Despite the intense competition in the mortgage lending market, the Reserve Bank is confident that the banks haven’t let their lending standards waiver.
Australian bank and non-bank lenders have been slashing interest rates, waiving fees, paying upfront cash bonuses and increasing commission incentives – all in an attempt to win more market share.
The last month has seen Pepper
on certain loans, launch a higher LVR
loan and offer a $1,000 cash back
incentive, Australian First Mortgage eliminate loan protection fees
and offer a $1,000 cash back incentive and Commonwealth Bank announce commission hikes
. This comes on top of moves by lenders to slash interest rates.
In its Financial Stability Review, the Reserve Bank says, “Although, in aggregate, bank housing lending standards do not appear to have eased lately, a crucial question for both macroeconomic and financial stability is whether lending practices across the banking industry are conservative enough for the current combination of low interest rates, strong housing price growth and higher household indebtedness than in past decades.”
In fact, the Reserve Bank notes that risky lending has actually subsided over the past year.
“It is noteworthy that the industry-wide share of ‘low-doc’ lending continues to represent less than 1 per cent of loan approvals, while the share of loans approved with an LVR greater than 90 per cent has fallen over the past year,” the Bank said.
However, the Central Bank did express concern over the composition of the mortgage market – with demand being much higher in Sydney and Melbourne than other capital cities, and demand for investor lending outpacing owner-occupiers.
“Lending growth is varied across geographical markets and individual lenders, which may suggest a build-up in loan concentrations and therefore correlated risks within the banking industry. The Reserve Bank’s assessment is that the risk from the current strength in housing markets is more likely to be to future household spending than to lenders’ balance sheets.”