Lewis Jackson and Byron Kay
SYDNEY (Reuters) – Two of Australia’s biggest banks have quietly eased some of their mortgage lending standards amid a slump in property markets, despite calls for caution by authorities in recent months, they said. bank and mortgage brokers said.
Banks are now becoming less conservative when calculating expected rental income when evaluating loan applications, four sources said.
This change will increase borrowing capacity for applicants with high rental income who are typically seeking investment loans. In September, about a third of new bank mortgage loans were for investment.
Westpac Banking Corp, Australia’s third largest mortgage lender, cut its discount on assessed rental income from 20% to 10% in May, three sources said.
The second-largest lender, National Australia Bank Ltd (NAB), has resumed accepting income from short-term rentals, including those booked through agency Airbnb Inc, two of the sources said. The media reported that in 2020, NAB stopped the practice.
On November 12, NAB will halve the discount on rental income to 10%, including short-term rentals like Airbnb, sources said.
Per long-standing guidance from the Australian Prudential Regulation Authority (APRA), banks must discount mortgage applicants’ declared rental income by at least 20% to create a buffer when the property becomes vacant. .
A Westpac spokeswoman said the bank changes its credit policy from time to time and “goes through a robust process to ensure that any proposed change is fit for purpose”.
NAB declined to comment.
Another of Australia’s big four banks, the Australian and New Zealand Banking Group (ANZ), also offers a 10% discount on rental income. A fifth source says they have been doing so since September 2020.
An ANZ spokesperson said in an e-mail that it “has been acting diligently and cautiously in setting its risk appetite and policy.”
“We regularly review our lending policies and guidelines to ensure we are operating within our risk appetite and practicing responsible lending practices, including meeting APRA prudential standards.” he added.
APRA declined to comment, but citing a Reuters letter to lenders in June, said: “In the current environment, with high household debt and rising interest rates,[lenders]have been unable to finance mortgages. It is important to carefully manage the risks in
The Reserve Bank of Australia has repeatedly said this year that while broader financial stability risks are low, it is important for lenders to maintain prudent lending standards.
As one of the world’s most expensive real estate markets heats up after seven rate hikes since May, Australian banks are looking to grow their share of the lending pool that has long been a revenue driver. I have fought.
Home prices fell 1.4% in September, the steepest in 40 years, from a 1.6% monthly decline in August.
NAB, Westpac and ANZ are the market leaders of Australia’s Commonwealth Bank with a quarter of the mortgage market. Commonwealth continues to apply his 20% rental income discount on mortgage applications, his sixth source said.
“Banks have the power and expertise in the mortgage business, so most people rely on their assessment of what they can borrow,” said Tom Abolitsk, senior policy officer at the Center for Consumer Conduct Law. increase.
“With interest rates and the cost of living rising, banks need to be more vigilant than ever to avoid issuing affordable mortgages that drive people to failure,” he added. I commented on the change.
Recent bank earnings showed delinquencies and bad loans near record lows, but financial analysts expect those numbers to rise as inflation, rising interest rates and a recovery in unemployment take hold in 2023. warned that it is likely to
“The impact of rate hikes will hit people and it will take time to make them realize what they can afford and what they can’t afford,” said Nathan Zaia, a banking analyst at Morningstar.
“People may have A$10,000 to A$15,000 in savings, dig into it and eventually realize they can’t manage it anymore.”
($1 = 1.5555 Australian dollars)
(Reporting by Lewis Jackson and Byron Kaye; Editing by Praveen Menon and Bradley Perrett)