Tougher lending restrictions

It has never been so important to look around, writes Sophie Elsworth

BORROWERS are being forced to search harder for competitive deals as they continue to be hit by tougher lending restrictions.

As banks clamp down on mortgage lending, customers are the ones feeling the pain, with higher interest rates and fatter deposits required, and many are being forced to steer clear of interest-only deals.

Some lenders are forcing credit card customers to pay back larger amounts of their debt each month. But consumer finance expert Lisa Montgomery says the impact 2018 COMMONWEALTH GAMES HOST CITY on consumers to pay back debts sooner was a great result.

“The (responsible lending) controls have been done as a way to protect consumers – we have low interest rates and an inflated property market in a couple of the major capital cities – but it’s to ensure borrowing remains prudent and appropriate,’’ she says.

“In relation to loan criteria, most organisations are similar with their loan-to-value ratios and criteria for qualification, but in terms of interest rates it’s never been as important to look around.”

In many cases, banks are charging customers higher interest rates with interest only loans and investors are those worst hit.

Latest Canstar figures show on a $350,000 loan, the average standard variable rate for an owner-occupier is 4.49 per cent, compared to 4.85 per cent for investors. Some lenders are also enforcing tougher rules for credit card holders. ING Direct recently revealed it was rolling out credit cards that would demand customers pay a minimum of 10 per cent of their total balance each month.

Usually it’s around two to three per cent. AMP financial planner Mark Borg says by “paying off debt sooner you are increasing your wealth”.

“Paying off debt sooner isn’t a bad thing, but what we can see is repayments are going up, so it’s important people are not borrowing from Peter to pay Paul,’’ he says.

“Credit card debt is the worst debt you can have with interest rates above 20 per cent, so you should be paying them off in total each month. If you can’t pay off your credit card each month, then look at another vehicle to raise funding.”

He also urged consumers to cherry-pick their financial products and not stick with the one institution and potentially pay more for being complacent.