Banks have significantly tightened their lending over the last 12 months, but will they re-open their doors anytime soon?
While the GFC played havoc with bank and non-bank lending policies, responsible lending obligations under the consumer credit legislation are sure to confuse things even further over the next year or so.
At the moment, a whopping 80 per cent of brokers believe that lending policy is tighter than it was a year ago, based on a recent poll by The Adviser.
And while most of the tightening occurred in high risk areas such as high LVR loans, a number of areas of lending, including the non-conforming, first homebuyer and low doc loan sectors, have been affected by the recent shift in policy.
But as the home finance market shows a glimmer of steady recovery, the question begs: will lending conditions improve over the next 12 months?
Interestingly, a number of brokers think not.
Smartmove broker Michael Letts believes the banks are definitely becoming more wary of lending to anyone that requires lenders mortgage insurance and this caution will continue.
Ultimately, the reason behind brokers' doubts lie not in their observations about the economic climate, or individual lender policy; the reason lies in the changing face of the law.
Responsible lending has become a key focus of late; promoted by lenders within their own organisations to boast regulatory compliance, and let's face it - to act as a risk protection mechanism.
It has become as popular these days as ‘best practice' or ‘good corporate governance', which rang in the industry back in 2001 when ASIC cracked down on the conduct of Australian company officers. And like good corporate governance, the phrase ‘responsible lending' is already becoming a mantra within the mortgage sector, as it underlies all of a lender's policies, practices and values.
Under the new responsible lending laws, lenders (as well as brokers) are required to make reasonable enquiries about a customer's requirements and objectives, verify their financial situation, and assess their capacity to repay without substantial hardship.
But most importantly, lenders are prevented from offering or suggesting credit products that are ‘unsuitable'.
But what does that mean for a broker who has a non-conforming client, for example?
While there is some concern that responsible lending will result in lenders further tightening their conditions to shut out non-conforming, low doc, high LVR and other borrowers, there are brokers who can see a light on the horizon.
Policy tightening by some lenders will inevitably create opportunities for others, such as the non-bank sector, which will improve competition in the lending sphere.
Australian First Mortgage director of sales and marketing Iain Forbes would agree, as he says continued tightening by the majors will create more opportunities for the non-bank sector.
Those who lend to non-conforming and other borrowers that are traditionally referred to as ‘unsuitable' for finance believe that the consumer credit rules are inherently prescriptive, rather than descriptive.
They believe that the lending industry will normalise once it adjusts to the new requirements, while maintaining a level of prudence and competition.
This is sure to have benefits for the industry.