Consumer rights groups have warned against calls to lower the interest rate test for first home buyers, describing it as “a lazy policy idea” that puts all the risk on people who can least afford to manage it.
On Thursday the Australian banking lobby told the Senate inquiry into financial regulatory framework and home ownership that greater flexibility assessing applicants could help more people safely access credit.
The chief of policy at Australia Banking Association, Chris Taylor, said reducing the 3% serviceability buffer would assist first home buyers.
He said the Australian Prudential Regulation Authority buffer “could be more flexible for first home buyers (and) adjusted for a borrower’s circumstances and for market conditions”.
“This could give more buyers a leg up when it comes to purchasing their first home.
“Existing regulatory guidance could allow more flexibility for lenders to consider a borrower’s future income growth where it’s prudent to do so,” he said.
But some consumer rights groups have argued that discussions about dropping the lending criteria are dangerous and any changes could send more people into debt.
Domenique Meyrick, the co-CEO of Financial Counselling Australia, said since July 42,000 people contacted the national debt line seeking help. A third of those calls were about mortgage stress.
“What we’re seeing is [policy measures] that are in place, that are keeping a crisis at bay, doing quite an effective job of that,” she said.
“It’s so important that these protections are in place.”
Meyrick said her organisation was seeing “burgeoning stress” in the community.
Julia Davis, from the Financial Rights Legal Centre, said allowing people to borrow more might keep the economy going but it would push people to the brink.
“It is … a lazy policy idea that puts all the risk on the people who can least afford to manage it.”
The consumer group said just in NSW there were 5,000 home repossessions each year before the 3% buffer was introduced. Last year the state recorded 1,413.
Taylor told the inquiry there had been an increase in new homeowners, largely because of government policies, such as the federal government first-home guarantee scheme, where first-home buyers contribute 5% of the loan and the government guarantees for an additional 15%.
“In the last five years, banks have provided $298bn of loans to over 683,000 customers to buy their first home,” he said. “This is a 41% increase in customers over the previous five-year period.”
The inquiry has heard from NAB, Westpac and Commonwealth Bank who all said around 10% of lending was to first home buyers.
The government schemes are also contributing to property market price increases, Taylor said.
“Any policy focusing on the demand side is only likely to bid up prices further and result in us being in the exact same position we are today, with borrowers who are locked out at the market with higher asset prices.”
