Mortgage guru Mark Bouris lashes lenders for ‘leading borrowers astray’ on interest-only deals

MILLIONAIRE Mark Bouris has lashed mortgage lenders and brokers for signing borrowers up to interest-only loans without explaining the potential consequences.

MILLIONAIRE mortgage broker Mark Bouris has lashed out at lenders and brokers for leading Aussie mums and dads astray and signing them up to interest-only loans.

The Yellow Brick Road executive chairman said both owner-occupiers and investors should have their hands firmly held before committing to a loan where they are not paying off any principal.

Yellow Brick Road’s executive chairman said lenders should be more accountable to explain to borrowers the dangers of taking out interest-only loans.

“There should be a bigger obligation on either the mortgage broker or the lender to give advice around (interest-only) loans and then the borrower must acknowledge it,’’ Mr Bouris said.

“I think people say, here’s an interest-only loan and your repayments are $2,000 a month and here’s a principal and interest loan and your repayments are $2,100 a month so most consumers take the $2,000 per month.

“There should be advice attached to anyone who takes an interest-only loan and that person should have signed a certificate to say they have accepted the advice.”

Mr Bouris warns if property prices do eventually fall borrowers could owe more on their property than their property is worth.

About 40 per cent off all new loans are interest-only.

RELATED: Home loan rates are set to climb even further

Interest-only loan repayments typically are significantly lower than principal and interest-only repayments.

Home loan customers have been hit by out-of-cycle moves by lenders in recent weeks.

The Reserve Bank of Australia board yesterday kept the cash rate on hold at 1.5 per cent but in recent weeks dozens of lenders have made out-of-cycle rate hikes to all types of loans.

And regulators continue to tighten the screws on investor lending — this week the Australian and Prudential Regulation Commission announced they would be scrutinising the way mortgage brokers and banks treat interest-only loans amid rising concerns they are being lured into unsuitable products.

Economist Saul Eslake also said interest-only loans are generally “risky.”

Economist Saul Eslake said interest-only loans can be risky.

“If you are paying interest only by definition you are not reducing your debt over time,’’ he said.

“If you pay interest-only you always owe what you started out owing and that means you are more exposed to movements in interest rates.

“Obviously investors like that because they get their interest bill subsided through negative gearing.”

Figures from financial services firm Canstar has found the average interest rate is higher on all products for variable, packaged variable and three-year fixed loans if it is an interest-only deal as opposed to principal and interest repayments.

Industry analysts say there is a 13 to 17 point gap between interest-only and principal and interest-only loans on average and it could increase further.

Originally published as Mortgage guru Mark Bouris lashes lenders for ‘leading borrowers astray’ on interest-only deals