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As predictable as the dawn, via Domain:

Lenders are revising their lending criteria, with a focus on borrowers considered to be in high-risk industries.

“Generally where a customer is in a severely affected industry such as tourism, hospitality or retail, then their loan is declined unless we can prove that their income is unaffected,” says Otto Dargan, managing director at homeloanexperts.com.au.

Dargan says casual income in particular is seen as extremely high risk and only a few lenders are accepting it at all.

“Banks are far less likely to rely on unstable income types, for example casual, contract, temporary, seasonal, commission, overtime or bonuses. Usually they’ll use the base income only and may use a small per cent of any additional income.”

Dargan says some lenders have also dropped the maximum loan-to-value ratio (LVR) they will consider.

“It makes sense to not offer 95 per cent loans if the property market may fall,” he says. “They’re being conservative because everyone is a higher risk than they were just a month ago. Some have put in place minimum credit scores so that they’re just approving the lowest risk people.”

Financial adviser, mortgage broker and founder of Wealthful Chris Bates says Macquarie Bank issued new guidelines for brokers dealing with clients in high risk industries. In some cases Macquarie may have its credit assessor contact a PAYG applicant’s employer to confirm employment status and current income.

For all self-employed applicants, regardless of industry, the application must include the March quarter business activity statement (BAS) and bank statements no older than 14 days at the time of approval.

Bates says bank policies will continue to change as banks shift from helping existing customers to protecting their loan books with new customers.

“No job is safe in this environment,” he says. “Casual employees will need detailed supporting evidence, contractors could be avoided altogether and [the evaluation of full-timers] will be industry-specific with every job and employer looked at for any signs of distress.”

Bates warned that lenders might also pull out of postcodes they considered high risk areas, especially if those areas had an oversupply of housing.

With immigration collapsing, that is everywhere.

We already know that most providers of higher-risk mortgages – the shadow and neo banks – are locked out of securitisation markets, so they are pulling lending as well.

In short, marginal mortgage credit is evaporating.

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Combined with the demand and supply shocks, property prices are about to crater.

About the author
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.