in it you will find several interesting notes including references to first home buyers and bank lending standards. unless you have data to suggest otherwise australia does not have lax lending standards.
The Key Role of Lending Standards If this relatively benign picture is to continue, one crucial precondition is that lending standards in the mortgage market remain prudent. Past experience has clearly shown that in the long run, you don?t improve housing affordability by easing lending standards. That just gets capitalised in the price.
In fact, easing mortgage lending standards too far can be outright damaging to long-run affordability. This has been amply demonstrated in the recent United States housing meltdown. There, the boom phase around the middle of the decade drew out a multitude of so-called affordability products. These were designed to help households purchase ever-more expensive homes. They included sub-prime loans, of course, but also a plethora of no-deposit, no-documentation, teaser-rate and negative amortisation products not seen in other countries. So households could borrow more, but this just helped to boost housing prices further. During the boom, sub-prime lending was seen as a way of getting people into home ownership. But it had the added advantage that it could siphon some mortgage business away from the government-sponsored enterprises that dominated the US industry. It was therefore thought that sub-prime lending would reduce systemic risk in the mortgage market. But as millions of American households lose their homes to foreclosure, and the owner-occupation rate declines to rates last seen in the mid 1990s, it would seem that they are worse off from this experiment. Sub-prime lenders could be seen as the cane toads of the US mortgage market: they were designed to battle one problem, but they created a bigger problem.
In Australia, lending standards never eased that far, and conditions never got that grim. Some newer data that APRA have been collecting can help shed some light on mortgage lending standards here (Graph 7). As you can see, only a minority of recent home loan borrowers started with a loan-to-valuation ratio above 90 per cent. The fraction of owner-occupiers with high loan-to-valuation ratios increased during the period when grants to first-home buyers were increased; these buyers normally have smaller deposits than existing home owners who are moving, and they accounted for a larger share of new loans in that period. We have been carefully watching lending standards in the first-home buyer market segment. First-home buyers have long faced greater risk than more established home owners who have more equity in their home. But as far as the data allow us to tell, recent new loans to first-home buyers look quite like those made to previous cohorts of first-home buyers.
Graph 7
Click to view larger
Indeed, across the mortgage market as a whole, lending standards are a little tighter than they were a couple of years ago. Banks and other deposit-takers have gained market share relative to non-bank lenders that tended to offer less conservative mortgage products. And as the graph shows, the banks themselves now have a more conservative profile in their lending than previously. Some lenders have reduced the maximum loan-to-valuation ratio they will offer for certain customers. The fraction of new loans with low documentation is lower now than even two years ago, both for owner-occupiers and investors. And although the share of interest-only owner-occupier loans has largely reversed its earlier dip, most of these are actually loans with offset accounts, which people use to pay their loan down faster.
in particular--note" recent loans to first home buyers look quite like loans to previous cohorts of first home buyers."
now u can argue that this is dated march 2010 and interest rates have increased since then however they are comparing cohorts which means recent first home buyers are dealing with morgages the same way they have in the past---no more no less.
