In the September 2015 edition of the Property Imperative, DFA highlighted the impact of reductions in loan values being offered, as lenders tightened their lending criteria and affordability guidelines. This trend has been confirmed in more recent media reports, and will potentially make it difficult for some refinancing borrowers to get the loans they need, and further dampen property demand and prices. It will also make the on-ramp for first time buyers even steeper.
According to Australian Broker,
“Major banks have significantly reduced the amount they are prepared to lend home buyers, a new analysis by leading brokerage Home Loan Experts has revealed.
A couple with a combined income of $120,000 purchasing an investment property can now borrow up to $80,000 less from a major bank than they could a year ago, according to the calculations published in a report by the Sydney Morning Herald.
Investment property buyers aren’t the only ones affected either. The maximum loan size for the same hypothetical couple buying an owner-occupied home has fallen by up to $65,000, according to the Sydney-based brokerage’s calculations.
According to the Sydney Morning Herald report, the calculations were based on the borrowing power or maximum loan amount for a couple earning $60,000 each, with two children. The comparison compared December 2014 with December 2015 and included Commonwealth Bank, National Australia Bank and Westpac. The broker was not able to access comparative figures for ANZ from 2014.
Commonwealth Bank, for example, would have lent $640,000 as a housing investment loan a year ago, compared with $560,000 now — an $80,000 reduction.
Westpac would have lent the couple buying an owner-occupied home $645,000 a year ago, but this amount has fallen to $580,000 — a $65,000 reduction.
Home Loan Experts mortgage broker Christina Parnham told the Sydney Morning Herald that the maximum loan amount has been reduced because banks are requiring borrowers be tested against how they would cope with higher interest rates.
“You’re going to have to be able to service the loan at about 7.5 to 8%,” she said.
At the same time, Farnham says banks have adopted more conservative assumptions about living expenses”