Nearly a fifth of people refused a loan
Eighteen per cent of Australians have been refused a home loan by a financial institution and almost one in 10 have been turned down by a major bank, according to a new study.
According to a May survey of around 1,100 people, 18% said they had been turned down for a loan by a financial institution, while almost a tenth had been turned down by one of the big four banks.
The research, which was undertaken to highlight the growing proportion of Australians who are ‘excluded’ from the financial system, found that more than a quarter (26%) of Australians who were turned down for a loan were turned down because they were being self-employed or working part-time.
Furthermore, more than half (54%) of those rejected for a loan from a bank “did not know” that there was another option available.
Speaking to Mortgage Business, the managing director of Pepper Money, Australian Mortgages and Personal Loans, Mario Rehayem said that when the loan rejection figure was extrapolated to reflect the Australian population, it would equate to 3.6 million people” underserved”.
Mr Rehayem said it was “quite an alarming result”, adding that there was a “vacuum” created by large financial institutions as they are “very obsessed with one style of customer or personalities”.
He explained, “People don’t qualify for loans for a range of different reasons; it’s not just because they’re self-employed, it could be the type of income they have. The emerging gig economy has really started to take center stage… And this discovery [of people being unable to access finance] will continue to grow as old-fashioned policies don’t really fit the new style of millennials and the gig economy.
“We are a nation of entrepreneurs and we seize the opportunities ahead and when we do…it may not mean that we have been independent for at least two years. [the common requirement from major institutions lending to self-employed persons].
He continued, “These are the factors that the industry really needs to think about; yes, everyone has to take a calculated risk in addition to borrowing and the money we lend, but at the same time we cannot be ignorant or unaware of a change and a change in the way people people work.
Mr. Rehayem pointed out that Pepper Money specializes in financing this “underserved market”, adding that more than 90% of his home loan applications are conditionally approved because they “look at the whole picture of an individual when evaluating a loan to understand their real life”.
The research also showed that 42% of Australians don’t think their financial institution understands their financial needs and goals, while 63% said they withhold information from their main financial institution.
The Australian Mortgage and Personal Lending Managing Director concluded: “There is a growing disconnect between Australians and financial institutions which is causing many Australians to fall through the cracks.
“Brokers play a critical role in helping access these people, understanding their bigger picture, and helping them find a solution that meets their needs.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian brokerage industry, the mortgage market, financial regulation, fintech and the wider lending landscape, Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser webcasts. Live.