Are banks lending during COVID-19?

In the current climate I am inclined to just keep saving and buy a cheaper property outright. There will be steady demand for rental properties for a good while yet.

 

Spoke to a senior Valuer last night - he said valuation prices are still being assessed on evidence (meaning prior sales from the last 6-18 months) but risk ratings and commentary around external circumstances risk are going up to protect against future lawsuits.

I imagine virtual / dry by then desktop vals will get used if full vals are impossible for a while.

 

Bluestone have basically signalled to the market, they are closed for new business

 

That makes sense.

 

And it starts ....

 

But if risk is a category of valuation then surely it has to factor into their estimated price?

If I was a valuer then any property I valued in the world right now would have a risk rating of 5 being the absolute max. I’m not then going to look at 6 months comparable data which dates back to CV19 not even existing and use that data. I mean that’s just insane.
That’s likely companies not adjusting their forecasting.

I would guess the advice you got was from someone again underestimating this beast.
And I don’t buy “legality”. Do they value a property based on comparables and then next minute job loss and banks repossessing and in 6 months the bank can’t sell it and it’s worth 20% less (a real possibility) but because they mentioned it it will stand up?

Valuers are accountable and with their butt on the line I just cannot see that happening.
Happy to be proven wrong though.

 

I would hardly call a non conforming lender having a change of policy the start of anything TBH.

 

let’s wait and see , happy to take a wager
I’ve said time and time again , this is 2008 (in other countries ) replicated with a dose of steroids on top

let’s revisit this in 2 months

 

What are the terms of said wager?
If as you have suggested in other posts that banks will be completely shut for business on new lending then I’m in.

Name the wager.

 

no problem.
but lets agree the parameters, i said effectively closed for business, this means other than a cast iron certainty of a proposal , such as a government job 40% deposit they are closed, of course their will always be a trickle of lending, but it will reduce to a trickle for a period of time, which could be short term but it will happen.

so lets agree the parameter and happy for any wager then, how about the value of lending in the last 1/4 and a % decrease or something like this, i dont know how you want to measure it, how long applications are being "processed" or another method.

i said as well there will be a full facade of open for business, advetising etc, its what is happening behind thi (or not happening to be more accurate)

and as we are discussing the topic, interesting to know why you think the above wont be the case

i've said previously i am not an expert , i dont proclaim to be one, but merely have the expedience and scars of a deep recession.

 

Dont know about being closed for business, but it seems we are heading for a scenario where the cash rate is 0.25% but the SVR lending rates will be 7%

 

Let’s agree it would be impossible to prove a point for an actual wager and discuss the actual point at hand.

Your belief is lending will be restricted to only rock solid applications. Let’s use examples of people in certain “safe” industries, very low LVR’s (say 60 And below), significant servicing surplus. Your very fairly basing this on real world experience from the GFC from another country.

I won’t argue that Their will not be some tightening on lending policy. A lot of what you have mentioned I totally agree with but my belief is on a much lower scale.
Let’s use an example: If a self employed person in the travel industry is looking to refinance and cashout to 80% on last years returns then I would say absolutely red flag and assessors will not touch it.

If however a PAYG even for say 2 years working in any industry not completely closed wants to refinance and cashout 50k to 80% then I think banks will lend no worries.

I think LMI deals will still be open for business as well under the same conditions outlined above.

BUT let’s not me explain. Let’s put it to the people who were actually in finance in lending during the GFC in Australia.
@Peter_Tersteeg @Redom you guys lived this so what is your experience. Was it as K974 suggest and unless you were a golden application banks were shut. Or is it as I’m suggesting and deals like LO Doc and extremely Hish risk were the deals taken of the table?

 

I'm a bit too young to answer that one @albanga, but I have studied this at a macro level more than most while at treasury.

Lending to majority of applicants who meet standard criteria will continue. This isn't a GFC type crisis, its a very different one with a different transmission mechanism.

Credit supply issues will be navigated out largely for households from the mainstream market with a 'whatever it takes' attitude and learning experience from central banks. There will be a slowdown in supply here, but that's because it's physically harder to actually do when everyones in lockdown. Not a financial market thing. There'll inevitably be some changes to lending policies of course, but the GFC was a supply of credit issue (not a lending policy one) - i.e. funding costs, liquidity, etc.

Credit demand on the other hand...we'll see the worst ever figures in my lifetime I think soon enough. Not many will want a loan for a three month period (unfortunately for me and other brokers, this alone is an economic tsunami about to hit our businesses).

 

During the GFC virtually all lenders tightened lending criteria to some degree. In essence they got rid of a lot of higher risk scenarios.

Most common was 95% investment lending, which still doesn't happen (there are a few exceptions, but not many). Most lenders retreated to 80% LVR for investment for a period of time, then eventually came back to 90%.

The biggest restrictions were mostly due to the exceedingly high rates at the time. People couldn't qualify to borrow money when the servicing rate was 11%. As soon as rates fell by 5%, lending didn't flow, it gushed.


Putting on a credit assessment hat, here's what I see happening...

What I think we'll see during the crisis is a reluctance to lend to certain industries. Probably not blanket ban, but only at low LVRs and perhaps a deeper justification of why some incomes are more stable in the short term.

We'll likely also see the use of variable income such as bonus, commission and overtime no longer be used in servicing.

Trading history for the self employed will become a thing. Your last 2 tax returns might look good, but I imagine lenders will be very interested in your July 2020 BAS statement.

Continuity of employment will weigh heavily on credit scoring.

Government, essential services and emergency services jobs will be treated like royalty. Overtime will likely be acceptable for these types of jobs.


Longer term I think things will return to the status quo. Reluctantly at first, but I can see an argument for a strong but lengthy recovery. Lenders will be looking to ride that wave, just like everyone else.

 

I have a $4m market value ($3.2m independent value) Melbourne CBD retail freehold shop with no debt rented at $100k pa. was working with one of the big 4 to refinance $1m out. Guy called me yesterday and said it’s going to be very hard now and they’re going to ask me lots of questions. This was with private bank. Anyway trying the business banking side now.

 

I can also see that whilst the owner occupier market will have a strong recovery, some types of commercial property and business lending will suffer. It's been quite confronting just how quickly many businesses have collapsed. I suspect lenders will remember this and factor it into their longer term risk mitigation.

 

Unemployment, long term deep unemployment, factor that in.

 

ING

 

Valuers are reactionary to price movements anyway.

 

Do you foresee any major change to your employment, income and/or expenses over the next 12 months that will make it difficult for you to meet your financial commitments?

Your answer to that application question will be closely scrutinised.