A new approach to lending could have a dramatic impact on whether Australians can get a mortgage.
A letter sent from the Australian Prudential Regulation Authority (APRA) to the banks shows how it is developing an arsenal of weapons to stop the market getting away from itself.
Already this month, lending changes enforced by APRA have reduced some households’ borrowing power by close to $100,000.
And, APRA is proposing more changes.
In its letter to the banks, APRA proposed monitoring and possibly limiting lending with:
· a debt-to-income ratio greater than or equal to four times or six times
· a loan-to-valuation ratio greater than or equal to 80 per cent or 90 per cent
· the purposes of investment
· an interest-only basis
And APRA is proposing monitoring each individual bank on all the above, even making the banks produce a monthly report to its own Board to ensure that it does not get ahead of itself in any one market segment.
This may well mean that the banks can’t compete with each other just on interest rates – if one bank has over-exposed itself to interest-only loans for example, it may well decline an application from a good client.
And the would-be borrower would be none-the-wiser until the loan application was declined.
ABC bank may well say ‘no’, but XYZ might way yes – simply because the first bank is over-exposed to a particular segment – something the man or woman in the street would not understand without before they whacked a loan application into their bank.
This augurs well for mortgage brokers who understand what sort of bank is looking for what sort of business.
Thankfully, APRA did not say it wanted to reduce any of the above categories; merely that it wanted the means to monitor and possible rein them in should they become over extended.
However, this month’s lending changes have had an impact on the property market – a market which appears to be close to a plateau. Many experts predict growth limited to five to 10 per cent next year.
With growth appearing to moderate, and rates predicted to rise modestly it may be that APRA may not need to intervene any further into the market.