NAB has begun restricting mortgage credit to older borrowers – a move that is expected to be replicated across the banking industry:
At the stroke of a pen it’s just become a lot harder for older Australians to get a property loan…
Since July 25 NAB has demanded applicants nominate a date of for their retirement and the bank also wants to see evidence of superannuation assets. The rules apply to anyone whose retirement age may occur during the life of the mortgage.
With standard mortgages running out to 30 years it means the bank can apply the criteria to a huge range of applicants, putting particular pressure on anyone over 50.
“The new rules are going to be a severe impediment to a lot of older people looking for finance in the property market, “ says financial adviser Bruce Brammall. “It’s a severe interpretation of responsible lending laws.”
The new lending policy also tightens the dependence of banks on salaries rather than investment income, which again makes it difficult for older borrowers.
Banks will include 100 per cent of salaries when assessing borrowing capability but have little regard for investment income, often assuming such income to be no more than 2 per cent on the assets declared…
The new rules also put specific pressure on the self-employed who often have variable income and most of their assets in super.
This comes on top of the banks already undertaking stricter employment checks of pre-approved loans:
Homeloanexperts.com.au managing director Otto Dargan said… “A mortgage approval is no longer as certain as it was before the pandemic. Borrowers shouldn’t assume that the lender will honour their pre-approval when they find a property”…
“We’ve been warning customers not to buy a home if their income is unstable so we haven’t had any customers left high and dry. From what we can see it appears that lenders are doing this check for all loans.”
Mr Dargan said most lenders have started doing employment checks as late as a day or two prior to the loan being released…
This has negative feedback loop written all over it.
With nearly 500,000 borrowers already deferring repayments on $195 billion worth of mortgages (11% of the total loan book), and emergency income support unwinding from October, banks are facing a potential tsunami of non-performing loans.
The obvious response is for banks to protect their balance sheets by restricting the availability of mortgages to credit-worthy borrowers, alongside lowering maximum loan-to-value ratios for new mortgages.
However, by doing so, the banks will effectively reduce the pool of available property buyers as well as the maximum price they can pay, which will place downward pressure on values (other things equal).
Given easy credit was the foundation of Australia’s property bubble, credit rationing could send the market into a tailspin.