Lending to tighten as banks look to avoid mortgage risk

By |
While specific postcodes or suburbs may not be denied home loans, one financial analyst believes Australia’s big banks are moving to a path of more restrictive lending.

Martin North, the principal of Digital Finance Analytics, believes major lenders will soon be introducing different lending criteria and stricter servicing requirements as they look to reduce the amount of risk they carry on their mortgage books.

“I think what we’re seeing is a general drift towards the end of the more sporty loans we were seeing. The dial has been turned up in terms of the capital requirements banks are facing, and the risk dial has been turned up as APRA says, 'These are the things we want to see happen',” North said.

“We’re not going to see ghettos where you can’t get a loan, but LVRs are going to be dialled back. It’s going to be harder to get interest only loans and there could be changes to terms and conditions so we see things such as risk premiums on loans for certain areas,” he said.

North’s comments come after Fairfax media revealed earlier this week that NAB has two groups totalling more than 80 Australian postcodes identified as either being “areas where significant deterioration in credit risk has been observed" (Group A postcodes) or "areas which are exhibiting characteristics which may indicate future deterioration in credit risk” (Group B postcodes).

There are 40 Group A postcodes, which are predominantly located in areas affected by the downturn in the resource and manufacturing industries, with 22 Western Australian and 11 Queensland postcodes in the group.

The remaining seven postcodes are found in South Australia, Northern Territory and Tasmania.

The Group A postcodes are now subject to a 70% LVR.

The bank has classified 43 postcodes in Group B. Thirty-four are located in Sydney, while five are found in Melbourne. Suburbs in this group are now subject to an LVR of 80%.

According to North, the identified postcodes present risks due to a number of different reasons.

“The first reason is the probability of default, which is tied to economic and employment conditions, and would apply to places in Western Australia or Queensland where the mining boom has deteriorated or areas like South Australia where the manufacturing industry has been hit,” he said.

“There are also concentration risks where you have a location that has been popular and a bank has a lot of people in that area with loans and they’ll then look to throttle back on lending to there.

“The final one is overvaluation, where a bank thinks the value of properties in the area is extended, and they’re concerned that in a corrective market they’ll be worth less than what the loan. These are usually areas that have seen rapid growth and an area like inner Sydney would be a good example of that.”

While banks such as NAB may be introducing measures to reduce the level of risk they take on in the future, North said the current risk position of their mortgage portfolios may not yet truly be known.

“If you look back at the loans that were written over the last 12 – 18 months when lenders were being more aggressive, then I would estimate that about 8 – 9% wouldn’t meet today’s lending criteria.

“There’s some implicit risk there and most mortgage trouble start in the first two or three years, so in the near future we’ll see whether that leads to an increase in defaults.”
 

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now

Top Suburbs : willliamstown , upper kedron , tweed heads south , the basin , lockridge

go back

Get help financing your investment



Do you need help finding the right loan for your investment?


When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local expert Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus, our mortgage broking service is at no cost to you.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here