Over recent years Australian banks returned to the irresponsible lending practices that we saw pre-GFC and that they claimed would not return. Excessive high-risk mortgage lending, such as high loan-to-value ratios, high loan-to-income ratios, interest-only loans and very long term home loans, became common practice again over the last few years – especially during 2014.
Even more concerning is that interest-only loans reached a record high of 42.5% of all home loans in the September quarter of 2014.
Investors and FHBs jumped into the property market en masse during the peak in housing credit loans in 2014 (just prior to the peak in national median house prices in late 2014). This is common behaviour near a market top. As the chart I posted shows, housing credit has been declining since its peak in mid-2014 and, just like the downturn in housing credit during 2008-2009, house prices will follow.
