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

I think the fact that lending practices were so lax just to get people to pay more and more than the next person indicates that the property market is in quite a bit of trouble

 

I think the banks knew this years ago , and was one of the reasons why they went to the government and asked for the RC..
Any bank that just went off by itself and became more strict with its lending practices would just see its potential customers flock to its competitors .
The RC almost creates a level playing field.
Once it became obvious wage growth was dead in the water it was only a matter of time that banks would have to revise the amount they could loan out and the possibility of house prices flatlining in our 2 biggest cities.
Which also happens to account for about 60% of mortgage value in dollars.

 

Not sure it quite went like that. Govt was pressing for it, banks were resistant, but it was inevitable so banks turned & agreed to it so they didn’t look like they were hiding. Media play.

 

The current government had to be dragged kicking and screaming to hold a Royal Commission .
Its almost criminal that they left it for so long.
They had no choice when the banks approached them to "Bring it on"
This credit tightening should have happened years ago , and we would not be in the current scenario with entire markets almost freezing up due to unavailability of credit.

 

My point was I doubt the banks pushed for RC so that they could collectively tighten credit policies. I’m sure they would all much prefer to lend as much as they can.

 

Im sure they would love to lend more money , but collectively they have all been undercutting each other in lending standards and trying to get more ingenious in making money.
Its no point one bank trying to lift its standards , if its just going to lose all its potential customers to its other main 3 rivals.
You can only go so far with "ingenious lending practices" .Wall St learnt the lesson 2008.
The warning signs were there a few years ago with the huge amount of interest only loans being written,
Banks cannot keep on writing out bigger and bigger loans with no real wage growth.
As mentioned on another post , from the mid 90s to 2012 aussie wage growth was about 2% in real terms ,and then virtually stopped in 2012, after about 5 years that 2% yearly lack of growth really starts to blow out and not long after that it blows out to 15k a year in foregone earnings that cannot be used to service or take on more home loans or pay the bills like power and private health insurance etc that have risen well above inflation.
Almost about the same time in 2012/13 the RBA started to lower interest rates to try and stimulate the economy .
5 years later it hasn't worked and consumer spending is still woeful.

 

If anyone is interested.

Philip Lowe's Keynote Address | CEDA Annual Dinner 2018


Q&A | CEDA Annual Dinner 2018

 

I think this is exactly what should and probably will eventually happen, once the bluster from the RC has died down. As I see it, the problem was that standardised expense models were unrealistically low, and that lenders sometimes ignored borrowers declaring higher expenses, not the fact that standardised expenses were being used. No need to throw the baby out with the bath water.

Having to prove actual expenses is where lending standards have clearly become too strict (and paternalistic) IMHO.

Lenders are writing 30 year loans, it's laughable to be forensicly scrutinising borrowers' spending on Netflix or petrol in the months leading up to their loan application. A borrower's life and finances can be dramatically different in just five years time, let alone 30 years.

Fix the expense models so they are more realistic for a given household composition and location, and then as long as a borrower doesn't declare expenses any higher than this threshold, no further questions asked. Done, sounds responsible to me and a lot of time and effort saved for all parties. All the other current restrictions (assessments rates, etc) make sense and should continue, though with some sensible tweaks such as @Peter_Tersteeg had suggested.

 

This can make you either laugh or weep.

https://www.theage.com.au/business/...autious-banks-on-lending-20181213-p50m5d.html

Now the major lenders are effectively running scared after being kicked around the block many times, albeit with justification, what outcome did the regulators expect? Carry on as per previous arrangements or become ultra-cautious as any slip up, even a minor one, will result in self-righteous outrage from the media, politicians and the general public.

If the regulators are so concerned, then they can come up with suitable criteria against which an application for funding may be assessed and approve. No, a bottle of Krug per week isn't allowable but you can have a Seaview Brut instead.

 

the problem with the regulators is that they blindly allowed the Housing Ponzi to get out of control before it is now crashing down.

 

Checking on lunch kebabs: Has the home loan crackdown gone too far?
https://www.smh.com.au/business/ban...n-crackdown-gone-too-far-20181213-p50lzw.html
"Mortgage brokers tell of banks trawling through customers' credit and debt card statements, examining their spending habits in extreme detail. One broker was even questioned about a client's spending on kebabs for lunch."

 

My broker said he had a client that recently got initially knocked back by a bank due to his 'actual' expenses being higher than declared, due to a $10K overseas holiday showing up on bank statements. And apparently it was an ordeal convincing the bank that this does not represent ongoing expenses...
Are there no competent adults in the management ranks at our banks?

 

For a lot of guys that use the food vans that frequent the industrial areas at lunchtime they can burn through $10-15 daily on food, over a month that can add up to $200 a month.

 

20 x $15 = $300 a month. You can double that amount of food per day too.