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Brokers should brace for tougher lending policies ahead as the continued fall-out from the GFC piles more pressure on the banks.
Mortgage rationing has not yet swept Australia but there is little doubt the banking sector’s appetite for risk is continuing to shrink – and the risk profile of potential borrowers is coming under greater scrutiny.
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The days of borrowers securing a home loan without having to show genuine savings have become a distant memory.
A minimum of five per cent genuine savings is now a standard requirement for all home loans where the LVR is over 80 per cent.
But reducing maximum LVRs is not the only area where lenders have tightened up their policies. They are also starting to scrutinise a prospective borrower’s employment history and job security – as well as their credit history – with far greater rigour.
“Nobody wants to help anybody to heartache,” says NAB Broker’s head of broker sales John Flavell. “Lenders will be forced to look at what industry the borrower works in and their skill level as well as the amount of industry demand there is for that line of work.”
A borrower’s credit background will also come into play, he says. “Do they havea series of unpaid bills? What is their gearing
situation and what is their asset position given their age? Then there is also the underlying security, looking at the saleability of the asset.”
Steven Heavey, general manager of thirdparty and specialist distribution at St George, agrees. He says St George has tightened its lending standards to avoid putting customers, particularly first home buyers, in a situation where they are over-extended.
“There is widespread industry concern about the quality of loans to Australia’s fast-growing, first home buyer market,”
Mr Heavey says. “Recent changes by the bank have been to ensure customers are committed and in a financial position to meet repayments in coming years.”
Mr Heavey says the best advice he can give brokers in this new lending environment is to make it very clear to borrowers the basis on which banks are now assessing loans.
“Customers will be required to provide more background on their financial history than precedent suggests, especially in cases that are borderline or an exception to normal lending criteria,” he says.
