Australia is in the midst of a credit crunch. Mortgage brokers know it, real estate agents know it and borrowers know it.
The latest housing finance data from the Australian Bureau of Statistics shows just how sharply lending has dried up over the past 12 months:
- Total finance commitments have fallen 11.5%
- The owner-occupied share has fallen 7.7%
- The investment share has fallen 18.1%
The Housing Industry Association recently reported that the “tight squeeze on credit for home buyers is accelerating the slowdown in building activity”.
According to the HIA’s three-year forecasts, home building activity will fall in each of the next three years, with the number of builds in 2020-21 expected to be 19.8% lower than 2017-18.
The credit crunch partly explains this slowdown in residential construction. Fewer customers qualifying for finance means fewer homes in the pipeline.
The banks are looking for reasons to say no
Why the credit crunch? Well, since December 2014, the regulators have applied increasing pressure on banks to ease back on lending, with a particular focus on three groups:
- Borrowers with small deposits
- Borrowers who want interest-only loans
Banks took the hint so well that they’ve not only cut back on lending to those three groups, they’ve also made it harder for owner-occupiers with normal-sized deposits who want principal-and-interest loans.
In the past, banks were looking for reasons to approve mortgage applications; now, they seem to be looking for reasons to reject them.
They’re paying much more attention to spending, saving and employment histories. Normally, that would be fine - high lending standards are to be encouraged. The problem, though, is that banks are imposing one-size-fits-all criteria. Good borrowers, who fall slightly outside the policy rules but have very credible explanations, are being rejected. And that’s not fine.
Australian treasurer Josh Frydenberg is also worried that the banks have become too strict.
"Great care needs to be taken around any further changes to responsible lending in order to prevent an unnecessarily restrictive approach to credit,” he recently said.
"I would encourage the banks when it comes to lending, in particular for small business, make sure you get the balance right, keep the books open and don't lose sight of the broader public good.”
Non-bank lenders are looking for reasons to say yes
As one-size-fits-all banks have been cracking down, Australians have increasingly been turning to more flexible non-bank lenders.
Over the past year, non-bank lenders have increased their share of owner-occupied housing finance commitments from 73 out of every 1,000 loans to 79, according to the Australian Bureau of Statistics. That might seem small, but it actually represents an 8.2% jump in just one year.
Credit Connect Group has also been receiving an increasing volume of enquiries from brokers and agents, who have been tearing their hair out at the current state of the mortgage market.
Brokers are frustrated that some of their clients are being rejected by the mainstream lenders on their panel. Agents are angry that some of their deals are collapsing because banks won’t finance their buyers.
Credit Connect is different. Applications are judged on their merits, rather than inflexible, one-size-fits-all criteria. Good borrowers with good stories qualify for loans - including interest-only and non-resident loans. Everyone gets offered a personalised rate, which reflects our personalised assessment process.
Another thing that brokers and agents love about Credit Connect is that we move fast. We can approve loans quickly, which clients really appreciate, especially when settlement is just around the corner.
We finance loans either from our own funds or by tapping into our strong network of investors - in which case we manage the whole process from start to finish.