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Australia watchdog concludes 1st stage of review on interest-only home loans

The Australian Securities & Investments Commission concluded the first stage of its targeted review on interest-only home loans, examining whether individuals are taking up more expensive interest-only loans at the urging of banks and mortgage brokers.

The regulator collected data covering interest-only lending activity at 16 home loan providers over the last two years from Australia & New Zealand Banking Group Ltd., Australian Central Credit Union Ltd., Bank of Queensland Ltd., Bendigo & Adelaide Bank Ltd., Citigroup Pty Ltd., Commonwealth Bank of Australia, ING Bank (Australia) Ltd., La Trobe Financial Services Pty. Ltd., Liberty Financial Pty. Ltd., Macquarie Bank Ltd., Members Equity Bank Ltd., National Australia Bank Ltd., Pepper Group Ltd., Suncorp-Metway Ltd., Teachers Mutual Bank Ltd. and Westpac Banking Corp.

The ASIC review, announced in April, found that the country's major banks have cut back their interest-only lending by A$4.5 billion, though smaller players have partly offset that decline by increasing their share of lending. ASIC found that the 16 lenders reviewed provided A$14.3 billion in interest-only loans to owner-occupiers in the June quarter, down from A$19 billion in the September 2015 quarter.

The regulator also found that borrowers who used brokers were more likely to obtain an interest-only loan, compared to those who went directly to a lender.

ASIC has moved to into the second stage of its review to examine individual loan files from banks and mortgage brokers to look into whether lenders are providing interest-only home loans in appropriate circumstances. The regulator is also seeking to ensure that consumers do not pay for more expensive products that are unsuitable.