banks could be overvaluing australian property

The property crash in the US was characterised by loose lending by banks. Now we all know banks in Australia claim they are not undertaking loose lending, which appears on the face of it true. However, I would like to raise the possibility of another method Australian banks are using which if they are not careful could have the same devastating effect on the Australian property market.

When I recently refinanced my investment property I am nearly certain that my bank deliberately inflated the value of my property in order to meet the 80% leveraging criteria, which overseas buyers of Australian mortgage backed securities require.

I did nothing dodgy I just told them how much I wanted to borrow. The Bank had some ‘independent’ person value the property and it was valued miraculously at amount which meant the money I wanted equalled 80% of their calculation for the value of my property. However in reality the amount of money I wanted was equal to 100% of my property, and recent sales in the area prove this. Of note prices in the area of the property have been climbing for years and not effected by recent slowdown in some areas of Australia.

If this practice of over valuing homes when refinancing in order to meet the criteria to sell mortgaged back securities overseas is widespread, then I would hate to be the fool is who is buying Australian mortgaged backed securities.

The more I think about the Australian property market the more it looks to me like it is a grand pyramid scheme in which the baby boomer generation (people like my parents) and banks are trapped in.