Banks need lending middle ground

by Rebecca Pike07 Jul 2018

Mortgage marketplace HashChing has said banks need to find a middle ground when it comes to approving loans.

Chief customer officer Siobhan Hayden has said banks tightening their lending restrictions have “gone too far the other way” and are “rejecting loans unnecessarily”.

In a recent survey of brokers, 73% believed the majority of customers whose mortgages were converting from interest-only to principal and interest would be seeking refinancing.

However, with the tighter lending restrictions, 24% of brokers believed more than half of all refinancing applications would be unsuccessful.

Hayden said, “With approximately $120billion worth of interest-only mortgages converting to principal and interest mortgages over the next three years, it’s no surprise that 73% of brokers are predicting that most of the customers affected would be refinancing.

“For individual households, this change is expected to increase mortgage repayments by 35%, which means families will need to find any way they can to reduce costs.

“For mortgage brokers, there will potentially be a lot of business coming their way over the next three years with people looking to refinance their home loans.

“The tighter lending restrictions born out of the banking royal commission means we’ve gone from banks handing out home loans indiscriminately to rejecting loans unnecessarily.

“There needs to be a middle ground where both banks and borrowers are adequately protected, and we’re not there yet. Banks have now gone too far the other way, and they need to be a bit more balanced in their lending policies.”

The survey also showed that 91% of brokers felt that borrowers had a negative or neutral view of the housing market and lending conditions.

 

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COMMENTS

  • by Simon 9/07/2018 9:26:43 AM

    Being "forced" to pay P&I really should not be an issue. Really. If it is, and there are no material changes in the persons financial situation then I question if they should have even had a consumer loan in the first place.

    The real issue is that banks can now use the 'regulations' to gouge pure profit from their existing clients - who are now 'trapped' and unable to refinance despite perfect repayment history. Those existing customers, faced with increased pressure on cash flows will re-evaluate their investment portfolio, and in some (many?) cases will choose to sell the asset. Ultimately, this creates deflationary pressure on the market, reduces or eliminates capital gain, and creates a downward spiral as more investors make the call to sell.

    I feel for the smaller investors with 2-3 property portfolios who have, are, or about to encounter dramatic increases to their repayments - but the strategy of Interest Only is (should be) about prioritizing other purposes for disposable income - either reduction of personal debts (Car Loan, Credit Cards, PPoR loans); or accelerating investment opportunities.

    Those who have used it to 'gamble' with "other people's money" have in the main had it VERY good over the last decade, with capital returns upwards of 40-50% far exceeding any increase in rates. Those original purchases have grown enough they can simply sell and realise their capital gains, should they choose.