April 28, 2011 – Banks are ordered by the corporate regulator to relax the purse strings and resume lending to middle-aged and older Australians, ending the months of confusion.
Banks and non-bank lenders alike, ever since the responsible lending guidelines were introduced last January, have been rejecting credit applications from middle-aged people who lack a substantial retirement nest egg.
After clarifying its guidelines, the Australian Securities and Investment Commission has now confirmed retirees have a right to downsize and sell.
ASIC told lenders in a revised guidance note that more questions must be asked in order to determine whether a middle-aged applicant will be able to repay a 25-year owner-occupier mortgage loan when they are due to retire in 10 years, for example.
According to Peter Boxall, ASIC commissioner, some lenders were “adopting an unnecessarily restrictive approach to meeting the responsible lending requirements.”
Geoff Baldwin, Re/MAX Real Estate agent said that responsible lending requirements have resulted to banks and lenders discriminating against older applicants.
Chief executive of non-bank mortgage lender RESI Home Loans, Lisa Montgomery, told BusinessDaily that loan applications from people in their fifties who lack substantial superannuation savings were rejected by mortgage insurers.
Ms Montgomery said that the new responsible lending guidelines are well supported for nobody would want to hear stories about pensioners facing repossession because they couldn’t repay a mortgage.
However, Geoff Baldwin said that the new guidelines could prevent borrowers, and even refinancers, who were over 40 years old from buying a large family home and downsizing upon retirement.
Genworth Financial, the foremost mortgage insurance company told BusinessDaily that all credit decisions are however the responsibility of the lenders.
However, lenders say that two of the big mortgage insurers have shied away from giving their approval on insurance for loans to older people with little or no superannuation or other assets.
For any mortgage with a loan to valuation ratio over 80 per cent, a mortgage insurance is usually required.
According to the Australian Bureau of Statistics and the Association of Super Funds, the average balance for those who are within 10 years of retirement is about $142,000.
However, according to the National Centre for Social and Economic Modelling, many people have still little or no super, including half of all women between 45 and 59 years old who have less than $8000.
Senior executive leader for Deposit Taking, Credit and Insurance at ASIC Greg Kirk stated that the law has not changed relative to older borrowers and lenders and they are still required to make certain that the borrower will be able to repay the loan without substantial hardship.
