Lender policy changes are off the scale
David Moss:
Borrowers are confused…even I’m confused at times! In 25 years of Australian mortgage lending, I’ve never seen so many game changing lender policy changes in the last 6-12 months.
To put it mildly, banks in 2017 have significantly changed the way they do business and are reigning in the credit policies for all borrowers.
What someone could borrow 12 months ago has dramatically decreased as lenders impose new assessment guidelines for borrowers.
Expats have also been dramatically affected with these changes. What one lender will do with regards to their expat policies is now is vastly different at another. Borrowers are being faced with far less choice. I’m also finding many borrowers of late advising me to say even they’re own bank (of which they’ve had mortgages with with for many years), can no longer assist them.
Here’s a snapshot of just some of the changes:
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Assessment qualification process changes
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Removal of interest only loans from some lenders
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Reduction of investment loan LVR for some lenders
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Varying policies for Aus Expats and Aus PR’s
My top tips for getting a great deal:
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Engage a MFAA approved broker that’s experienced in with overseas mortgage applications– they will be able to compare lenders quickly and should know the lenders policies.
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Focus on solution first followed by rate second. It’s 2017.. lender policies have dramatically changed.
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Ask your broker to explain why they’re recommending that lender over another.
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When preparing to make an application, provide the eligibility documents as required. Banks are method based organisations. Give them what they want. The assessment pathway will be a lot easier for them and ultimately a faster loan approval for you.
For more insights, see my below video on Aussie Mortgage Myths:
Here’s a bit of snapshot on some of the policy reasoning:
No matter how low interest rates may fall, banks should make sure new borrowers can repay their debts with mortgage rates of at least 7 per cent, new guidelines have confirmed.
The guidance, already widely followed across the industry, was formally adopted in a new policy that entrenches tougher rules on bank mortgage lending from the Australian Prudential Regulation Authority.
After recent signs of a resurgent property market in Sydney and Melbourne, the regulator also locked in various policies that it hopes will make sure banks are realistic in assessing borrowers’ ability to repay their loans.
APRA on Monday updated its industry guidance to ensure banks are “prudent” in managing risks in the $1.5 trillion mortgage market, which accounts for about 60 per cent of domestic banks’ loans.
In a key change, APRA is now being more specific in demanding minimum interest rates banks must use when approving customers for home loans.
Banks advertise interest rates well below 4 per cent for new customers but APRA said a “prudent” bank would have an assessment rate of at least 7 per cent.
It also said banks should make sure a potential customer would still be able to repay their loan if interest rates rose 2 percentage points – previously it had not specified how big such a buffer should be.
Banks already satisfy many of these guidelines after a crackdown over the last two years, but the regulator aims to make sure lending standards are not eroded away in the future by competition, as has occurred in the past.
Some banks were assuming borrowers had unrealistically low living expenses. APRA is seeking to address this by saying banks cannot only rely on indexes of living expenses, and must “scale” these indexes according to a borrower’s income.
For instance, it says that even if a borrower does not have housing costs because they live with their parents, banks should still make a “reasonable estimate” of what their housing costs would be if they had to pay for housing.
The policy also specifies the minimum “haircuts” banks should make to non-salary income. It says banks should apply a haircut of at least 20 per cent to non-salary forms of income – including bonuses, overtime, or rent from investment properties – when they are assessing a loan application.
It also told banks to take extra care with the risks in lending to self-managed superannuation funds investing in real estate.
The toughened guidelines come after APRA chairman Wayne Byres last year bemoaned the “horribly” low quality of some lending last year, though more recently the regulator says standards have improved.
“While the quality of loan underwriting in the residential mortgage lending market has improved, APRA is continuing to maintain its close monitoring of investor lending and other areas that may contribute to risks in the housing lending market,” APRA said in a letter to banks.
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