ASIC states that it will look at the conduct of lenders in
particular with regard to how they are complying with important
consumer protection laws, including their responsible lending
The problem with interest only loans is that while repayments
are initially lower, that will only be in the initial interest only
period. Judgement day comes when the loans revert to principal and
interest repayment and increase in amount.
Regulators are concerned that some borrowers are choosing interest
only loans solely on the basis is that that is the only way they
can afford to buy the home they want to live in or alternatively,
in the case of an investment property, to minimise the differential
between rental income received and interest payments made.
Figures quoted recently indicated that some 45% of new loans
appeared to be interest only rather than principal and
Interest only loans raise a raft of responsible lending and in
particular suitability issues. They only work longer term if house
prices and wages rise, but interest rates do not.
And yet this trend towards favouring interest only loans is
against a background where there is a dawning reality that the
assumption that wages will always rise may no longer hold true.
" When The Sleeper Wakes". – The Economist in an
article "The Future Of Jobs – The Onrushing Wave",
published on 18 January 2014 said:
"Yet some now fear that a new era of automation
enabled by ever more powerful and capable computers could work out
differently. They start from the observation that, across the rich
world, all is far from well in the world of work. The essence of
what they see as a work crisis is that in rich countries the wages
of the typical worker, adjusted for cost of living, are stagnant.
In America the real wage has hardly budged over the past four
decades. Even in places like Britain and Germany, where employment
is touching new highs, wages have been flat for a decade. Recent
research suggests that this is because substituting capital for
labour through automation is increasingly attractive; as a result
owners of capital have captured ever more of the world's income
since the 1980s, while the share going to labour has
These are the top five issues that should be considered by asset-based lenders in the context of Australian transactions.
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