The combination of tighter lending rules together with wary borrowers unwilling to spend is creating some of the toughest conditions Australia’s mortgage industry has ever seen.
New home loan figures have plunged 20 per cent from the year before in the biggest fall since the 2008 global financial crisis, according to the Australian Bureau of Statistics.
That comes as consumer sentiment tumbled to its lowest level since 2017, after weak GDP figures last weak confirmed Australia had entered a “per-capita recession”.
Despite some lenders attempting questionable new strategies to lure Australian borrowers back into the market, mortgage industry veteran and Yellow Brick Road chairman Mark Bouris says he’s never seen lending conditions as difficult as they are now.
“40 per cent of our borrowers are getting rejected and that’s about 20 per cent down… The question is, is it a credit crunch or is it that borrowers or buyers aren’t interested in buying real estate?” he asked Your Money Live.
He said part of the issue is the level of scrutiny the banks are currently employing in order to pass a home loan.
As loan requirements become more stringent in the wake of the financial services royal commission, lenders have our spending habits under the microscope more than ever.
“[That] includes your household expenditure methods and all your actual expenses. Credit cards, bank statements, everything you do. They question everything. Every discretionary spend, every non-discretionary spend,” he said.
He said that means that home loan approvals are taking a much longer time to get through the system, impacting the current figures we’re seeing.
“It’s a really potent mix of slow credit. And that potency is now starting to come to the fore and we’re seeing as a result of that 20 per cent less settlements in lending,” Bouris added.
The latest figures come as the government announced Tuesday it was backing down on its previous commitment to ban mortgage broker trailing commissions, a key recommendation in the financial services royal commission.
Instead, Treasurer Josh Frydenberg said it would hold a review into whether it should be kept from 2020 onwards.
The announcement came on the back of intense lobbying from the mortgage broking industry, but balances on the outcome of the upcoming federal election.
“What’s important from both parties points of view [is]… they must do whatever it takes to maintain the intermediaries, the brokers, otherwise the consumers will have to face straight up to the banks and negotiate their own deals, which is going to be virtually impossible,” Bouris said.
“What’s important at the end of the day is that the consumer is protected from having to deal directly with the banks. And the only way you’re going to do that is to make sure the broker industry is maintained.”
Watch the discussion in the video above.