The Australian Securities and Investments Commission (ASIC) has announced eight home loan lenders may be required to provide remediation to customers who have experienced financial difficulty as a result of previous lending practices.
Those implicated include big banks ANZ, the Commonwealth Bank and NAB, and challenger lenders Bendigo and Adelaide Bank, ING, Macquarie Bank, Firstmac and Pepper Money.
A 2015 review conducted by ASIC found that lenders were not properly assessing the capability of borrowers to make repayments, with some merely using a single monthly expenses figure to determine a borrower's suitability for a loan, rather than a more detailed examination of expenses.
“Lenders and mortgage brokers must ensure that consumers are being provided with the home loan product that meets their needs,” said ASIC Deputy Chairman Peter Kell.
“In assessing whether borrowers can meet loan repayments without substantial hardship in the short and longer term, it is important that lenders can collect and rely on information which provides an accurate view of the consumer's financial situation.”
As of Monday’s announcement ASIC stated that the eight lenders have now improved their lending practices.
The regulator said that while it’s possible that the lenders may be required to provide remuneration to any customers who have experienced financial hardship as a result of the practices, the affected number was likely to be small given the record low interest rates over the period.
In an interview with the Sydney Morning Herald a spokesman for the Commonwealth said the bank was working with ASIC to refund any affected customers.
"We have agreed to review whether any of our customers have suffered hardship due to errors in our historic lending practices, and if they have, we will remediate them.”
ASIC also announced that it will use its surveillance powers to ascertain whether lenders and brokers are recommending high levels of interest-only loans, which, it stated, are unlikely to benefit many borrowers - particularly owner-occupiers.
Kell stated that given home loans are often the biggest financial commitment an individual will ever make, “lenders and mortgage brokers need to think twice before recommending that a consumer obtain a more expensive interest-only loan.”
ASIC’s crackdown follows last Friday’s introduction of a number of new lending restrictions on interest-only loans from the Australian Prudential Regulation Authority (APRA).
APRA’s new requirements on lenders include a 30% cap on any new interest-only lending, as well as strict limits on interest-only loans for LVRs over 80%.
Given the particularly steep rise in interest-only home loan rates in the last month, and the likelihood of further hikes in the near future, now could be the right time to compare lenders with the lowest rates which will best fit your own financial situation.