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Aggregators have backed the role of interest-only loans despite a warning from regulators and a scare campaign by A Current Affair.
The current affairs show slammed interest-only loans last week, describing them as loans that are “fast and easy to get from the banks”, but which “can come at a huge cost”.
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The Nine Network program reported that one borrower and her family “lost their dream home because they couldn’t keep up with their interest-only loan”.
Another borrower said he had lost approximately $150,000 from taking on an interest-only loan.
ASIC and APRA united last month to sound a warning about the potential dangers of interest-only loans as part of a wider probe into “higher-risk lending”.
According to ASIC, interest-only loans as a percentage of new housing loan approvals by banks reached a new high of 42.5 per cent in the September quarter.
“While house prices have been experiencing growth in many parts of Australia, it remains critical that lenders are not putting consumers into unsuitable loans that could see them end up with unsustainable levels of debt,” ASIC chairman Peter Kell said.
Vow Financial chief executive Tim Brown said mortgage habits have been changing, and that interest-only loans can provide more flexibility and actually result in lower repayments.
“I’ve got all my loans as interest-only and I get all my income paid into those accounts and I draw out from those accounts throughout the month,” Mr Brown told The Adviser.
“Overall, I’m actually paying more off my mortgage because of that.”
Mr Brown said that many borrowers are now ahead in their repayments. One bank told Vow that 80 per cent of its mortgages have been pre-paid 12 months in advance, he added.
“I think a lot of the concerns that APRA and ASIC have around credit at the moment are probably unfounded, based on all the information that we’re getting,” Mr Brown said.
Custom Equity Group chief executive David Haythorn said the rise in interest-only loans isn’t worrying at the moment, but could become a concern if property prices don’t keep rising.
Mr Haythorn said that interest-only loans can benefit consumers if used wisely, and that they form a legitimate part of a broker’s offering.
“If it’s for an investment property, then there’s no reason why, for the initial period, people shouldn’t have an interest-only loan,” he told The Adviser.
“If it’s for their residence which they wish to hold long-term, then perhaps they should consider making principal-and-interest repayments.”
ASIC is now conducting an investigation into interest-only loans.
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