Banks tighten screws on mortgage borrowers

By in Australian Property

| 29 comments

This site has argued that banks tightening mortgage standards is one of the major headwinds facing the Australian housing market.

Last month it was revealed that several lenders began tightening financial requirements on mortgages over concerns surrounding borrowers’ ability to repay amid massive job losses and falling household incomes.

Yesterday, The AFR reported that financial scrutiny was back to royal commission levels, with prospective borrowers having to jump through hoops for approval:

Instances of buyers being asked to justify their recent annual leave and provide pay slips on settlement day to prove they are still employed have been reported in the face of rising unemployment and job uncertainty.

“The income testing is getting harder,” said Sydney buyer’s agent John Carew. “The banks are doing more of a forensic review of pay slips”…

“Pre-COVID, if you were working at an ASX-listed company, that was enough. But now even that is under security,” he said.

The banks’ growing cautiousness is warranted given nearly half a million households – equating to around one in 14 borrowers – have requested mortgage repayment freezes totally around $176 billion:

Given easy credit was the fuel that pushed Australian property values into the stratosphere, tighter access to credit should place downward pressure on property values.

Unconventional Economist
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Comments

  1. bcnichMEMBER

    “downward pressure”
    LVO, You’re a very smart guy …
    Pull the trigger

    The big calls early make people house hold names
    Nuriel Roubini etc
    Others that make the wrong call get to walk up Kosiosko, and the one walking this time needs the walk and a shave too

    • bcnichMEMBER

      Nyleta,

      I liked your link yesterday re derivatives market
      And agree with this link.
      It’s all this printing of money, just leads to risk misallocation
      Central Banks have destroyed the economy and financial markets.
      Nyleta’s link yesterday and today show exactly why interest rates are going up.
      Actually as this misallocation of RISK, that lead to GFC is actually way worse this time.
      Interest rates are going to hit 1989 levels of 15 to 20%
      See Nyleta derivative link yesterday $280 TRILLION interest rate derivatives.
      Dom is also correct you can already start to see the signs of inflation……especially in food. Dom you are right, inflation isn’t far away from sticking it’s head up.
      This is all going to blow sky high……

      PS Credit worthy……. what a joke. How could you possibly know or analyse if someone is credit worthy until 2050, what an absolute joke.

      This is the disaster of all disasters

      These idiots who have been put in charge of banks, regulators, bank economists, head of property bodies you name it. They have set in motion the complete destruction of our economy and markets that is going to have to be completely rebuilt after the crash and burn that’s about to happen H2 2020. which actually starts this WED……

      • Xo

        Derivatives are financial weapons of mass destruction. —Warren E. Buffett. 2003

        I’ve worried on and off about deriviatives for years. Nada. And now new kid on the block, Magic Money Tree, can solve everything if Kelton, Kohler and the ABC are to be believed.

        Risk on.

      • Dominic

        Two things on rates:
        Agreed that long-term rates have to rise – increasing deficits and central bank funding thereof make this a certainty, however, rates rising will destroy every last vestige of the debt ponzi so central banks will attempt to suppress longer term rates with yield curve control – with unlimited firepower, this is possible (for a while).

        Secondly, there will be no repeat of Volcker’s cash rates to 20% to ‘save the dollar’ and defeat inflation. Back then, debt levels were extremely modest so the pain wasn’t all that great which meant the Dollar ‘could’ be saved (a painful recession ensued but it was relatively short-lived and laid a solid base for the next boom). Right now, the Dollar can’t be saved because the sheer scale of debt represents a gigantic dynamite keg and higher rates will ignite it.

        To be clear though, I am completely on the inflation page – it’s going to be ugly. We haven’t had a serious bout of inflation since the ’70s, so when it arrives, like a brash house guest, people won’t know WTF to do. Central bankers will be stumped.

        • DivyaMEMBER

          >> Central bankers will stumped.
          Lets hope that they do the only thing they know how to do.. crank that IR lever and spit out the monthly newsletter from martin.

    • MountainGuinMEMBER

      The banks probably have better data than anyone. The can see incomes, expenditures and prob have a better idea on inflation than those relying on product-quality-adjusted and house cost ignoring ABS cpi data.
      The bank that starts foreclosures first should get better sales prices than other banks so this is really the item to watch.

      • Dominic

        Being first to pull the trigger on foreclosures is superficially logical until you factor in the reality which is that your entire collateral base will be negatively impacted as foreclosures and sales gain momentum — there is literally no escape. Like the lead up to the GFC: while the music’s playing you may as well get up and dance because you’re doomed either way.

  3. bcnichMEMBER

    @XO

    The baby boomers are going to be completely wiped out
    101
    Very first the Robinhood speculators are going to be slaughtered first….
    Baby Boomers
    1. Equities Crash they capitulate at the bottom and…..
    2. They move to Fixed income which they think is the safe haven
    3. Inflation pops it’s ugly head and
    4. Interest rates rise
    5. Fixed income crashes
    6. Rising interest rates are the KO punch to property portfolio’s especially SMSF.

    I am telling you guys. I can already see that above sequence is going to happen…..101…..the QE this time isn’t going to work…..you can already see the cracks appearing as equities start to fall

    You can add the derivative crash and all that exotic stuff, like in the big short…the derivative crash is the sprinkles on top.

    Central Banks are done this time

    This whole circus is starting to unravel.

      • bcnichMEMBER

        The baby boomers are about to see their wealth evaporate in the next year. You wait

      • NorthMEMBER

        Well at least that is one good thing to come from the corona recession. The end of Circque du-Sh!t.

        Their shows were good the 1st time but by the 3rd time i (was made to) attended one of these things I wanted to put a gun in my mouth.

    • The Traveling Wilbur

      Any Sun-God sacrifices required for this?

      If an RBA Governor or two needs to be carried up some steps to an altar for this, that can be arranged. Just sayin’.

    • Xo

      Maybe. Maybe not. I’ve seen the can kicked many times averting collapse – Covid is an interesting outlier but I’d expect countries to opt for economic wellbeing for all in preference to premature deaths of the aged, if no vaccine arrives. The compulsion for buiness as usual is strong. No one wants collapse. And now we have MMT!

    • mikef179

      bcnich, all I can say is that I hope you are right. I think the property market is done one way or the other. I’m just not familiar enough with how interest rates work to decide whether what you are saying makes sense or not. The only thing that springs to mind is how Japan kept rates low for decades.

    • call me ArtieMEMBER

      Hi PRD. Yep, saw that this morning. And for some bizarre reason markets seemed to think it was a positive sign!

      11:30 tonight Eastern Australian time S&P/case-schiller US home price index. That may tell a different story (or maybe not until next month)

  6. truthisfashionable

    I read yesterday and can’t recall if it was here, reddit, or whirlpool that banks have access to data on who took out money from super and you will now struggle to get a new mortgage (or refi) as it shows you weren’t in a good financial position.

    Obviously its just a post on the internet, but would make sense if banks are also validating pay slips.

    • L

      Have definitely seen something like that on Whirlpool – I think it was in relation to the new IO/refinance options being restricted if people had used a super withdrawal or taken on the 6 month repayment holiday. Think it would put a dampener on those who have taken out super in the hopes of putting it towards a new property.

  7. thefatgeneralMEMBER

    Very interesting announcement from MyState Bank yesterday. For those who don’t know, MyState is a small Tasmanian lender which merged with Rockhampton Building society. Used to be ~80% of its loan book was Tasmanian, with about 15% QLD and the rest broker introduced and spread around (predominatly via the Rockhampton broker network). New CEO gets hired (on 1m+ per year) who is ex broker network at Westpac and immediately ramps up broker introduced lending – specifically a huge number come in via Oxygen mortgage brokers (McGrath realestate’s brokerage arm) – I suspect majority secured via new apartment devlopments sold by McGrath. Fast forward and the slides on the debt issuance (pg 22) only 40% of the loan book is now Tasmanian – with ~20% NSW and VIC respectively. But look at the hardships! (page 29) even though Tas has 40% of the book, they’ve had one third less loans in hardship than NSW and only just below VIC – which has less than half the loans outstanding. You also look at the totals – 500m in loans have requested hardship – this is an organisation that only makes 30m a year. If even a third of these default (& a bunch of those are underwater) it’ll wipe everything out. Buyer beward.