Australia's housing credit crunch impact remains the big unknown
There's still debate among economists over just whether there's a deepening credit crunch that could further adversely impact on housing markets.
We are now well into attempts begun in late 2014 by the regulator, the Australian Prudential Regulation Authority, to curb over zealous lending, along with house price escalation and ballooning household debt.
Last August, I wrote that one of the key reasons that spring 2017 would see easing price growth was that the banks wouldn't lend as much.
It has extended right through the 2018 autumn market too, yet Macquarie’s latest survey of bank lending for property loans has found credit availability actually hadn’t changed too much over the past year.
Maybe the bank's bark is worse than their bite. If correct that's a relief, but that doesn't mean home loans will get any easier to obtain or that house price growth will return.
Macquarie undertakes its annual mortgage “mystery shopping” exercise where Macquarie analysts pose as potential customers at ANZ, Commonwealth Bank, NAB, Westpac, Bankwest, Bendigo and Adelaide Bank, Bank of Queensland, Suncorp and St George.
They found that banks had tightened their credit standards by a further 5% over the past year as a result of policy changes.
From the peak of mortgage activity in 2015, borrower capacity has fallen by 13% for owner-occupiers and 22% for investors.
The survey found some banks were willing to lend up to $1 million to a property investor earning $105,000 a year, but typically less than $600,000 to an owner-occupier on the same income.
The average loan capacity for owner-occupiers fell from $700,000 in 2015 to $600,000 presently, while average loan capacity for investors has fallen from $1 million to $800,000.
The anonymous mortgage shopping study conducted by Macquarie analyst Victor German tell the bank officers 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 with an $11,000 credit card limit.
UBS have an alternative view which is that the credit tightening process was only going to get tighter.
It argues regulatory pressure to tighten lending standards has so far primarily hit the investor market.
UBS banking analyst Jonathan Mott says owner-occupiers have only been hit with a higher household living expenditure benchmark.
“We estimate owner-occupier maximum borrowing capacity has been reduced 7-10% since 2015 and investor maximum borrowing capacity has reduced by 10-30% depending on the borrower’s existing debts,” Mott said in a research note.
Interestingly the boss of Australia's banking regulator, Wayne Byres, recently claimed "the heavy lifting on lending standards has largely been done".
Byres added that "any tightening from here on is expected to be at the margin as banks seek to get a better handle on borrower expenses, and better visibility of borrower debt commitments".
Of course since 2014 APRA has also required banks to assess borrowers' repayment capacity using a minimum 7% interest rate, which is well above prevailing home loan interest rates.
This article first appeared in The Daily Telegraph.