Aussie banks tighten mortgage clamps

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.

Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments

  1. Good thing I’ve made hay whilst the sun shone for the last 20yrs, anticipating this moment would arrive due to an unsustainable ponzi scheme economy.
    Now i can buy outright, bypassing any bank.
    What’s more, i did it with a part time self employed job, working mostly on stuff i enjoy and feel is worth it.
    I never would have qualified for a bank loan unless i became a full time wage slave p1ssing my life away on meaningless [email protected]
    Real family friendly, not. Was never that way inclined anyway.
    If economics allowed, i could have made plenty of research, design and manufacturing jobs for others.

    • If I were you, I wouldn’t wait for the bust to buy outright. The dough would be of a better use if you leveraged it and borrowed as much as they lent. And then make a generous offer to secure your dream home. Doesn’t matter what you pay today – it won’t make a difference in a decade or two.

      • In years gone by, i was always trying to save for a factory shed and actually do productive manufacturing work.
        Being continually priced out, I’m now an expert financial parasite wasting too much time reading the tea leaves of the economic state.
        I will certainly be doubling my money now on the next leg up after the coming crash, doing little actual work to achieve that ill gotten gain.
        Atleast when i do set up some kind of small factory one day, I’ll be under no pressure for loan repayments to a bank.
        I could never be productive knowing i could default and lose everything if i had to make loan payments.

        • boomengineeringMEMBER

          Get a free stander as my strata fees are a PITA and they don’t do anything anyhow. Also get one with room for shipping containers for your storage needs. Atm looking acreage for tools and machines as winding down and not chasing work.

  2. I dont suppose there has been any changes to lending/selling Australian homes to diseased foreigners.

  3. Leith, what impact will the TLF have on the banks and the Aussie $ now the banks can roll off the foreign short-term loans, eliminate the currency hedging cost and save maybe 60-80 basis points with RBA funding at 0.25%?

    Seems like the RBA has pre-bailed the banks and is now giving them even cheaper funding to prop up their margins and balance sheet.

    Surely the banks will want to switch to cheaper RBA funding and exit their foreign loans ASAP – and that’ll send a lot of money back out of Straya, driving down the exchange rate.

    If I was a smart bank executive I’d be pulling that pin now and get ahead of the other banks to prop up the share price (and my options) by winning first place on the exchange rate as tens if not hundreds of billions fly out the country.

    The RBA would love some inflation and a lower dollar…no?

  4. Excessive (price and lending) ‘multiple stretch’ is lethal …

    What was learned from the Irish ’07 event, when its metros overall went from 4.7 Median Multiple to 2.8 (access Demographia Surveys below), blowing all its Banks out the backdoor and requiring about 70 billion euro to bail them out.

    Subsequent research by the Central Bank of Ireland found high loan to income ratios were a much greater problem than high loan to value lending … and imposed a general cap of lending to 3.5 times annual household incomes.

    Currently the Aussie metros overall house price to income ratios are about 5.7 … New Zealand 7.0. Talk about sitting ducks …

    Central Bank of Ireland – Mortgage Measures

    https://www.centralbank.ie/financial-system/financial-stability/macro-prudential-policy/mortgage-measures

    All Editions – Demographia International Housing Affordability Survey

    http://www.demographia.com/db-dhi-index.htm

  5. SoCalSurfCreeperMEMBER

    Wow. This is another nail in the bubble. If you’re an all cash buyer…. better wait it out.

      • SoCalSurfCreeperMEMBER

        As someone who has never bought a property with less than 40% down I have missed out on the leveraged gains others have enjoyed. No doubt. It’s always a conundrum for those who don’t want to play the 5% deposit game to be competing with 95%LTV crowd. I’ve seen the pendulum swing both ways and if you’re an all cash or mostly cash buyer the opportunities are better when lending gets tight. It knocks out the weaker buyers. I think this development could be significant because it’s mostly older people who can afford current prices but many still need mortgages to support current pricing. Even downsizers are affected because somebody has to afford to buy their current place before they have cash for the next.

      • Mike Herman TroutMEMBER

        Hey swampy I was checking out acreage around northern rivers yesterday. Places are being snapped up it seems. I was surprised by the lack of properties. P.S Sack Goodwin campaign in trouble. Dees on a roll…

        • Mike – they’re a rabble, a rabble. The test will be this week against the Filth and then the scraggers…who do you follow?

          Yep, acreage is snapped up. Where are you looking? Are you seriously looking?

          There has been a bit of a listing strike/lack of listings, but they’re increasing….

          • Mike Herman TroutMEMBER

            Haha. The filth! I grew up following a team that used to be called the mighty bombers, now I follow the bombers. Nothing mighty about them. Been a long hard couple of decades really. Mediocrity. Shambolic decision making. I mean have you seen a bigger clustrfckn than the doping saga? Those scars run deep. I’m not sure what we stand for these days. As for Northern Rivers, its a 5 year plan really but that depends on what goes on here in Melbourne over the next 12 months and same up there. Small acreage for some horses is my dream. Although I passed on some of your information to my partner. The brown snakes did not go down well!

          • Brown snakes – our old place backed onto 258 rain forest behind, 250 acres on the south side, and 68 on the other side, so lots of snake territory, plus the valley we were in was snakey – found a 12 ft brown nesting under the cattle ramp last year….often will ride past 7-10footers sunning on side of road.

            But, it depends where you are…a workmate is a bit further south west and all he has is red bellies, which is fine by me, and tigers.

            Then a bit south east is death adders, browns and reed snakes.

            Anyway, depends where you go. Just need to be sensible. Our golden retriever was not.

            I will swap you having won a flag in 2000 vs our 1964 plus the decade of Deepression aka Neeld and Bailey years.

            Anyway, let me know if things change apropos looking up here…

    • Arthur Schopenhauer

      Depends on where your cash is. If you have a mortgage you’re an asset. Cash on the other hand…

    • Display NameMEMBER

      Might, maybe. I am in cash currently biding my time. If the government tries to kick the market well past the next election, I may buy so my cash doesn’t get trashed in value. Cannot win anyway ATM with ponzi extending to stocks as well

    • Ordinarily, this would be sensible. The conundrum in this case is whether nominal prices will fall all that far with the vast amounts of money being printed. In a regulation credit bust cash becomes king but if the printers keep this up it may be trash instead. If you get your timing absolutely right you’ll do well.

      • Mike Herman TroutMEMBER

        Yes Dominic this is what worries me too. It’s not just the money printers going brrrrr. That’s the sound my mind makes when I think about it…

      • SoCalSurfCreeperMEMBER

        Agree. I am swapping an investment property in an affluent coastal California market for an acreage in SE Queensland / Northern NSW. Right now the CA location is absolutely on fire, while Oz is teetering on the brink. The Fed Reserve money printing is definitely working its magic on some US real estate. Where we are it’s probably the best market since pre GFC. Multiple offers over asking price on the first day. Affluent “top 5%” markets that offer high tech, high pay jobs and low density lifestyle are doing well. I think the main difference is Americans de-leveraged following the GFC, so there is room to run. Australian debt ratios seem to be a bit higher, which may limit upside to the money printing. Exchange rate is another factor, but I should be good up to about 80 cents and still get what we want. I’ll try to limit time in cash and ‘hedge’ currency by splitting it 50% between US$ and AUD$ until ready to pull the trigger. At least that’s the plan right now…. can anyone recommend a better plan? I thought about levering up the US property, keeping it, buying the Oz one in AUD$ cash with US$ borrowed against the first… but I want to be able to sleep at night.

        • I’m in NNSW – Bangalow area. There are a couple of others on here from around up here too.

          Happy to help on ground if needed – happy to share email. Surf was delightful in Evans this weekend. Grandpa waves (my fave), westerly.

          • SoCalSurfCreeperMEMBER

            Thanks for the offer Swampy. I am not shopping on this trip as I don’t want to risk being unable to travel back and forth. I am in no hurry to repeat this quarantine. Yeah grandpa waves are my deal as well right now. Especially since I’ll probably gain a few kgs in quarantine. Brutal. In CA my local break is Ponto. Here’s a little intro I found https://www.youtube.com/watch?v=_qM8BXQ6OF4 The best known area spot is Swami’s.

          • SoCalSurfCreeperMEMBER

            Swampy this is our little part of the world. It’s a dirt whore (real estate agent) video but you get the idea. If you’re ever headed over this way let me know! https://www.youtube.com/watch?v=ftk2emWuSF8
            Mexico surf weekends are great. Super easy from here and super cheap. Look up K38’s

          • I’d be interested to know your recommendations on the area Swampy. I think it’s still low probability of a move out of Sydney but Northern NSW is one of the areas we’d consider. Priorities would be close to beach with a bit of space (1-5 acres, not full acreage or rural).

          • Thanks SoCal. It’s strictly gentle waves as I’m a beginner and haven’t been in the water in an embarrassingly long time #kidslife #sharks. If it gets gnarly, I’ll bust out the Boog and fins.

            cfsn: depends on your $, honestly, and your topographical/heat preferences….and preferences vis a vis being close to a larger centre…

        • I think what happens soon is a counter-trend rally in the USD which would drop most other assets (gold and stocks) for a bit and take the AUD into the 60s, then the USD resumes it’s downward path / bear market and you then see AUD and gold rally again. Nothing is certain, of course, but the USD is very oversold right now so the probability of a rally is much greater.

          We shall see. And yes, sleeping well at night does not have a monetary value. These are treacherous markets and unprecedented times!

  6. Mining BoganMEMBER

    “It’s a severe interpretation of responsible lending laws.”

    That sounded a tad whingy so I googled him. He writes books and sells mortgages, with the emphasis on selling dreams. His last book was ‘Mortgages Made Easy’, which really is only a step away from ‘Mortgages For Dummies’. Only $29.95. Looks like he sells monorails as well.

    Severe interpretation. Jebus wept.

    Edit: HOLD THE PHONE!!! He actually did do the dummies books!!

    https://www.brucebrammallfinancial.com.au/books.

    I like this spiel.

    “Debt Man Walking:

    The key to wealth is a four-letter word. DEBT!”

    You don’t need to read the rest.

    • Yep noticed that. Doesn’t quite get that’s its just ‘responsible lending’, nothing more, nothing less.
      Obviously needs something ‘severe’ done to him, to understand context !

      • SoCalSurfCreeperMEMBER

        The rationale is sound. It signifies that the banks want people to actually be able to pay off the loan from income or at least with other liquid assets and not rely on eventual sale. I assume in case everyone rushes for the exit at once in a cinema fire scenario.

    • Not sure what you’re on about. I regularly send him cheques for my IPs in Ogdenville and North Haverbrook.

      • blacktwin997MEMBER

        Yes, not sure if this is technically an ad-hominem attack but his face looks way too compact for his head. Which is probably reflective of his writing too.

  7. This. Is. Huge.
    Recall that one of the other Big 4 banks investor prezos revealed that owner occupied lending to repeat buyers was 5.5 times the amount of $ lent to first home buyers. This is multiple times beyond foreign country comparables.

    • And the serial refinancers, suddenly they’re up the creek. For so many, it’s the only way they can keep funding their lifestyle.

  8. Sounds like the banks were planing on raiding people super when they retired. The government has undermined that idea by giving people early access to super so this is the response. Apparently overpriced rental income on negatively geared properties doesn’t get counted anymore!!!

    • darklydrawlMEMBER

      Whilst I don’t doubt this – $20K early withdrawl out of a 50+ year olds super is likely to be a small dent in the overall value of the portfolio.

  9. I guess they are worried that over 50s may never work again if they lose their jobs today. So better check the Super balance for a raid-able amount.

    • There is some truth to that in many industries and what employer will want to take on and retrain a >50 year old today?

  10. Meanwhile, in the last few days, suburb records are still being set.

    NSW

    Chifley (adjacent to Long Bay Correctional Facility)
    $2,630,000.00
    SUBURB RECORD
    Sold on 08 Aug 2020
    https://www.realestate.com.au/sold/property-house-nsw-chifley-133978222

    Woy Woy (NSW Central Crystal Meth Addict Coast)
    $2,000,000.00
    SUBURB RECORD
    Sold on 07 Aug 2020
    https://www.realestate.com.au/sold/property-house-nsw-woy+woy-134074254

    Macmasters Beach (NSW Central Crystal Meth Addict Coast)
    $4,550,000.00
    SUBURB RECORD
    Sold on 07 Aug 2020
    https://www.realestate.com.au/sold/property-house-nsw-macmasters+beach-132611178

    Talofa (Byron Boomer Wanker Bay)
    $2,300,000.00
    SUBURB RECORD
    Sold on 07 Aug 2020
    https://www.realestate.com.au/sold/property-house-nsw-talofa-130953910

    Wake me up when the crash starts. Maybe give it another 18 months?

    • Display NameMEMBER

      Always 18 months. I am betting we could have a market meltdown and we would STILL have people paying over the odds given how long the ponzi has run.

    • Sunlord BCNMEMBER

      MCMASTERS BEACH isn’t a house
      It’s hotel bunker in the middle of nowhere

      Put that one under bunker sales
      I’m sorry but that’s a hidden city

      Les the crash is playing out right on track. Some of these places go up first especially with the virus, in time they will fall in price too

    • Talofa isn’t Byron Bay. Byron Bay is Byron Bay, unless you’re a REA, in which case anything 50km north and south and west, hell, even east, is the Byron hinterland.

      I know that place. Nice spot.

      That last sold 19 years ago for 365k.

      • SoCalSurfCreeperMEMBER

        Swampy I have no desire to be anywhere near Byron Bay. Can’t stand pretentiousness. Are there any areas you would recommend where you can find a decent, new or renovated house on 0.5ha or more and less than 15 minutes from the surf for under $1.5? Bonus points for a decent pub nearby. Nowhere it floods. There are plenty of good choices in the Noosa hinterland and even Goldy hinterland. I haven’t looked at anything South of Tweed river. Too sharky.

        • If Sharks are your thing, I probably would stick to the Sunny Coast. From what I understand though, a bit hotter, and less water secure/fire risk up there. I stopped surfing when we had our first child, which was about the time it got very, very sharky here. I know it’s silly, I know it’s largely irrational, but my view of the risk is that I can’t manage it. I can to some degree manage car accident risk (usually other drivers aren’t trying to eat you), and I don’t want to sit in the water not enjoying it. Having said that, they do mount a lot of drones now, and the smart drum lines seem to (seem to) have quietened things down a bit.

          Lot of local fishos will tell you there are a lot around.

          You’d get something around Evans Head for that, easy.

          Bit of a hike to Goldy airport though.

          Tintenbar/Knockrow, close to Lennox and Sharpes/Flat Rock @ Ballina (can be sharky though), turn right and head to Broken Head.

          Up high there, no flooding. Pub, hmmm. Maybe outside Alstonville, lots of larger lots, 15 mins to Ballina beaches…the Fed is pretty good.

          Kingscliff, though pretty developed outward…pub is large.

          I like the Sunny Coast a lot.

          Byron Bay: nice place to visit, but I wouldn’t want to live there. It’s changed heaps since we started holidaying there from Melb sort of 2008-2011 till we moved here. Even since 2011, it’s changed lots. Still nice early morning surfing in winter though.

    • Reus's largeMEMBER

      Cherry picking does not count, I live in 2257 (meth head central Ettalong) and have been following the market closely as we need to re-fi for a reno, everything that I have seen sell has been sold for less than the lower range of the asking price, and appears to be down around 10% down from peak already

    • Yeah, a ‘crash’ of 50% still leaves these properties super expesnive and out of the reach of many.
      How far down does it have to go to actually represent value?

  11. It’s a bit sad really, all the property obsessed boomers at the australian were going nuts in the comment section. They deserve all the credit they can to hang themselves.

      • John wasn’t happy…

        After 27 years as a client of NAB’s I had a similar experience to Simon. The bank made absurd demands on a refinance of six properties and I concluded they didn’t want the business. I switched to a second tier bank who made everything easy and were a lot cheaper into the bargain. Why can’t older customers continue to borrow on investment property, it’s the income that services the loan, not the borrower. Would they rather lend to a millennial with an Arts degree on ten percent deposit? Go figure!

          • The thing is the 2nd tier lenders finance themselves in the ABS market so as long as ‘investors’ are still buying this sub-prime crap the 2nd tier lenders will continue to lend. They really don’t run any risk outside of warehouse risk (when the mortgages are being ‘stored’ before being packaged up and sold off). The 2nd Tier lending rort continues until investors/buyers on strike or a credit bust occurs. All the risk on these properties is therefore held by a mix of investors, including pension, retail and hedge funds as well as insurance companies and banks (to a small extent). It’s quite possible that the Boomer borrowers are actually invested in their own mortgages but they wouldn’t have a clue if they were.

  12. Savvy move by the banks- any boomers jammed up in a crappy loan will just have to pay whatever the banks demand (P&I rollon, rates higher than standard, rate cuts not passed on etc) as they cannot refi away to another… operation boomer milking machine is go!

    • SoMPLSBoyMEMBER

      +1!
      So many said ” I don’t have enough super so better buy an inv property”.( widely understood to be guaranteed money spinner)
      They’re in the corral now; next stop is the abbatoir..

      …money spinner for we know who!

  13. working class hamMEMBER

    Credit unions and other conservative lenders have been doing this since March. Big 4 have always been easier to squeeze more money out of.
    Also include, severe write down of overtime income. A lot of wage earners are going to be evaluated of base income.

    Remember last year when the housing market dropped 15% because of tighter lending conditions alone?

    • Jumping jack flash

      Yes!
      Also something was certainly happening from as far back as 2017. The debt growth was pretty much kaput since then.

  14. My guess is that Westpac will pick them us as customers.
    Westpac knows it’s dead so why try to survive? Lend like crazy into the crash…

  15. Jumping jack flash

    “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”

    Because assumedly banks havent heard of using interest rates as a measure of risk? I dont think banks in the New Economy know what risk is other than LVR. This is pretty much proof of that.

    Why not give the hapless borrowers a million debt dollars to get onto the ladder but charge them 10% interest?

  16. This and the other credit tightening measures is why I’m now aiming, if at all possible, to be a cash buyer. My age, singleness, the industry I work in, and my health circumstances are against me. So if I’m lucky, make some prudent/smart decisions, and the precious metals bull market does it’s thing, I may get there. This is not what I want to do, but it is what it is, and you have to play the with hand you’re dealt

  17. I think you mean positive feedback, where price falls induce debt tightening and the tightening induces further falls

  18. I’m 58 and my partner and I will probably buy a place next year, depending on how things go. Between us well have about $750K cash, so may need a $100-150K loan, depending on the property.

    I wonder how the lenders would look at us.

    • I reckon some would be very happy to have you on board – according to my broker you will just need to provide an “exit plan” (ie explain how you will exit the loan upon retirement) if it would not be fully paid off by retirement under your intended repayment schedule. “I will sell the property and downsize” is the standard “exit plan” which will be accepted and waved through AOK. Doesn’t mean you have to do it – just lets them tick the box. With that much equity the risk to them is almost nil anyway.

      I would guess that if you’re going to work until 65 then paying off $20K – $30K a year will be easy enough given your current rent is probably not far off that anyway.

      And of course some others might knock you back as too small – no profits to be made from such responsible borrowers! 😁

      • Knocked back due to not wanting to borrow enough?! FFS, I hadn’t even considered that possibility. It sure says a lot about the insanely distorted state of our country that that could happen, or that a $100K+ mortgage would be considered too small to bother with.