Rich list member and RAMS Homeloans founder John Kinghorn has warned Australia’s new national consumer credit laws are too strict and requirements to provide a higher level of evidence of business income could make it hard for the self-employed to get a home loan.
Kinghorn, who is the chairman of listed financial services giant RHG, which owns the RAMS Homeloans now-closed mortgage book, yesterday told the company’s annual general meeting that RHG have decided not to re-enter the business of originating new mortgages because of a tightening of the rules around low-doc loans.
“RHG’s competitive edge has always been in the self-certified sector of the mortgage market. However the recent introduction of the National Consumer Credit Protection Act makes it an unacceptable risk for a lender to make self-certified loans,” Kinghorn said.
Under the new Act, lenders – and not borrowers – are required to determine whether a loan is suitable for a borrower and reasonably investigate whether the borrower would be able to repay a loan.
If the lender fails to take reasonable steps to investigate a borrower’s suitability and the borrower is unable to pay, “the borrower’s obligation to repay the loan may be negated”.
Kinghorn says part-time employees and the self-employed – who make up about a third of the workforce – will be the hardest hit.
“Ultimately commonsense will prevail and the NCCP will be amended. But until then, home loans will be denied to the majority of these borrowers,” Kinghorn said.
As a result of the new laws and the lack of competition in Australia’s securitisation business, Kinghorn will take the step of essentially shutting RHG down and returning the company’s capital to shareholders.
However, Kinghorn’s fears about the ability of the self-employed to access mortgages appears to be a little overdone.
Mortgage Choice spokesperson Kristy Sheppard says that while there has been some concern among the companies’ mortgage brokers about the impact of the new consumer credit laws on loans to the self employed, there are still a number of low-doc loans available.
However, the requirements for the self-employed to provide evidence about their business have increased since the new laws came in on July 1.
Sheppard says the self-employed will need a minimum of 12 months of Business Activity Statements and/or between one and six months of business transaction data.
She also says low doc borrowers will need to provide a deposit of at least 20%, and will typically be paying a slightly higher rate that for a standard mortgage.
“Self-employed borrowers should be mindful they may need to provide information about their asset position,” she says.
“There has been a tightening of the criteria, but lenders are aware of how important these loans are to the self employed, and many self-employed people would be lost without them.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
