Home loan bar set at an all-time high
- By Lesley Parker
- Finance
- Unrated
Lesley Parker
Lesley is a regular writer for Sydney Morning Herald
View all articles by Lesley ParkerHome loan bar set at an all-time high
Borrowers are having to jump through hoops when they apply for home loans, as banks and other mortgage providers continue to tighten their lending criteria.
Lenders started to become risk-averse as the US subprime mortgages scandal made wholesale funds for lending scarce and expensive a year or so ago.
But they're even more picky about whom they lend to now that the credit crunch has morphed into a global recession and Australians are starting to lose their jobs, brokers and financial services firms say.
"There's definitely credit rationing in the market," says Paul Heilig, joint head of lending for Centric Lending Services. "The banks are definitely being more selective in the deals they want to take onto their books."
Borrowers have to be "squeaky clean" these days, he says. "Deals have to be keen -if a deal has twists and turns . . . it's more difficult to get it through."
If consumers have any history of default on a loan, have ever been in arrears on repayments or have any other black mark on their credit report "we struggle to get these loans over the line," he says.
Lisa Montgomery, the head of consumer advocacy for non-bank lender Resi Home Loans, says people need to be aware that any blemish on their credit report can affect their chances of securing a home loan in the current market.
"It may be a [late] phone bill or rates notice or something that you don't even realise could affect you," she says.
Also be aware that lenders will be looking at your credit card record - and it's not the amount outstanding they're interested in but your credit limit, she says. "Bringing down those limits to free up your borrowing capacity is a very important thing as well."
Brokers say lenders are demanding bigger deposits and delving deeper into household budgets before approving loans. For a start, they're reducing loan-to-value ratios (LVRs) - or the percentage of the value of a property they'll advance.
Lenders that once were funding 100 per cent of a property's value now won't go beyond 90 per cent, Heilig says. "We're also seeing at the 'luxury' end of the market that where you could get 80 per cent you're now looking at 70 [per cent] to 75 per cent," he says.
"Banks are looking to reduce their risk - you're going to have to come up with a 20 per cent deposit," he says.
For a $1 million house in a capital city that means stumping up $200,000.
Mortgage Choice senior corporate affairs manager Kristy Sheppard says only a couple of lenders now offer 100 per cent loans. And the cut-off point for low-doc loans can be about 60 per cent, she says.
Low-doc loans excuse borrowers from submitting the sort of documentary support that would be required for a standard loan. This has long eased the way for small-business operators and self-employed people - but in recent times such loans have also been offered to borrowers who wouldn't pass muster otherwise. Sheppard says there's also much more insistence that borrowers have genuine savings.
For instance, a spokeswoman for the Commonwealth Bank confirmed the bank requires first-home buyers to have a "deposit" from their own savings of 3 per cent, rather than relying totally on the first-home buyer's grant for their deposit.
In addition, lenders are being more rigorous in checking loan applications.
"A number of lenders are manually checking a higher percentage of the loan applications coming through, rather than running them through the automatic approval criteria," Sheppard says.
They're also adjusting their "serviceability" calculators, setting a higher bar for the amount that must remain in the household kitty after loan repayments and other commitments are taken into account.
In the boom times of recent years some lenders relaxed their debt serviceability criteria to the point that repayments could account for as much as half of a higher-income earner's gross income, according to research by the Australian Prudential Regulation Authority.
This serviceability measure has fallen back to be closer to the old rule of thumb of 30 per cent of gross income.
In another sign of the times, Heilig says many lenders now won't include salary bonuses in their assessment of a borrower's ability to service a loan.
"As a general rule bonuses used to be added on," he says.
"What we're seeing now is a lot of lenders are saying, 'We're not going to account for bonuses because we're not sure they're going to be getting bonuses in this environment.' "
The door shuts on refinancing
Businesswoman Yasmin Dale had a taste of the new attitude among lenders when she inquired about refinancing an existing loan and borrowing further for a second investment property.
Dale made an initial phone inquiry to her lender of nearly five years' standing, ING, only to be told there was no point talking further because she had a black mark on her record and it had to be blemish-free for six months for her to qualify for a loan.
She was shocked to learn that a mortgage payment was one day late last October and this disqualified her.
"I think it was just a hiccup - there may have been lack of funds [when the transaction went through] but it was paid the following day," she says.
The ING representative wasn't interested in her earnings, her assets or the size of her deposit, she says, instead advising her to ring back in April, when six months will have passed since the late payment.
"She wouldn't even allow me to argue the point," says Dale, the managing director of REC Headhunters in Sydney.
Dale then telephoned the Commonwealth Bank and BankWest but at the time of writing, her calls hadn't been returned.
"They aren't as aggressive now as they were - they used to return calls very quickly," she says.
"It's ironic that eight or nine months ago, banks were desperately loaning out money.
"Now it's a totally different story.
"Overall it seems that lenders have gone from almost giving away money in 2008 to really playing hardball."
Lenders started to become risk-averse as the US subprime mortgages scandal made wholesale funds for lending scarce and expensive a year or so ago.
But they're even more picky about whom they lend to now that the credit crunch has morphed into a global recession and Australians are starting to lose their jobs, brokers and financial services firms say.
"There's definitely credit rationing in the market," says Paul Heilig, joint head of lending for Centric Lending Services. "The banks are definitely being more selective in the deals they want to take onto their books."
Borrowers have to be "squeaky clean" these days, he says. "Deals have to be keen -if a deal has twists and turns . . . it's more difficult to get it through."
If consumers have any history of default on a loan, have ever been in arrears on repayments or have any other black mark on their credit report "we struggle to get these loans over the line," he says.
Lisa Montgomery, the head of consumer advocacy for non-bank lender Resi Home Loans, says people need to be aware that any blemish on their credit report can affect their chances of securing a home loan in the current market.
"It may be a [late] phone bill or rates notice or something that you don't even realise could affect you," she says.
Also be aware that lenders will be looking at your credit card record - and it's not the amount outstanding they're interested in but your credit limit, she says. "Bringing down those limits to free up your borrowing capacity is a very important thing as well."
Brokers say lenders are demanding bigger deposits and delving deeper into household budgets before approving loans. For a start, they're reducing loan-to-value ratios (LVRs) - or the percentage of the value of a property they'll advance.
Lenders that once were funding 100 per cent of a property's value now won't go beyond 90 per cent, Heilig says. "We're also seeing at the 'luxury' end of the market that where you could get 80 per cent you're now looking at 70 [per cent] to 75 per cent," he says.
"Banks are looking to reduce their risk - you're going to have to come up with a 20 per cent deposit," he says.
For a $1 million house in a capital city that means stumping up $200,000.
Mortgage Choice senior corporate affairs manager Kristy Sheppard says only a couple of lenders now offer 100 per cent loans. And the cut-off point for low-doc loans can be about 60 per cent, she says.
Low-doc loans excuse borrowers from submitting the sort of documentary support that would be required for a standard loan. This has long eased the way for small-business operators and self-employed people - but in recent times such loans have also been offered to borrowers who wouldn't pass muster otherwise. Sheppard says there's also much more insistence that borrowers have genuine savings.
For instance, a spokeswoman for the Commonwealth Bank confirmed the bank requires first-home buyers to have a "deposit" from their own savings of 3 per cent, rather than relying totally on the first-home buyer's grant for their deposit.
In addition, lenders are being more rigorous in checking loan applications.
"A number of lenders are manually checking a higher percentage of the loan applications coming through, rather than running them through the automatic approval criteria," Sheppard says.
They're also adjusting their "serviceability" calculators, setting a higher bar for the amount that must remain in the household kitty after loan repayments and other commitments are taken into account.
In the boom times of recent years some lenders relaxed their debt serviceability criteria to the point that repayments could account for as much as half of a higher-income earner's gross income, according to research by the Australian Prudential Regulation Authority.
This serviceability measure has fallen back to be closer to the old rule of thumb of 30 per cent of gross income.
In another sign of the times, Heilig says many lenders now won't include salary bonuses in their assessment of a borrower's ability to service a loan.
"As a general rule bonuses used to be added on," he says.
"What we're seeing now is a lot of lenders are saying, 'We're not going to account for bonuses because we're not sure they're going to be getting bonuses in this environment.' "
The door shuts on refinancing
Businesswoman Yasmin Dale had a taste of the new attitude among lenders when she inquired about refinancing an existing loan and borrowing further for a second investment property.
Dale made an initial phone inquiry to her lender of nearly five years' standing, ING, only to be told there was no point talking further because she had a black mark on her record and it had to be blemish-free for six months for her to qualify for a loan.
She was shocked to learn that a mortgage payment was one day late last October and this disqualified her.
"I think it was just a hiccup - there may have been lack of funds [when the transaction went through] but it was paid the following day," she says.
The ING representative wasn't interested in her earnings, her assets or the size of her deposit, she says, instead advising her to ring back in April, when six months will have passed since the late payment.
"She wouldn't even allow me to argue the point," says Dale, the managing director of REC Headhunters in Sydney.
Dale then telephoned the Commonwealth Bank and BankWest but at the time of writing, her calls hadn't been returned.
"They aren't as aggressive now as they were - they used to return calls very quickly," she says.
"It's ironic that eight or nine months ago, banks were desperately loaning out money.
"Now it's a totally different story.
"Overall it seems that lenders have gone from almost giving away money in 2008 to really playing hardball."
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