Banks won't lend as much

Banks won't lend as much
Banks won't lend as much

One of the reasons some of the price growth has eased across the Sydney residential property market is that banks won't lend as much.

They have been offering home buyers reduced loan amount approvals for some time now.

So when buyers turn up at open for inspections and auctions this spring, they are likely to have less in their pocket that perhaps they would have had this time last year.

It is something that vendors need to heed as banks have cut tens of thousands of dollars off the maximum amounts they will lend prospective home buyers.

Its their attempt to dampen risks in the housing market.

The average borrowing capacity for a hypothetical typical owner occupier customer sits now around $570,000, down $110,000 from $680,000 two years ago. 

The borrowing capacity of a hypothetical property investor customer has come back by $70,000.

The banks have firstly tweaked their lending mechanisms with tighter living expense assumptions.

Secondly the banks haven't been as accepting of exisiting income sources at face value, now applying calculations to reflect a little more uncertainty.

And thirdly the banks have also opted for more conservative interest rate buffers, in anticipation of rates going up at some stage.

We know this because an anonymous mortgage shopping study was recently conducted by Macquarie analyst Victor German who had his team posed as potential bank customers shopping for home loans.

They went to the ANZ, Commonwealth Bank, NAB, Westpac, St George, Bankwest, Bendigo and Adelaide Bank, Bank of Queensland and Suncorp.

German’s team told each bank they were a first-home buyer considering an owner-occupier or investment loan in interviews with the banks on the phone and in branches.

The analysts told bank representatives they were earning $105,000, had general living expenses of $1200 a month, were spending $1300 a month on rent, and had no dependents and a clear credit history. 

Based upon that criteria, the study found that major banks were willing to lend 14 per cent to 19 per cent less to owner-occupiers, and 12 per cent to 26 per cent less to investors, compared to two years ago.

Macquarie, which has conducted the mystery shopping exercise for three years, expects a "further tightening in borrowing limits."

The Australian Prudential Regulation Authority has likewise conducted its hypothetical borrower exercises. Indeed its 2014 serviceability assessments were used to call for lending standards to be tightened. 

Before the lending crackdown commenced three years ago, strong competition between lenders had eroded standards, albeit at the margins, to levels that lacked "common sense," the Australian Prudential Regulation Authority suggested in late 2015.

Lenders are now applying "at least minimum haircuts on uncertain income sources, and some have gone further to apply larger discounts to rental or other income," APRA's general manager Heidi Richards said last year.

This article first appeared in the Daily Telegraph.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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