Advisers hope for servicing test changes in 2020

With plenty of positives for the housing market outlook this year, advisers hope lenders will change their approach to servicing tests.

While Australian regulator APRA abolished its minimum 7% servicing rate for Aussie borrowers in the winter, the big four have done little to ease the burden on borrowers here. 

Advisers report banks are still imposing tough servicing tests at 7% or more, despite the OCR falling by 75 basis points last year. They say banks' tests are out of step with current mortgage rates.

Glen McLeod of Edge Mortgages hopes 2020 will see banks change their tune on servicing. 

"The reality is, we're now in a different time. Volatility is not like it was, the housing market is under control, and the banks have tightened credit. Do you really need it [the servicing rate] to be double?"

McLeod said New Zealand banks used an "antiquated" method for testing loan serviceability compared to other nations. 

"Some of the things they [the banks] look at don't take into account our clients' life decisions. They will change their habits depending on the circumstances."

Stephen Wilton of The Advice Group, is now providing lenders with details of clients' debt repayment and retirement plans to assist with lending decisions.

Wilton would like to see lending calculators that only consider interest-only servicing commitments, "relevant to debt which could be repaid via asset sell down". He said clients continued to be tested on P&I when applying for interest-only loans.

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