Now that the property market bubble is easing, there are concerns poor banking practice and irresponsible lending during the real estate boom will spell ruination for many retirees.
Most people assume that young families who have borrowed beyond their means to buy property will be the hardest hit by an interest rate rise, but many older Australians will also be put at risk.
The rate of mortgage stress has risen by 20 per cent in the past six months, according to the Consumer Action Law Centre (CALC).
The not-for-profit organisation blames bankers for the increase in mortgage stress, saying that irresponsible lending “can have severe consequences, including the loss of the security of a home”.
CALC is worried that parents who have entered into a loan agreement with their children could face repossession and lengthy court battles should the co-borrower fail to meet any repayments.
“Consumer Action’s experience is that older people are at significant risk, particularly where they agree to mortgage or refinance their home for the benefit of third parties. This can be family members or someone who holds their trust,” states CALC.
“The lack of appropriate inquiries into the suitability of a loan only comes to light when the adult child defaults on loan repayments and the bank commences proceedings for possession of the loan in order to discharge the debt.”
The Australian Prudential Regulation Authority (APRA) says that banks using the Household Expenditure Measure (HEM) as a benchmark for lending are “failing to properly assess whether borrowers could meet repayment obligations, due to the use of benchmarks rather than the actual expenses declared by borrowers”.
It is predicted that, by 2019, over 1 million households will be tackling mortgage stress.
Read more at www.nestegg.com.au
Are you worried about interest rates rising and the corresponding increase in repayment costs? Have you signed as a guarantor for your child’s home loan? Do you think banks have made it too easy for borrowers?