Lenders have cracked down on interest-only home loan approvals following harsh criticism over the industry's practices, but they still have more work to do.
Interest-only home loan approvals have fallen 12 per cent over the past year following the corporate regulator's call for the industry to lift standards to meet responsible lending practices.
A review by the Australian Securities & Investments Commission also showed the amount that can be borrowed with an interest-only loan has also decreased, as lenders have adjusted their assessment of consumers' ability to repay, in line with the recommendations of an ASIC review in 2015.
Interest-only mortgages offer lower repayments in the early stages of the loan, but are more expensive in the long-term and can put the consumer under significant financial pressure.
Deputy chairman Peter Kell said he is pleased with the improvements made by mortgage brokers, but has called for more to be done.
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"It is vital that mortgage brokers understand consumers' requirements and objectives to ensure they are not placed in unsuitable credit contracts," he said.
ASIC wants brokers to improve their current practices to ensure they understand the consumer's underlying objectives for requesting specific loan products and features, and record concise summaries of those requirements and objectives.
Mortgage brokers should also provide a statement summarising their understanding of the consumers' requirements and objectives before the loan is issued.
The watchdog said brokers should also alert consumers of any specific behaviour they must undertake to obtain potential benefits of a loan feature, and the potential costs if that action is not taken.
