Brokers are “concerned” by increasingly stringent serviceability and lending policies, a leading broker has said, warning that lending conditions are tougher now than during the global financial crisis and could impact lending volumes if not checked.
Speaking to The Adviser, principal and investment manager at the Australian Lending and Investment Centre (ALIC) Mark Davis said that mortgage brokers have been “shocked” and “surprised” by the level of scrutiny on loan assessments.
Further, Mr Davis said that he believes credit policies are tougher now than they were during the global financial crisis (GFC).
“I think the average broker is really concerned because it’s so hard to get loans approved now,” the ALIC principal said.
“The banks will continually come back and forth because the credit assessors are scared to sign off on things that are considered borderline.
“The average broker out there would be finding this really hard, and if they haven’t been around for long and they’re only in their early 30s or late 20s, a lot of them would be in shock.
“Even [brokers] that have been [broking] for a while are surprised by how hard this is been; it’s harder than during the GFC.”
Lending volumes could decline by up to 30 per cent this year
The broking veteran said that the banking sector’s response to industry scrutiny from regulators, and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, has been stronger than expected, claiming that if such credit practices persist, lending volumes could decline by 25 to 30 per cent this year.
“ASIC, APRA and the royal commission are coming out with requirements, which banks are assessing accordingly in a much stronger way than was probably anticipated,” Mr Davis continued.
“I personally believe that if they’re not careful with how far they take this, lending numbers could reduce 25–30 per cent this year, which could have an enormous [impact] on property prices.”
Mr Davis also called for greater communication between regulators and the financial services royal commission to ensure that the sector’s response is consistent and “aligned with what the industry is trying to achieve”, rather than “acting in an ad hoc fashion and coming out with some really strict credit policies”.
Further, Mr Davis stated that banks may be forced to reconsider should their policies result in a significant loss of market share.
“History shows that banks don’t turn things around very quickly, and I’ve seen policies in place since 1987; the banks still haven’t changed due to a crunch back then in the late 1980s/early 1990s,” the principal told The Adviser.
“I don’t see these policies changing quickly. However, they have to do something because the banks and all financiers would be losing significant market share if they get too tough.”
The leading mortgage broker also noted that while tighter policy may have been required to ease unsustainable growth in Sydney and Melbourne, such policies could further dampen a market revival in the rest of the country.
“It’s a phase and a cycle that was probably needed to slow things down, but for areas outside of Sydney and Melbourne (which haven’t had much property growth over the last eight or nine years), [tighter lending policies] could make it harder for those areas to appreciate,” the principal said.
While Mr Davis is wary of credit policy creating a stranglehold on lending, others in the sector have said that tighter requirements were “long overdue”.
Speaking on The Adviser’s Elite Broker podcast, mortgage broker at Resolve Finance Liam O’Donnell noted the benefits of tighter serviceability measures introduced by lenders.
“What the banks are doing and what the regulators are doing, I wholeheartedly support,” the broker said.
“[Asking more questions] just means that you’re getting a better understanding of your client, so you may be asking for more paperwork or for more intricate details, but when you think about it, we should have been asking these questions five or 10 years ago.”
Mr O’Donnell acknowledged that such measures have made his job more difficult, but he noted that they’re ensuring borrowers do not obtain loans they cannot afford.