It’s spreading across the media now. In QLD, homeowners are locked in mortgage “prison”:
THOUSANDS of Australians are stuck in a “mortgage prison” with new lending criteria leaving them unable to refinance their loans to get a better rate.
Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow you to borrow.
Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate – no bank will lend them the amount they need.
Lending criteria has been tightened in the past year. The ongoing Financial Services Royal Commission is likely to tighten the criteria even further – meaning people will be able to borrow even less than they once did.
With homeowners unable to shop around, they can be stuck paying a high interest rate, which will leave them potentially paying tens of thousands, even hundreds of thousands more over the life of a loan.
Adding falling equity value to that and you have the making of increasing defaults.
At Domainfax there is more panic about rising interest rates:
The graph shows the sharp slowdown in growth in “broad money” – which refers to currency and cash held by banks in deposits. Broad money is now growing at its slowest pace since 1993 and the gap between its growth and credit growth is the widest in more than a decade.
…The sharp slowdown in money growth implies banks may need to start paying more for increasingly scarce deposits.
…AMP Capital chief economist Shane Oliver points out funding costs have been elevated for about six months now, suggesting there may be some deep-seated cause.
“It’s starting to look structural,” he says.
It is structural and the cause is obvious from the first story. Australian credit quality is not what markets thought it was prior to the royal commission. It exposed massive numbers of predatory “liar loans” and now that those borrowers are confronting more appropriate lending criteria they find that they cannot get the debt. Indeed they should never have got it.
You can blame deposit outflows, low interest rates, or BBSW, but in the end it all boils down to the same thing. Capital no longer trusts the bank’s credit quality and it wants a higher return for the risk of lending to them.
Higher interest rates are ahead, more than one “out of cycle” rate hike.
But, if your credit quality is good, then the bank wants you more than given they can longer lend sub-prime, via the AFR:
National Australia Bank, the nation’s third-largest lender, is the latest to spruce up its mortgage products with a cash-back bonus worth $1250 for new property borrowing of $250,000 or more. It is limited to a single bonus per customer and can be drawn down from a NAB transaction account to coincide with the loan drawdown.
Commonwealth Bank of Australia, Australia’s biggest lender, recently launched a $2000 cash-back offer to customers who refinance their home loans from another financial institution.
ANZ, the third-largest lender, has a $1200 switching incentive and a $1000 conveyancing rebate for first-time buyers.
For loans of $1 million Westpac and its subsidiaries Bank of Melbourne, BankSA and St George are rewarding borrowers with enough Velocity frequent flyer points for a return trip to London from any Australian capital.
But while these incentives are attractive, not all borrowers will be able to access them. Lenders expect borrowers to provide forensic income and expenditure details to prove they can service their loans.
Only about six in 10 borrowers are qualifying for the loans that are typically taking more time to process as lenders double check repayment capacity.
Even if your credit quality is good enough to be attractive to the bank then why would you take such paltry bribes to invest into a falling market facing the interest-only reset, fleeing foreign buyers, possible negative gearing reform and immigration cuts plus all of the above?
