To support your customer’s during COVID-19, and in line with recent guidance from ASIC Connective have removed the requirement to complete NCCP documentation and the requirement to obtain full supporting documentation (unless specified by the lender) for the following loan scenarios:
- Extending an existing an interest only term (for 3, 6 or 12 months)
- Switching loan types- variable to fixed
- Applying for a new interest only term (for 3, 6 or 12 months)
You are required to document why the variation is the most suitable option based on your customer’s current needs and objectives and you must takes steps to explain to your customers how the new structure will impact their financial position.
Connective would recommend you make notes regarding the customer’s financial position by way of confirming if their asset and liability statement has differed from the last application however we do not require you to obtain the supporting documents (income, bank statements etc).
Interest only options:
1. Documenting that you have discussed the (IO) repayment option with your customers and if they choose IO payments:
a. At the end of the Interest Only period, repayments will increase to cover Principal and Interests amounts of the loan
b. During an IO period, repayments will not reduce the loan balance
c. Different rates apply to Interest Only and Principal & Interest repayments
2. Use a calculator to demonstrate to your customers the costs and ongoing repayments after the IO period expires
3. Ensure your customers understand the impact of extending or swapping to an Interest Only (IO) repayment Provide this information to your customers in writing and ensure to obtain their consent and understanding of these outcomes. Connective recommends sending the IO fact sheet held in Mercury;
4. Documenting why the variation is the most suitable option based on your customer’s current needs and objectives
For interest only variations
Fixed rate options:
- If your customers choose to fix their interest rate be sure to document that you have discussed the pros and cons of fixing rates with your customers; and
a. Document why the variation is the most suitable option based on your customer’s current needs and objectives
b. Provide this information to your customers in writing and ensure to obtain their consent and understanding of these outcomes
- Confirm whether the variation to the existing loan contract is a result of Covid-19 or another reason for the change
APRA has provided guidance to lenders that will enable lenders to change existing loan terms for up to 12 months without having to conduct a full assessment.
It is important to note that while APRA have provided this guidance to lenders, brokers are encouraged to complete the steps outlined above to fully disclose the impact of switching to IO and document the customers changed circumstances to protect yourselves in the event of an AFCA complaint. Specifically, these measures are a short term solution to help customers experiencing difficulty due to COVID-19 and the responsible lending obligations apply in scenarios outside variations.
Each lender has a different policy regarding what they require. Some lenders continue to require a full assessment while others have chosen to scale back the information they need to make the switch.
Please ensure you keep up to date with the changing requirements and if unsure, discuss with your lender BDM.
Ask your Compliance Team for help with complex scenarios!
Complex scenarios often require additional clarification, especially if the funding is for multiple purposes. Whatever the lending need, we’re happy provide guidance on any loan scenarios you have. Simply click your help icon in Mercury to get in touch, or email us at email@example.com and we’ll be on hand to help!