Mortgages rejected with “unprecedented strictness”

Via the AFR:

ANZ has increased rates on its fixed interest in advance loans by eight basis points, or about $800 a year in extra annual interest on a $1 million loan…The bank, which is the most dependent of the major banks on brokers for distributing mortgages, is circulating “policy updates” about minimum evidence of borrowers’ income requirements needed to qualify for a loan.

…[NAB] has reduced loan-to-income ratios from eight-times to seven, a full percentage point change following the introduction of the benchmark last September.

…Other lenders are tightening analysis of government benefit payments when assessing applicants’ capacity to service the loan. For example, Family Tax Benefits…will no longer be accepted by several borrowers in a customers’ serviceability assessment

Mortgage brokers…claim “unprecedented strictness” by lenders reviewing the income and expenses of their clients’ loan applications.

Previously from UBS:

APRA today announced plans to remove the investor lending cap…

APRA today announced the removal of the 10% investor loan growth cap from Jul-18 (which had been in place since Dec-14). That said, this only applies after ADIs can demonstrate: investor loan growth has been below 10% for the past 6 months; & they comply with ‘responsible lending’. APRA also cautioned lenders that return to more rapid investor loan growth could lead them to consider “the need to apply the countercyclical capital buffer or some other industry-wide measure”.

…but tightened focus on expenses benchmarks and debt-to-income limits

While lifting the investor cap appears a loosening in macroprudential policy, the coincident requirement to meet responsible lending (we think) represents a material (net) tightening in policy. APRA reiterated that policies for serviceability assessments by lenders are expected to include interest rate buffers (7¼% assumed interest rate floor) & discounts on ‘variable’ income. However, today they added more explicit tightening of lending practices (as we expected) including: reducing the use of benchmarks which are “not a replacement for making reasonable inquiries”, & encouraging the collection of borrowers actual expenses; as well as instructing lenders to develop risk appetite limits on very high debt-to-income loans (~6x+) under comprehensive credit reporting. Indeed, APRA warned that “Boards should be cognisant that ADIs are required to comply with responsible lending”…and any “policy overrides….must also comply”.

Implications: macroprudential ‘phase 3’ means downside risk to housing & RBA

Today’s announcement, of what is effectively macroprudential ‘phase 3’, suggests a more rapid tightening of lending standards than our base case outlook. Despite the perception of the removal of macro-prudential investor limits as ‘an easing’, we see this as further evidence of our credit tightening scenario. The risk of a ‘credit crunch’ cannot be ruled out. This raises the risk of a material negative impact on housing and the economy. We see downside risk to our housing & RBA views, & it’s becoming more likely the RBA will keep rates steady beyond our long-held forecast of a Q1-19 hike.

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