Money Tighter rules on home loans could cool housing market

04:16  16 april  2018
04:16  16 april  2018 Source:   Sydney Morning Herald

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They wrote that if banks assumed more realistic living expenses, the maximum amount customers would be able to borrow could fall by 30 to 40 per cent, and that could cause home loan growth to slow to a standstill next year, compared with about 6 per cent today.

Some analysts, including those at investment bank UBS, believe the trend could further slow growth in the .6 trillion mortgage market , weighing on house UBS economist George Tharenou, who has modelled the potential impact of tighter loan standards and its impact on credit growth, also said on

The royal commission has exposed gaps in how banks assess borrowers' expenses.© Provided by Sydney Morning Herald The royal commission has exposed gaps in how banks assess borrowers' expenses. Banks are already applying greater scrutiny to the living expenses declared by customers in loan applications, after the royal commission recently highlighted shortcomings in the industry's underwriting standards.

Amid predictions that banks may cut how much credit they extend to customers in response to the judicial inquiry, major lenders have in recent weeks told mortgage brokers to gather more detail about the living expenses customers provide in their home loan applications.

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Post navigation. Tighter rules on home loans could cool housing market .

House prices fell unexpectedly last month suggesting moves by policymakers to hold back surging prices are The Bank of England intervened in the market at the end of last month to prevent soaring prices in London The central bank instructed lenders to check that borrowers can afford their debt

Some analysts, including those at investment bank UBS, believe the trend could further slow growth in the $1.6 trillion mortgage market, weighing on house prices and consumer spending.

Westpac this week wrote to brokers informing them it will require customers to hand over more detail about their spending when applying for a mortgage, by breaking down their spending into 13 different categories, up from six today.

A bank spokeswoman explained the changes by saying Westpac was committed to responsible lending practices, and the new process would allow customers to  be reminded about expenses they may have forgotten, such as gym memberships, pet insurance, or streaming services.

Other banks are tipped to also tighten up their assessments of customer living expenses, which has also been a key focus of regulators in recent years.

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Seniors shopping for a reverse mortgage will find the rules for these loan products are getting tighter . HUD made these changes to strengthen the mortgage insurance fund, which suffered from a struggling housing market and a growing number of defaults by borrowers.

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Tom Crowley, National Australia Bank's acting general manager of home lending, said the bank was collecting "granular" details of a customer's expenses, and it was keen to work with regulators and other lenders to improve their assessments of borrowers' finances.

The royal commission has exposed gaps in how banks assess borrowers' expenses.© James Alcock The royal commission has exposed gaps in how banks assess borrowers' expenses. "We conduct a number of assessments when a customer applies for a loan, including verification of income, granular collection of expenses, and checks with credit bureaus, to ensure customers are able to appropriately repay their loan, both today and in the future," he said.

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Home loans are once again getting cheaper in Canada. The change is the federal government’s first move to cool the housing market since 2012, and is specifically aimed at “ Home price growth in Toronto and Vancouver has been the result of tight supply conditions, in the wake of strong demand.

Free Exclusive Bonus: Download the most complete and updated Singapore property market cooling measures checklist in PDF format that you can use on the go. The second ruling states that the maximum term for housing loans for HDB is 25 years.

Managing director of mortgage broker Homeloanexperts.com.au, Otto Dargan, said that in the past two weeks, more banks were seeking greater detail about peoples' expenses.

"They are asking a lot more questions around the customer's living expenses," Mr Dargan said.

The extra scrutiny had not necessarily reduced how much a customer could borrow, he said, but it had made the process of getting a home loan more complex.

Some analysts belive the trend will further put the brakes on housing credit growth, and Mr Dargan said anyone bidding on a property at an auction without pre-approval of their financing was taking an "enormous risk."

"Even people who are very well off, they should not just assume that there's credit available," Mr Dargan said.

UBS economist George Tharenou, who has modelled the potential impact of tighter loan standards and its impact on credit growth, also said on Thursday that this scenario appeared to be "playing out."

"I think the credit tightening scenario looks like it's playing out right now," Mr Tharenou said.

Borrower expenses have emerged as a key theme in the Hayne royal commission, which has been probing the banks' compliance with laws that require them to make "reasonable inquiries" about a borrower's circumstances.

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"The new mortgage insurance parameters that took effect in July 2012 effectively eliminated refinancing at loan -to-value over 80 per cent," said the agency. Analysts said the numbers point to a slowing housing market , but not a major correction or crash.

At the same time, regulators have in recent years become concerned banks were over-reliant on the Household Expenditure Measure, an index that provides a proxy for living expenses, which critics say is unrealistically low for people living in Sydney or Melbourne.

UBS analysts including Jonathan Mott and Mr Thaernou last week published a report saying a "sharp" reduction in housing finance was looking more likely. They wrote that if banks assumed more realistic living expenses, the maximum amount customers would be able to borrow could fall by 30 to 40 per cent, and that could cause home loan growth to slow to a standstill next year, compared with about 6 per cent today.

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