Home loan shock as bank lends $3.5 to million 74-year-old
Exclusive: Borrowers aged in their 70s are being issued home loans that would see them paying them off well past 100.
Banking sources have revealed to News Corp that in 2019 many mortgage applicants received the green light to secure home loans with 30 year terms.
These were some of the largest loans dished out:
- A 74-year-old received a $3.5 million loan.
- A 74-year-old received a $1.32 million loan.
And smaller loans given to customers included:
- A 79-year-old received a $154,000 loan.
- A 77-year-old received a $250,000 loan.
- A 76-year-old received a $290,000 loan.
- A 75-year-old received a $600,000 loan.
The handing over of these loans comes despite the regulators watching financial institutions closer than ever before to ensure they meet responsible lending guidelines.
However in 2019 lending has become more appealing for borrowers after three Reserve Bank of Australia interest rate cuts, bringing the cash rate down to 0.75 per cent.
It's also been more favourable for investors, after some of the biggest banks increased their maximum loan-to-value ratios (LVR) meaning borrowers could have smaller deposits when taking out a loan.
Lenders have also loosened the rules around the Household Expenditure Measure which is used to assess serviceability.
This is the tool used to estimate a borrower's living expenses which determines how much money a customer can afford to borrow.
Many banks have massaged their lending rules including Westpac - the nation's largest lender to investors - which raised the LVR for interest-only loans from 80 per cent to 90 per cent.
This means a customers only needs a 10 per cent deposit, not 20 per cent.
Uno Home Loans' chief executive officer Anthony Justice said when assessing an customer's loan application "lending obligations apply regardless of age."
"If the applicant is relying on their employment income to make repayments, and retirement will occur during the loan term (usually 30 years) then to obtain a loan the applicant will need to demonstrate how they will pay out the loan at retirement," he said.
"This is called an exit strategy."
An exit strategy could include the sale of an asset such as an investment property or share portfolio.
Mr Justice said the loan term could also be shortened so it coincides in with the customer's retirement age.
The Australian Banking Association's chief executive officer Anna Bligh said lenders took their lending requirements "very seriously" before handing over credit to a customer.
"Banks take their responsible lending obligations under the law very seriously and are required to complete a review of a customer's personal financial circumstances," she said.
"This includes factors such as anticipated length of time remaining in the workforce, income, assets, savings history, retirement plans and expenses when determining whether a loan is suitable."
But Ms Bligh did say lenders did not solely base a loan application on a person's age, they also consider other important factors including the person's ability to repay a loan.