Experts said less lending from banks could make it harder for first home buyers. (ABC News: Michael Coggan)
Low and middle-income Australians are finding it harder to get funding for housing under tighter lending standards, and this could further weaken the economy in 2019, business leaders warn.
- Loans are already taking longer to approve and Westpac chairman Lindsay Maxsted says further changes could impact first home buyers
- Experts say the royal commission has caused banks to become more conservative, which could lead to serious consequences for the wider economy
- The economy is predicted to be “patchy” for the first six months of the year but improvements are expected in the second half
Chief executives and directors of the nation’s top companies are worried there could be further tightening of standards when the final report of the banking royal commission is released in February.
Regulators APRA and ASIC introduced tighter standards last year, which have caused banks to implement tougher screening processes for loan applications, and resulted in first home buyers finding it especially hard to get funding.
Business leaders, including those working for the big four banks, have cautioned policymakers against making any further changes that restrict lending to Australians.
Westpac chairman Lindsay Maxsted said the bank was still seeing strong demand for credit, and would continue to loan throughout 2019.
Low-income Aussies could be hit
Recognising the weaker housing market, APRA last month scrapped its 30 per cent restriction on interest-only loans.
But experts have questioned whether the removal of the lending cap will help revive credit and reverse house price falls in some major capital cities.
“The biggest change has been responsible lending,” Mr Maxsted said.
“Our processes are slowing down — because we’re having to do more investigation and more checking — but that doesn’t mean our appetite is down.”
But he was worried that the changes could further impact those in the lower-to-middle income spectrum, including first home buyers.
“The difficulty now is this overemphasis on responsible lending,” he said.
He added that banks had to ensure they lend responsibly, and to people who could afford to repay the debt.
“But what you’ve got to do to prove you’re a responsible lender is the debatable point,” he said.
“And the more and more we get into specifics, ‘I must check your expenses for the past four or five years, I must do this, that and the other thing’, then that slows processes down.
“It’s happening already in the sense it’s taking longer for people to get through, and some people are not getting through the net that perhaps they got through before.”
He said while it was positive in terms of stopping people who had no capacity to repay getting credit, “it’s a bad thing if, like many people — young people, emerging couples just starting out — don’t have the deposit that they otherwise would”.
“In a credit sense, we might look at them and say, ‘yeah, you’re a good credit risk, we’ll take you on’,” he said.
“If responsible lending is taking them out of the market that’s a bad thing.”
This was the biggest risk to the economy in 2019.
“We don’t need as a result of Hayne recommendations or otherwise to go hard on responsible lending if that gives rise to poor decision making on lending to housing,” he said.
Royal commission’s ‘unintended consequences’
Former NAB executive and Australia Post boss Ahmed Fahour is now CEO of the country’s largest non-bank lender, Latitude Financial Services.
He said one of the unintended consequences of the banking royal commission was “heightened risk alert”.
“What I have noticed is that there is a tendency be on the conservative side. And this is a serious issue for the economy,” he said.
“Because if the four majors do contract, this is going to have pretty serious consequences. And you can already see it in … some of the lending.”
Latitude was picking up some of the slack, but “we’re a very small player and we’re not going to be able to fill in the gap if the four banks contract”, he said.
“The majors look like they’re not expanding as fast as the economy needs [them] to expand.
“I am worried about the systemic issues that will potentially be the unintended consequences of the royal commission.”
He said as the big four banks were being more guarded in who they loan to, Latitude was getting some of that business.
“We’re seeing maybe credit which is at the bottom of their spectrum — and which is potentially towards the upper end of ours — we’re seeing a lot of that good quality credit coming. We’re happy to lend and support people who have good credit, we’re not asset lenders.”
He gave an example of a surgeon trying to buy a house.
“Where you could get 80 per cent LVRs (loan-to-value ratios), you’re now down to 70 per cent and 65 per cent LVRs. These are surgeons, good quality credits.
“When things go bad, what tends to happen is people in the middle-to-lower end, they tend to be the losers in the economy of any systemic withdrawal. And I hope that does not happen here.”
Domestic economy at risk
South32 and Melbourne Airport chairman David Crawford said he was also worried that the banks have pulled back lending.
“That’s not good for the country,” he said.
“What I’m hearing is there are people who’ve been long-term supporters of banks and who are well-financed, who are struggling to get necessary funding for some of their developments.
“That’s because the banks are concerned that there are pressures being put on them to satisfy themselves way beyond anything they’ve ever had to do before.”
This would continue to impact economic growth.
“It’s not looking all that bright going forward,” he said.
Lendlease board directors Nicola Wakefield Evans and Jane Hemstritch also expressed some concern about the impact of housing on the economy.
“It’s a market like we’ve never seen before,” Ms Wakefield Evans said.
“The housing market’s not come down because of high interest rates or high unemployment or a recession.
“It’s been driven by regulatory changes both here and overseas and a tightening of credit. The issue we have not seen is forced selling.”
She predicted the economy would continue to see “patchy” results in the first six months of the year, amid a NSW state election and the federal election.
But that the second six months of the year would show signs of improvement.
“Once we get these two elections out of the way, irrespective of what happens, who gets elected, that uncertainty will go,” she said.
“And we will start to see a pick up.”
Ms Hemstritch noted that despite recent falls in Sydney and Melbourne, house prices were still moving up in some parts of the country.
“You may see further softening in the west of Sydney, and in the apartment market in Melbourne,” she said.
Non-executive director of CSL, Medibank, Stockland and Transurban, Christine O’Reilly, said affordability issues were weighing on their customers.
She hoped that post the federal election, business and government would work together more cooperatively than it had been.
“It would be good to have a meaningful consultation going forward,” she said.
“There is no question [that] what’s happened in past 12–24 months and media associated with that has started creeping into everyone’s mindset.”