As reported in the SMH.
An official review of lending standards in the red-hot investor property market is set to reveal serious flaws in how lenders have been assessing customers for credit.
The chairman of the Australian Securities and Investments Commission, Greg Medcraft, on Thursday said the watchdog would in August publish a report finding shortcomings among how some lenders were testing borrowers’ ability to cope with higher interest rates.
The report, based on surveillance of 11 banks and non-banks, had also found some lenders’ credit checks used inadequate estimates of customers’ living expenses, he said.
Even though banks are offering new borrowers interest rates of about 4.5 per cent, Mr Medcraft lenders and customers needed to assess whether borrowers could cope with interest rates of 7 per cent.
“That’s what you should be thinking about if you’re looking at your ability to repay the loan,” he said.
But adding to similar concerns raised by the prudential regulator in recent months, Mr Medcraft said the report had made “mixed” findings on whether banks were using a high enough “stress rate.”
He added that some of the underwriting standards had been improved in recent months. “Many of them have since corrected their ways or are correcting them.”
Mr Medcraft also highlighted some borrowers failing to rigorously assess a borrowers’ cost of living, including national indexes that did not reflect local variations.
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