…Mortgage brokers said the booming Sydney and Melbourne housing markets…have led to a lending war that is encouraging significant differences in banks’ credit assessment standards.
From the AFR:
Under guidelines issued by APRA in December, banks are not meant to issue mortgages to borrowers unless stress testing shows they can afford to repay the loans on all their properties if mortgage rates hit 7 per cent.
A confidential NAB mortgage calculator obtained by The Australian Financial Reviewshows NAB isn’t applying this rule to existing property investments of people seeking new mortgages. Instead, NAB uses the current mortgage rate, which can be as low as 4.29 per cent…
Well jeez, that’s hardly the stuff of Professor Moriarty is it? This says as much about APRA’s wet lettuce regulation as it does bank mendacity.
Chris Joye is equally scathing at the AFR:
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I would submit this is a big deal for several reasons….With Tuesday’s 2.4 per cent annual core inflation data once again proving that inflation is not remotely dead, there is a risk that the Reserve Bank will be forced to start normalising interest rates over the next few years.
If banks are not insisting that borrowers stress all repayments with annual interest rates of at least 7 per cent, Australia could at some point find itself facing much higher default rates.
Another issue is that over 40 per cent of all home loan approvals are currently interest-only products (another record) that involve no repayment of the principal balance owing for a pre-specified period.
It is nothing short of a Molotov cocktail of financial stability risks.
Indeed it is, though I see little danger of the RBA ever normalising interest rates again, global markets may well do it.
