Lending criteria changes have potential to lock owner-occupiers out of market: Mozo's Steve Jovcevski

With one of the country’s biggest lenders announcing lending restrictions to certain suburbs, could this signal changes which could have a much broader impact to the property market? 

Tiered pricing 

It’s not unrealistic for banks to change pricing structures and cap LVR’s based on suburbs. This could take the form of higher rates and/or low LVR caps for certain ‘high risk’ suburbs and lower rates and higher LVRs for what lenders consider a ‘safer’ suburb. A recent example was ING DIRECT’s decision in June to restrict investment lending in NSW to a maximum LVR of 80% (usually 90%), but this has since been restricted to 80% in all other states as well. If this becomes a market-wide issue, this could impact existing owners if they decided to refinance under new rules by making such a move to the goalposts.

Specific apartment developments under the spotlight 

If lenders start to put a red flag on suburbs, specific apartment developments which are deemed high risk or where there’s a glut of development, might be next. This could squeeze a huge percentage of investors out of the market,  reducing the affordability and ‘entry point’ for many first time buyers and see them locked out of certain developments but leave the gate open for overseas investors. 

These two changes could see a big shift in the way people buy property altogether by changing buying habits, upping rates and lowering accessibility for new buyers. 

Change buying habits

If either of these changes occur, we’ll see a shift in the market. Investors will flood certain suburbs because it’s the only places they can buy and owner occupiers will be locked out of certain suburbs due to LVR restrictions. This could have a big impact on property prices - and that of surrounding suburbs - and at a higher level, the demographic make-up of a city. 

Increase in number of declined loans 

Being knocked back for finance based on a building type or suburb could have a residual impact on a borrower’s ability to apply for loans. This could also impact a borrowers credit score more broadly. 

Higher rates across the board 

If tiering and capping presents too much of a logistical challenge for lenders combined with a backlash from borrowers, lenders may choose to cover their credit risk by simply increasing interest rates across the board. 

Lenders withdrawing from some areas altogether 

Mining towns have already been mentioned as high risk areas and if we see large lenders withdraw form these areas, smaller lenders will likely follow suit. This trend tends to apply for most high level changes like pricing or lending criteria – when the big guys move, the smaller lenders follow.

STEVE JOVCEVSKI is property expert at Mozo.com.au.

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