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Australia’s Mortgage Problem Has A Simple Solution

The numbers tell the story – and as far as Australia’s banks are concerned, it’s not a pretty one.

Mortgage lending fell a whopping 20.9% (in seasonally adjusted terms) over the year to May 2019, according to the latest data from the Australian Bureau of Statistics.

That’s the sharpest annual decline since November 2008, during the GFC.

This slump in mortgage lending might make sense if Australia was in a recession. But the economy is in pretty good shape: unemployment is at 5.2% and the government is on track to record its first budget surplus in 11 years.

So what’s caused the mortgage slump?

Banks started turning the screws. CCGroup

The banks are mistreating borrowers

The answer is the tight, inflexible lending standards of Australia’s mainstream banks, especially the big four.

Banks started turning the screws in 2015, and then took it to a whole other level in 2017.

As a result, a lot of good borrowers – individuals and businesses that would reasonably be expected to repay a mortgage – have been unjustly denied credit.

We’ve known this for a while. And now the ABS statistics have really rammed home the message.

It’s not fair.

 

Responsible lending and flexibility are not mutually exclusive

The banks need to start approving more home loans. It’s that simple.

But that doesn’t mean the banks should lower lending standards. Instead, they should raise assessment standards – to replace inflexibility with common sense.

I speak from experience. Credit Connect Group is a strong believer in responsible lending. And we’re a strong believer in flexible assessments. We’ve been doing both since 2006.

The reason we’ve established such a strong reputation with borrowers during those 13 years is because we judge each application on its merits, not according to rigid, one-size-fits-all criteria.

We’re not scared of unconventional applicants. Good borrowers are good borrowers, whether they’re plain vanilla or more exotically flavoured. If they’re going to repay their mortgage, why wouldn’t we lend to them?

 

Make lending logical again

At the risk of boasting, the big four banks could learn a lot from Credit Connect Group’s assessment processes.

We know each borrower is unique, so we offer personalised assessments, and personalised interest rates, for each one.

We’re not surprised if a borrower is a little bit different: it’s built into our system. That’s why our assessments are not just flexible, but also accurate and fast.

If the big banks took a leaf out of Credit Connect Groups’s books, those ABS mortgage statistics would turn around pretty quickly.

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