Australian mortgage brokers be warned.
The Australian Securities & Investments Commission, or ASIC, Australia’s financial regulator, is about to unleash “hundreds of undercover shoppers” to monitor your lending behaviour, according to The Australian.
“As part of our ongoing review of mortgage broking practices, we are undertaking consumer and broker research to better understand the home loan purchase process,” Michael Saadat, ASIC senior executive, told the newspaper.
According to the report, ASIC is keen to understand “whether broker advice results in good outcomes and whether borrowers are making an informed choice and being sold products that meet their needs”.
In order to determine whether appropriate advice is being provided by brokers, the report says ASIC have “tasked hundreds of borrowers from a range of backgrounds and with a range of incomes to record their experiences at mortgage brokers over the coming months”.
Saadat says its intention is to find out which factors, aside from commissions, led to people being sold different types of mortgages and whether there was any scope for improved behaviour.
“While broker remuneration practices may have an impact on home loan choice, ASIC recognises that a range of other factors influence which home loan products are purchased, and that the purchase experience may vary across purchase channels — such as through a broker, compared to directly from a lender,” Saadat says.
More than half of new housing loans in Australia now originate through brokers, many of which are owned by major Australian banks such as the CBA, NAB and Macquarie.
The move from ASIC follows the introduction of tougher restrictions on interest-only lending from Australia’s banking regulator, APRA, last March, capping new interest-only lending to 30% of total new residential mortgage lending.
Within that target, APRA said it would place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80% and ensure there is “strong scrutiny and justification of any instances of interest-only lending at an LVR above 90%”.
“Additional supervisory measures, particularly in relation to the high level of interest-only lending, are warranted,” said Wayne Byres, ASIC Chairman, following the introduction of the tighter restrictions.
That move followed the introduction of an annual 10% cap on investor lending growth from APRA back in December 2014 which was designed to cool investor activity in Australia’s housing market at the time.
More recently, however, tighter restrictions on mortgage lending have been driven by concern that rapid growth in household debt levels — far in excess on household incomes — were adding to financial stability risks.
In its December monetary policy statement, the Reserve Bank of Australia (RBA) noted that “growth in housing debt has been outpacing the slow growth in household income for some time”.
While it acknowledged in the accompanying monetary policy meeting minutes that “growth in household credit had slowed somewhat” following the introduction of APRA’s tougher restrictions, it added that members agreed that “household balance sheets still warranted careful monitoring”.
Along with other factors such as tighter lending restrictions and higher fees for foreign investors, an increase in stock available for sale and ongoing affordability constraints, the move from APRA has seen Australian house price growth slow sharply in recent months, especially in Sydney where values are now falling.