I am sorry Mr Journalist, but we don’t buy it.

I am sorry Mr Journalist, but we don’t buy it

Nearly every ‘property bubble’ story in the media seems to have reference to banks relaxing their lending standards – implying that this is a factor driving prices up. Accredited Broker just does not buy this and reckons that, if anything, lenders have toughened their lending criteria. Much of the so-called evidence of banks loosening their credit policy came after Allan Savins, RESIMAC’s  COO apparently told the Australian Securitisation Forum conference in Sydney that higher loan-to-valuation ratio (LVR) products were “creeping in” to the market.

Yet Accredited Broker believes that there is little evidence of loosening policies and that, if anything, banks are tightening things up.

EXHIBIT A

In a briefing to the media on ANZ’s results, CEO Mike Smith indicated that the bank had tightened its home lending criteria.  Normally, he said, lenders liked “to ensure that borrowers have the ability to service loan obligations even if interest rates were to increase by, say, 2.5 per cent. Generally, that stress test has been to a tolerance of 1.5 per cent, and I just think it makes sense to increase it a little bit.”

EXHIBIT B

Earlier this month wholesale funder, Advantedge (owned by NAB), also increased its stress test tolerance from 1.5 per cent to 2 per cent.

Exhibit C

Conscious of banks tightening Loan Value Ratios, Assetline has launched a personal asset lending. It allows investors to unlock the value of alternative assets that conventional banks won’t touch, such as fine art collections, boats or classic cars.

Exhibit D

In April, CBA tightened its lending policies for investment properties.  Where, once, investors could borrow 95 per cent of the value of a property PLUS Lenders Mortgage Insurance, now the maximum that CBA will lend is 95 per cent INCLUDING Lenders Mortgage Insurance.

It may well be that the average loan is now at a higher Loan Value Ration than it was a few years ago.  But this does not mean it is due to the banks dropping the ball.   Maybe the real driver of high LVRs is purchasers’ fear of missing out on a property. Recent discussions on Linkedin mortgage broker groups probably gives a better coal face view of what is happening.  One broker asked the question “We keep hearing stories in the media about lenders dropping standards of lending criteria. Has anyone seen any recent evidence of this?”

No broker said it was getting easier to arrange high LVR loans, one replied “I agree with your comments. I’m finding that credit criteria is as tough as it has ever been. Anyone that thinks lenders are throwing money at borrowers is clearly deluded.” 

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