The mortgage sector can expect a lower volume of loans in the short-term as banks tighten their lending standards, according to the CEO of an Australian property research firm.
The royal commission has found that the current process for ensuring home loan customers provide accurate information about their incomes, expenses, and debts is flawed, RiskWise Property Research CEO Doron Peleg said in a statement. This includes details gathered by mortgage brokers on the living expenses home loan customers declare in their applications.
Banks have already started to apply greater scrutiny to the living expenses disclosed by their customers. Westpac, for example, informed brokers that they need to require customers to submit more details about their spending when applying for a mortgage. They now need to break their spending down into 13 categories instead of six.
“In the short term at least, this is likely to result in a lower volume of loans, as seen in the UK which had a 9% drop in volume as a result of the 2014 Mortgage Market Review to address lax lending standards,” Peleg said.
Peleg also expects the duration of loan approvals to increase “significantly” and for borrowing capacity to drop. He pointed to figures from global investment bank UBS, which recently forecasted credit availability to drop by 21%-41%.
Peleg added that tighter standards also pose risks to property developers as some areas – especially properties at the top end of the market – are more exposed to price corrections. He said many borrowers need to rely on the current borrowing capacity to purchase these properties. “Significant reduction to the borrowing capacity may have a direct impact on these properties.”
According to the CEO, the demand of buyers on specific properties are based on lending approvals, pre-approvals, and risk assessments by independent research houses such as RiskWise.
“If the major lenders’ ‘black list’ some suburbs / postcodes or if there are multiple media releases from independent research houses that flag a certain area and property types as high-risk, based on their models, this might have a macro-impact on the market,” he added.
