ASIC update on interest-only home loans

ASIC has provided an update on its review of interest only home loans, examining whether lenders and mortgage brokers are inappropriately recommending more expensive interest-only loans.


With many lenders, including major lenders, charging higher interest rates for interest-only loans compared with principal-and-interest loans, lenders and brokers must ensure that consumers are not provided with unsuitable interest-only home loans.


ASIC has concluded the first stage of its targeted review, which involved data collection from 16 home loan providers (including large banks, mid-tier and smaller banks, and non-bank lenders).


ASIC found that Australia's major banks have cut back their interest-only lending by $4.5 billion over the past year. However, other lenders have partially offset this decline by increasing their share of interest-only lending.


The 16 lenders reviewed by ASIC provided $14.3 billion in interest-only loans to owner-occupiers in the June 2017 quarter, down from $19 billion in the September 2015 quarter.


ASIC's interest-only lending review has also found:

  • Borrowers approaching retirement age continue to be provided with a significant number of interest-only owner-occupier loans
  • Borrowers who used brokers were more likely to obtain an interest-only loan compared to those who went directly to a lender.


ASIC has now moved into the second stage of its review, and will be reviewing individual loan files from both lenders and mortgage brokers. These lenders and mortgage brokers have been selected based on a number of criteria, including their relative share of interest-only home lending.


ASIC will examine individual loan files to ensure that lenders are providing interest-only home loans in appropriate circumstances. ASIC will carefully review cases where owner-occupiers have been provided with more expensive interest-only home loans, to ensure that consumers are not paying for more expensive products that are unsuitable.


Borrowers with concerns about their ability to make home loan repayments should contact their lender in the first instance. ASIC's MoneySmart website has guidance for consumers who are having problems paying their mortgage, including how to approach their lender. They can also access free external dispute resolution, through either the Financial Ombudsman Service or Credit and Investments Ombudsman.


ASIC's MoneySmart website has information for consumers about interest only mortgages as well as an interest-only mortgage calculator.


11 October 2017.