Labor seeks safer lending

The Federal Opposition has called for new regulations to prevent banks and other lending institutions from over-enthusiastic lending and contributing to rising household debt.

Labor’s shadow treasurer, Bob McMullan, made the comments in a speech to the Housing Industry Association, stating that banks and other institutions should be prevented by government rules from lending to households which are at risk of defaulting on their loans. He suggested the Australian Government consider the US guidelines which include caps on the proportion of loan-to-house value.
A benchmark of borrowing at up to 30 per cent of gross income is considered acceptable; beyond that point borrowers are considered to be under financial stress. Research suggests that currently in Sydney the typical mortgage loan repayment amounts to 54 per cent of average income and in Melbourne 45 per cent.

However, the Australian Bankers' Association CEO David Bell said Australia has a much tighter regulatory structure than the US and has a “safe, secure and competitive” banking system. An ANZ spokesman said the bank already has tight guidelines on who it lends to, in terms of borrowers' capacity to repay loans, deposit requirements and proof of saving. It's not in our interest to lend to people at risk of defaulting, he said, as the last thing the bank wants is to end up repossessing a property.