Some Older Australians Approved for Home Loans Again
Posted date: April 28, 2011 | Tags: retired | 7 Comments
In January, responsible lending guidelines of the National Credit Act were introduced and middle-aged and older Australians found themselves rejected for credit applications if they didn’t have huge retirement savings in place. Individuals in their forties and fifties found their mortgage applications rejected because they would retire before the 25-year loans were paid off.
The Australian Securities and Investment Commission has helped relieve confusion of banks and non-bank lenders as they clarify the responsible lending guidelines and confirm that older Australians and retirees can downsize and sell their properties under the new guidelines. Lending has resumed to financially eligible middle-aged and retired applicants.
Clarification of Responsible Lending Guidelines
In order to clarify the somewhat confusing responsible lending guidelines, The Australian Securities and Investment Commission has indicated to lenders that they must simply ask additional questions of middle-age applicants which would help the lender determine how the applicant will make repayments on their mortgage loan when the individual retires in ten years time.
It’s true that the responsible lending guidelines showed concern for older borrowers who would retire during the repayments of a loan term, but the ASIC commissioner Peter Boxall did not want lenders to create restrictive approaches to meeting the responsible lending requirements through preventing older Australians from borrowing at all.
Re/MAX Real Estate Agent Geoff Baldwin said refusing credit applications based on age is discrimination, and that the responsible lending requirements are the cause of the discrimination by lenders.
The responsible lending guidelines and the National Credit Act are designed to protect consumers but aren’t supposed to create a refusal of credit to any segment of the Australian population. If Australians can prove they can reasonably afford their payments, regardless of age, they should be allowed to obtain the credit they apply for.
Mortgage Insurers Rejecting Applications From Older Australians
Chief Executive, Lisa Montgomery of RESI Home Loans, a non-bank mortgage lender, reported to BusinessDaily that loan applications for mortgages were being rejected from people approaching retirement age if they didn’t have substantial retirement savings. Without retirement savings, when the individuals retire they would have no way to make mortgage loan repayments. The borrowers simply can’t demonstrate their ability to repay once they retire – which is not discriminating based on age as Baldwin indicated may be happening.
Superannuation is compulsory in Australia, so the majority of people reaching retirement age will have a large enough balance to secure their mortgage loans. This change in lending eligibility will only affect a small number of people who don’t have money in their super or other investments to back their purchase. The Australian Bureau of Statistics and the Association of Super Funds indicate that the average balance of a superannuation fund for individuals within 10 years of retirement is about $142,000.
Mortgage Insurers Refusing to Approve Insurance
Lenders claim that two of the biggest mortgage insurers in the country are denying approval for insurance on loans to individuals reaching retirement age who have little assets or limited superannuation funds. Insurance for mortgages with a loan to valuation ratio over 80% is generally required, and for this reason, some individuals will still be denied lending despite the clarification of the reponsible lending guidelines.
If you’re an older Australian recently rejected for a mortgage loan but have adequate superannuation and/or investment assets – you may like to reapply now that there is less confusion surrounding the responsible lending guidelines.