RBA Gov Lowe: lending standards in Australia have become too strict

“A few years ago credit standards were way too loose, there has been a correction of that, but I am starting to be a bit concerned the pendulum might be swinging a bit too far the other way,”

“I am hoping in time it will come back to the centre, so we are watching the ability of financial institutions to grow credit very carefully.”

'Our economy will suffer': Philip Lowe is concerned lending standards in Australia have become too strict

 

I wonder what he had to say then when "A few years ago credit standards were way too loose"?

@Redom , @euro73 ,
is RBA hinting regulators to loosen lending stds?
or is it just a sabre rattling

 

Smells like he is positioning to direct blame away from RBA when he has to cut tbh.

 

I suspect we won't see any loosening until after the Royal Commission is done.

Also, what standards to people believe can be loosened?
* Back to standardised living expenses? That's obviously not responsible lending.
* Assessment rates? These protect consumers about rate rises which will happen sooner or later.
* Interest only on PPOR? Again not deemed to be responsible lending in most cases.

I agree that lenders have overcompensated on lending policy, but I bet the RBA will have trouble suggesting policies to actually loosen.

Actually, I can't really find any policies to relax either. Rather than a loosening of policies, the policies need to mature and rationalise somewhat.

* Analysing people's spending is a better measure than a basic living expenses, but consideration needs to be given to what's mandatory, discretionary and outright luxury.
* Assessment rates are prudent, but give some consideration to what else happens when rates increase (assessment rates of 7.25% is a bit high in the current market, but assessing negative gearing at actual rates doesn't make sense).
* Interest only loans have their place and do actually improve cash flow in many cases, as well as realise alternate strategies in other cases.

I agree with @berten. The RBA is out of options to provide stimulus. They're trying to disassociate themselves from what they see coming.

 

Being able to refinance existing loans should be a no brainer, however....

 

The distinction between different types of spending is interesting but I'm not sure how it could be determined or assessed objectively, especially when considering different household types and income levels.

 

For starters, Netfix is not a living expense. It's a luxury with no ongoing contract that I can ditch at a moments notice if my budget gets tight...

Visiting a baby store once doesn't mean I've got kids and I shouldn't have to prove that I don't have kids. It might just mean I bought a nephew a present for Christmas...

I can go on all day about stupid decisions from lenders over living expenses.

 

Oh ok, I misinterpreted what you meant. I thought you were referring to overall categories of spending rather than single transactions.

 

Netflix comes under the 'entertainment' category. As a whole category I think this could be rationalised. Certainly people need some sort of entertainment, but when things get tough, $1000 a month for entertainment drops really fast.

 

do you mean refinance based on prior loose stds?

 

Netflix cost is not an issue,its the cost of all the snacking with beers/wine that comes along with it

binge watched Narcos-mexico over the weekend with GuzmanGomez on speed dial via Ubereats

 

I got a laugh at a forum last week when I told a lender I could always get a VPN and just download illegally.

 

I wouldn't call the prior standards loose if you were honest in your applications which I always was.

 

I can understand why the financial institutions have gone to the extent which they have with loans and expenses. If you had been whipped, beaten and tied up for previous poor behaviour, you probably make sure you weren't going to be put under the hammer again.

Not sure why those entities looking on and now concerned about the lack of flexibility are seemingly surprised about the outcome.

 

There is a disparity between the risk lenders are prepared to take and what APRA calls irresponsible lending... many things can change. Instead of rejecting a loan, price for risk is one example.

 

Problem is, you're actually suggesting pricing for responsible lending. The regulators are never going to accept that.

 

That’s only if the starting position is all rejections would otherwise be irresponsible lending. I’m suggesting there’s a scale of increasing risk before you actually hit the threshold of “irresponsible lending”.

 

While I am not inherently against credit growth, it does make our economy more vulnerable in a downturn, unless you believe we will never have a recession again and we are special.

So I think current lending standards should be encouraged

 

Agree, but lack of it can also contribute to a downturn. There should be a balance and that line is difficult to tread as we’re seeing at the moment.

 

I don't know. Ive said previously that I think APRA's end game is far bigger than housing prices... they are after a mass migration to P&I and a reduction in DTI's and I reckon they have a 7-10 (ish) year plan to get there - and I have also said that there is a better than 30% chance that RBA cuts may be required to provide a cushion while they see this through - @Redom has suggested that if the going gets too tough perhaps a modest wind back of assessment rates to say, 6% or thereabouts might be another compromise, while retaining the IO quota... and that may well be the way it plays out

But I dont see the regulators abandoning the changes to any significant degree ... otherwise what was the point of even starting down this road?

The sad thing is that all of this could have been avoided if the regulators had implemented sensitised assessment rates and IO quotas back in 2012 and 2013 when the huge RBA reductions created too much borrowing capacity too quickly...