more likely to obtain an interest-only loan.

ASIC said borrowers approaching retirement continued to be provided with a significant number of such loans, expecting solid price growth to easily cover the principal when the property was resold.

Home prices across Australia's major cities have continued to rise, although the gains have tempered recently as banks cut back on lending. Sydney suffered a rare dip in September, but annual growth remained high at 10.5 per cent.

Australia's "Big Four" banks control 80 per cent of the lending market and have posted record profits for years. But they have been mired in scandal, including charges of interest-rate rigging.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 13, 2017, with the headline 'Aussie corporate watchdog to examine risky interest-only home loans'. Print Edition | Subscribe