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Lending Rules for middle aged and older Australians change

ASIC, has ended months of confusion for banks, ordering them to relax the purse strings and resume lending to middle-aged and older Australians.

Since responsible lending guidelines were introduced in January, banks and non-bank lenders have been rejecting credit applications from middle-aged people but ASIC has now clarified its guidelines and confirmed retirees have a right to downsize and sell.

The corporate regulator told lenders they must ask more questions 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.

ASIC commissioner Peter Boxall said some lenders were “adopting an unnecessarily restrictive approach to meeting the responsible lending requirements.”

“We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans,” he said.

“The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford.”

Some people in their forties and fifties have had 25-year mortgage applications rejected because they will retire before the loan term is finished.

Loans have not only been rejected by lenders but also by mortgage insurers when borrowers could not demonstrate an exit strategy once they retired. The new guidelines meant borrowers, and even refinancers, who were over 40 years old could be prevented from buying a large family home and downsizing upon retirement.

Greg Kirk, senior executive leader for Deposit Taking, Credit and Insurance at ASIC said the law has not changed in relation to older borrowers and lenders are still required to make sure that the borrower will be able to repay the loan without substantial hardship.

“We have issued this clarification” he said. “If there is a reasonable plan to sell and downsize, for example, and the lender has verified that there is likely to be enough equity to pay off the loan, then that loan would be likely to be suitable.

“While at first view it would seem that the loan would be unsuitable under responsible lending, that initial assessment is rebuttable. The lender has to ask questions and make reasonable inquires to satisfy themselves about the borrowers’ financial plan and their circumstances and take reasonable steps to verify that.”

Source: Herald Sun



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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