Banks tighten lending rulesBy Kelvin Bissett May 06, 2008 12:00am
HOME buyers face tougher questions and even knockbacks when applying for a mortgage as banks and non-bank lenders tighten rules on who qualifies.
Banks known to have tightened their lending practices include Westpac, St George, Suncorp, Adelaide Bank, ING DIRECT, AMP Banking, and Newcastle Permanent.
The tightending comes after the US subprime mortgage crisis, which has pushed up credit costs and prompted a global rise in bad debts.
Leaked circulars show a series of banks and non-bank lenders have toughened eligibility criteria on some home loans in the wake of rising repossessions, growing mortgage stress and a funds shortage.
Changes include increased loan-to-valuation ratios, more proof of income and growing caution about writing so-called "lo doc" loans.
The move by lenders to crack down on dodgy home lending comes as analysts tip the Reserve Bank to keep interest rates on hold at its monthly board meeting today.
The latest economic data shows the economy to be clearly slowing, including a dramatic slowdown in house price rises and falling new car sales – down 7.9 per cent last month against March as higher fuel prices start to bite.
Federal Treasurer Wayne Swan warned yesterday that underlying inflation was high and would take time to contain – a hint that there could be more rate rises to come.
As well as rising repossession rates, problems in sourcing funds overseas due to the US subprime mortgage crisis is also affecting non-bank lenders.
Among the biggest changes in eligibility criteria, Adelaide Bank tightened its credit policy to cap loan-to-valuation ratios at 90 per cent for principal and interest loans and 80 per cent for interest-only loans.
In its circular to brokers on March 25, Adelaide Bank also expects evidence that a home loan applicant has 5 per cent of the property value in savings.
An Adelaide Bank spokesman confirmed the bank had decided it was "prudent in the general economic climate" to review its credit policy.
On April 23 Westpac informed brokers of credit policy changes for lending to investors for CBD locations and luxury properties. A spokesman last night denied this amounted to a change in credit policy.
"We are simply updating our policies to reflect current practice which is to write these loans for the appropriate risk profile as per improving market conditions in these areas," he said.
AMP Banking confirmed that on April 2 it added 0.2 per cent to any loan above 95 per cent of the property's value.
ING DIRECT on April 24 changed its Lo Doc Credit Policy to demand evidence of an ABN for two years and registration for GST.
St George confirmed that on April 7 it modified the eligibility criteria for its No Deposit Quick Start Home Loan product, including increasing the interest rate margin, to discourage customers requiring debt consolidation.
Some small lenders have withdrawn from the the home loan market altogether, including Macquarie Banking, which on March 7 announced the removal of all its mortgage products to new residential customers.
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About time that a borrowers ability to pay off a loan is properly assessed. How irresponsible to loan or borrow 100% of a property valuation. No savings discipline needed before the home buyer, who wants it all, suddenly has to budget for mortgage repayments, rates, water, insurance etc etc. There is no such thing as mortgage stress, just mortgage stupidity. Besides, to provide for decent dividend returns for bank shareholders, provision for bad debts must be reduced.
