Money Tighter rules on home loans could cool housing market

04:16  16 april  2018
04:16  16 april  2018 Source:   smh.com.au

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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

Public. Apr 13, 2018.  Tighter rules on home loans could cool housing market .

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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Tighter rules on home loans could cool housing market . It started with an expensive blunder, and then it got worse. A broker accidentally handed employees shares worth 30 times its market value, and they dumped them.

Tighter rules on home loans could cool housing market . Home prices across Australia’s five mainland capitals is still in recession. As seen, higher mortgage rates would test the recovery of the housing market .

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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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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Tighter rules on home loans could cool housing market . Large numbers of NAB loan applications deliberately under-reported customers' living expenses, a key check on whether borrowers could afford to pay their debts.

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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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Tighter rules on home loans could cool housing market . As seen, higher mortgage rates would test the recovery of the housing market .

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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