CBA tightens mortgage standards

From Fairfax:

Commonwealth Bank of Australia informed mortgage brokers on Friday of changes that will mean new borrowers’ existing debts and their incomes are assessed more stringently.

CBA will apply a “servicing loading” of 20 per cent to all repayments on existing home loans and lines of credit held by customers.

…It will accept only 80 per cent of income from overtime, bonuses, and investment income when it is assessing home and investment loan applications.

…for all new investment loans with a loan-to-valuation ratio above 90 per cent, the bank will not consider the tax breaks borrowers receive from negative gearing…the maximum loan-to-valuation ratio for all owner-occupied home loan applications would be 95 per cent.

Down from 97%. Macroprudential tightening is here, one bit at a time.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. too little, too late..

    no bail outs cba when the inevitable comes…..equity should get crushed

    • Yes, there will be bailouts. Our govt will make sure of it. Everyone else gets a rodgering.

      It is true, Australia will soon see a Greek future by a multiple of take-your-pick.

      • Australia is a signatory to the G-20 which proposed Bail-ins(no more Bail-outs) at their meeting in 2010.
        This was ratified in Brisbane in November 2014.
        The Eurozone is also a signatory to G-20 and used Bail-in for Cyprus.
        Greece charged its cities and government departments to remove any money from private banks and place it in the Greek central bank to avoid government money being Bailed-in…10 days ago.
        In Australia our Approved Depository Institutions have $1.83trillion on deposit.
        The taxpayer cannot afford to take on that size debt on top of $300bn debt already…..that would be $80billion per year interest.
        We will have Bail-ins, so make sure you get collateral when you loan an Australian bank your money.

      • It’s hard to see a bail-in in Australia. If the government took my savings after having the playing field tilted against me for years, it’s brick and bat time.

      • Confidence.
        If you went to your bank and it was an ordinary 10 x 20 metre shop and everyone working there wore jeans and a t-shirt instead of suits…you might think differently about leaving your money there…
        Wait a minute…that’s the Post Office…

        @kodiak…yeah that’s what the Cypriots and the Austrians said whe they lost their money to bail-ins.
        I note that Greeks are steadily moving their money out of banks.

      • If Australian bank deposits evaporated overnight, there would be a huge contraction in the money supply, and massive deflation.

        The RBA could easily print the money that was lost (without any corresponding debt issuance) and distribute it to the former holders, with no effect on inflation.

        Australia is not greece.

      • @Coming

        So, pray tell, why then have the provisions of a “bail-in” signed on? What’s the point of that hoo-ha if the magic RBA can pull that litter of rabbits out of their print presses?

      • @Coming
        Wow, that would really be Fantasyland…quick Toto, let’s get back to Kansas…

      • $1.8trillion in deposits….that’s about 100% of GDP…I doubt if the RBA would go for that…that’s why the G-20 voted for bail-ins.
        $320billion in Commonwealth Government Securities at 7 May 2014… Add the two together they’d be paying $84billion per year interest out of $320billion govt income.
        Bit much…deficit would jump to $135billion per year in the middle of a depression.

        If that sort of thing is possible…why are we going to work?
        Let’s just print money and really enjoy life…

      • @kodiak can you elaborate further on the OS accounts? Difficulty in setup? Logistics? Access?

      • Athalone that is absurd

        If we didn’t work or produce, and just printed money, inflation would soar.

        But if we just print money to replace money that has been destroyed, there will be no inflation resulting. Of course, that does not account for the past inflation caused (particularly in asset prices) by the money that was created by private debt creation in the first place.

        But it would not impact future inflation

      • Ubietz, I’m an immigrant, so I had accounts before I arrived. In some countries you can open an account as a foreigner, but you’d have to show up in person to open it, unless you know someone.

      • @kodiak

        Ah ok, that explains it. I’m a dual national however the other passport is Greek.

        That’s obviously not a viable option atm…

  2. flyingfoxMEMBER

    Pro cyclical tightening…awesome…still unclear what exactly the investor related changes are.

      • flyingfoxMEMBER

        Then we might be getting more inline with smaller banks. Been hearing that 80% LVR will be norm for investors and their servicing rate will be about 0.5% higher. Plus loading on debt from other institutions.

        However no clear indications.

  3. Random PunterMEMBER

    For any given deposit, dropping the LVR from 97% to 95% reduces the maximum amount a speculator can borrow by 40%. Sounds good to me.

  4. StomperMEMBER

    “the maximum loan-to-valuation ratio for all owner-occupied home loan applications would be 95 per cent”

    FFS it should be 80% – how is 95% prudent lending????

    • +1

      Who says it is anything to do with prudent lending standards? Are you kidding. This is just a mandatory ruse so that we can continue cheering on the rate cuts. She’ll be right maaate — we have MP now!!11!!!

    • Hey Stomper – From someone in the know the changes by CBA on Friday are HUGE, not only have the rolled out the 20% loading but from Friday – there are other changes as well including all lending will be assessed at 7.25% where as previously the assessment rate was 7.25% less the applicable discount of 1%-1.30% depending on amount lent. I personally ran a CBA serv calc on one client who had existing lending looking to apply for more and their borrowing capacity for new lending dropped about 27% from $1,100,000 to $800,000 – So I wouldn’t underestimate the impact these changes will have on the market – The other lenders wont be far behind.

    • @ Flying fox – While APRA has been on about targeting Investors the tightening in servicing applies across the board – O/O and INV

  5. When the next economic down turn comes Abbott, who will still be in power as he will stop at nothing to make sure of it, he will make it illegal to publish economic data all in the name of national security.

      • Neoliberal policies 101. Already fast at work gutting the ABS, the ATO, etc etc. Then turn around and say that these government departments are ‘inefficient’ and sell these services off to their private sector mates who will only report what they want to hear.

  6. So basically, they are only accepting 80% of non-guaranteed ‘made-up’ income — instead of 97%.

    Rubbish.

  7. As the money supply growth is almost ALL real estate mortgages ‘effective macroprudential’ WILL force the RBA to ZIRP

    Short AUD!!!!!!

    • Safest way to do that is exchange your long-term deposits for physical gold outside the banking system.

      • Do you store the gold with yourself? Perth Mint offers to store it them. I cannot take physical delivery of the gold because I have bailed out of Australia 🙂 and it is difficult to store them here (in the US).

  8. I do agree with the above about potential bail ins – it is going to happen, that is why it has been signed into law – effectively depositors now take the risk lending to a bank as opposed to government – fair enough I guess, but I also guess 99% of people holding money in the bank have no concept of the risk they are taking, and the fact that the banks are technically insolvent

    In reality, they are likely to be haircuts not major plunges…but you do have to ask the question, if things get to that point, where do you park your money? Bonds, Stocks, Commodities & Property would be toast.

    I guess this is where the gold bugs come in (I don;t buy alot of their rhetoric, but that is one scenario they would be right potentially)? Don’t know…but it is going to be an interesting day when the time comes, particularly if physical cash has been removed from the system.

    • “…but you do have to ask the question, if things get to that point, where do you park your money? ”

      I’m not a “bail-in believer” but I’d be investing in Australian Government Bonds if I was. There’s no way that they won’t be the highest payment priority of any future government.

    • Or someone can just “fat-finger” open the flood-gates at the dam.

      Whooops! Never seen that one happen before!

    • Annoying Devil

      The comments tell a lot. Posts that ramble incoherently are the bubbles most ardent supporters. When this thing pops, I will have family and friends who will suffer, but the havoc it will wreak upon the obstinately ignorant will make up for it.