Banks tighten lending criteria

[gfresh]

It's been happening on the outliers for a while (lo-doc, business loans, etc), but now it looks like the banks are moving more into restrictions for standard home loans as well...

http://www.canberratimes.com.au/news/local/news/general/banks-tighten-home-lending-rules/1421396.aspx?storypage=0

[2BAD4U]

I love how these "experts" come out and make it look like they're on the ball with what is happening when in actual fact anyone who knows anything about banking could tell you this would happen. In fact it has to happen.

Someone correct me if I am wrong (it's been a while since I last read up on the subject) but the Basel I and II accords basically set out how much a bank can lend based on Tier 1 & 2 capital and assest, based on a defined credit risk. As capital falls, credit risks increase and assets decline, then banks can not lend as much as they used to.

Increased credit risk = tighter lending standards.

[kincella]

most people think we follow the US...but its the other way around...I will post some other graphs later...so you can check it oput for yourselves...in the meantime.....I copied this post from another forum...it was my post...
it might change your attitude towards housing....the oz prop market has always been the biggest of the home owners, its like a god given right
.................................................. ............................................
In earlier posts I stated our boom ended 2004 then flat 05/06 and rose again...dead cat bounce 2007....and showed graphs to prove it

from the Deputy Reserve Bank Govenor..............
First, the cycle in the Australian housing market, rather than following the US market, is in fact at a more advanced stage; it is probably leading the US market by three years or so. The Australian housing market was at its hottest in 2003, whereas the US market peaked in 2006. To understand how this came about, it is necessary to look back to the second half of the 1990s. The tremendous shift in the global savings/investment balance that followed the Asian crisis generated a surplus of funds in global markets. The financial sectors in theEnglish-speaking countries, being more dynamic and responsive than in many other countries, were quick to take advantage of this. In the US, the early part of this periodcoincided with a surge in technological innovation, and the initial wave of money in thatcountry went to the technology sector. This resulted in the “tech” bubble, which eventually collapsed in 2000. Australia did not have much of a technology-producing sector so our financial institutions sought out other investment opportunities. What Australia did have was a conservative household sector with relatively low gearing. As such, the financial sector saw opportunities for financial innovation aimed at encouraging households to make greater use of their borrowing capacity. Most of this was focused on housing lending. The result was that the boom in housing in Australia got underway well before that in the US the latter did not really get going until after the tech bubble collapsed. A second difference relates to the dynamics of the housing markets in the two countries. In the US, the rise in house prices elicited a very strong supply response so that, by the end of2007, there was almost one-year’s supply of newly built unsold houses overhanging themarket. US house prices stopped rising essentially because the supply of houses overtook demand. Graph 5BIS Review 130/2008 7
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Page 8
Here in Australia the rise in house prices did not elicit such a strong supply response. Therewere pockets of overdevelopment in apartments in 2003/04 but, by and large, there wasnever a serious oversupply of unsold new houses in Australia. In fact, the consensus is that there is currently a shortage of dwellings. The Australian housing boom ended because prices rose to levels that severely strained the financial capacity of buyers to pay higher prices, not because too many houses were built, as in the US. The overhang of unsold houses in the US has created downward pressure on house pricesas builders and developers have been forced to sell. This is absent in Australia. Rather, theshortage of housing here means that there are buyers waiting for better circumstances – e.g.lower interest rates or rising incomes – to facilitate their entry to the market. This latentunderlying demand for housing is a factor that will support the market. A third important difference between Australia and the US is in the groups that the lenders targeted, and in the loan terms on offer.
In Australia, the lending boom was concentrated on existing home owners who traded up to bigger and better houses and bought investmentproperties. Many of these were people in their 40s and 50s who previously had low levels ofdebt. At the end of the boom, the home ownership rate in Australia was no different to that atthe start; in both cases about 70 per cent. While one could argue that no socially productive purpose was served by this increased lending to middle-aged existing home owners, it did mean that the loans largely went tothose who had a strong capacity to service and repay them. As a result, whereas most othercountries with housing booms have experienced a strong rise in arrears on housing loans once the boom ended, in Australia the arrears rate is today no higher than it was at the startof the boom in the mid 1990s. And, of course, it is low by international standards. Graph 6In the US, in contrast, a lot of the lending found its way to more marginal borrowers whopreviously could not afford a loan, or it took the form of aggressively structured mortgageswhich allowed people to borrow much more than they previously could. The home ownership rate in the US continued to rise during the first years of the boom. One could argue that this was a good thing, but one consequence was that a significant proportion of this group ended 8 BIS Review 130/2008
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http://209.85.173.132/search?q=cache:PtE24PZLpycJ:www.bis.org/review/r081030d.pdf+graphs+austrlian+house+prices+for+100 +years&hl=en&ct=clnk&cd=30

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Ever met a wealthy person who complains and moans about everything ?

*** The best way to become a millionaire is to borrow a million dollars and have your renters pay it off.
Jack Miller

[Gav23]

It's been happening on the outliers for a while (lo-doc, business loans, etc), but now it looks like the banks are moving more into restrictions for standard home loans as well...

http://www.canberratimes.com.au/news/local/news/general/banks-tighten-home-lending-rules/1421396.aspx?storypage=0

Tell me about it, it's been a very frustrating experience (getting first home loan). Only CBA will "consider" me, and I have 20% deposit and a good job.

It's that bad I've been tempted to throw the towel in and just keep renting (and I HATE renting)

[kincella]

gav...I dont get it...where is the property you want to buy or are looking for ??? is it in the city or a regional area...just trying to figure out why you are having a problem....you said you had no other debt...a good credit history, no other loans or cards....and the job..was permanent...
have you called cba yourself,,,or going through a broker ??? do you have the cash deposit, or rely on the fhbg...


I recently refinanced loans with cba...over the phone and in 10 mins...(told I had been approved then) they are so busy they did take 6 weeks to send out the offer...
I am different to you, as a small business...with different criteria....but could not believe how easy it was.......

[Gav23]

gav...I dont get it...where is the property you want to buy or are looking for ??? is it in the city or a regional area...just trying to figure out why you are having a problem....you said you had no other debt...a good credit history, no other loans or cards....and the job..was permanent...
have you called cba yourself,,,or going through a broker ??? do you have the cash deposit, or rely on the fhbg...

I recently refinanced loans with cba...over the phone and in 10 mins...(told I had been approved then) they are so busy they did take 6 weeks to send out the offer...
I am different to you, as a small business...with different criteria....but could not believe how easy it was.......

Good news, I received an offer from CBA in the mail :)

Yes, I have a proven history of savings, paid out other loans in the past, no current loans or debt, 20% deposit (FHB covers all stamp duty and other fees), hell I dont even own a credit card! Apparently I was turned down by others due to not being in my job for 12 months. But I had a letter from my boss stating my job requires a skill set not many ppl have, and is in demand (secure govt job). And on my current income I could afford to pay DOUBLE the minimum weekly repayments.

The place is an outer Melb Suburb, and I went through a broker.

[kincella]

OK, good, congratulations.....now did this loan go thru the broker , or did you deal direct with CBA ???
Reason I ask, attempted to use a broker once, and they stuffed it, said I would need mortgage insurance etc.....but had done the sums myself and knew I should not need that insurance....turned out the broker did not listen, or understand, then who knows what they put in the application......it looked like I would not get a loan...I could not figure it out....
ended up dealing direct with the banks myself, easy peasy, no mortgage insurance etc...
so wondered what the broker had done...they get the commissions from the lender, and its for life...maybe they were getting kickbacks from the insurance company as well...
outer melb is fine...just some regional areas..the bank may offer a lower LVR...lend to 60-70% only...like they used to for units...back in the old days
cheers

[Ricky Roma]

I am really surprised you have had problems with 20% deposit... I know that commercial loans have substanially tightened but have not seen any real problems with residential.. Generally below 20% will require mortgage insurance.. however I have not seen anyone have problems borrowing with even 5% as long as they have a reasonable income to cover the cost...

The hardest part of being a First home buyer is that you are required to live in the property thus most of the time the bank wont take into account the potential rental income.. where as if you were not living in the propert bang you have another 3-5% rental return income....

What I cant get around is the banks lending criteria on studio apartments... So many times I see first home buyers who want to but a studio inner city sydney or fringes for say around $130,000 they have 20% deposit and need to borrow about $100k pretty low risk and easily re payable but the bank wont lend the money and wants 40% deposit for studios below 50sqm.. (apparently cause they are risky!!!) Where is this risk.. never have I seen a period where low cost housing has not been popular.. even when the rental market falls over the demand for cheaper properties remains whilst the highend gets hit... The banks then make it easier for this same home buyer to use the $26k they wanted to use to buy a studio for $130k to buy a two bedroom geared to 95% for $500k.. ???? To be this is crazy !!!

[kincella]

I recall that policy over 30 years ago...guess they have not updated their practices and procedures manuals.....however I still see the studios take a long time to turn over...possibly because of the banks criteria...
even the one bedders are slow....it may change...and pigs might fly

[gfresh]

Personally, I don't think I could handle a studio, I'd rather continue to rent. They are really just a bed, small kitchen bench, room for a small couch and that's it. Most people wouldn't even fit their usual goods in there.

Many many studios listed up here, doesn't seem to be much interest at the moment, no matter how cheap they are.

[sarahJohn]

HSBC Bank has reduced the minimum salary requirement for personal and car loans by 50 per cent to Dh10,000 (US$2,725), but warned that it would tighten lending criteria.

[Joe]

HSBC Bank has reduced the minimum salary requirement for personal and car loans by 50 per cent to Dh10,000 (US$2,725), but warned that it would tighten lending criteria.

All of your posts are simply cut and pastes from other websites. I have been doing Google searches on the text in your posts to confirm. If you continue to do this your account will be suspended and all your posts removed.

This is a forum for those interested in Australian real estate. If you have nothing relevant to contribute please don't post.