Australia`s business leaders have warned that lower-and middle-income groups in Australia have significantly more difficult access to home loans after stricter credit standards, which will further weaken economic performance in 2019.
Directors and executive executives at many of Australia`s biggest companies are worried that credit standards could tighten further after the Royal Commission released its final banking investigation in February.
Let`s go back to the credit crunch.
Initially, the Australian prudential regulator, (APRA), and the Australian Securities and Investment Commission, (ASIC), introduced stricter credit standards in 2018. This has led to stricter screening procedures for loan applicants by major banks, which in turn has made it harder for first-time homebuyers to obtain approval for home loans.
Against this backdrop, business leaders, including the big four, have warned that policymakers should avoid further restrictions on lending restrictions. For example, Lindsay Maxsted, chairman of West Pacific Bank, said credit demand continued to be strong, with demand for new loans rising only unabated for the whole of 2019.
Damage to low-income groups
Given the continuing weakness in the Australian property market, the (APRA), Australia`s prudential regulator, announced on December 19 that "interest-only loans should not exceed 30 percent of new loans."
But whether the deregulation will help reverse the fall in housing prices in capital cities, A lot of industry experts are skeptical. "the biggest change right now is from the responsible loan system," he said. "our loan approval rate is slowing down. The reason is simple, according to the new rules, we have to carry out more investigation and verification work. However, this does not mean that the demand for bank lending has been reduced accordingly. "
However, changes in credit regulations could further adversely affect low-and middle-income groups, including first-time home buyers. "the main challenge is that regulators overemphasize responsible lending," he said.
In order to meet the requirements of responsible loans, banks have to ensure that the loan applicant has the full capacity to repay the loan. "this policy is controversial in itself," he said. As far as the details are concerned, we have to verify the applicant`s expenditure over the past 4-5 years. We have to do a lot of things, so it`s natural to extend lending time. "
Maxsted added that while doing so may help prevent risk, it is not good for a large number of start-ups, such as young people, newlyweds, and so on. "this group does have credit risk from a credit risk perspective, but excluding this group from the credit market is a disaster, especially for the 2019 economy," he said.
Finally, the Maxsted said that if the Royal Commission`s recommendation was to tighten responsible lending further, it could lead to significantly worse decisions in the mortgage market.
Unexpected consequences
Ahmed, former boss of National Bank of Australia (NAB) and Australian Post (Australia Post) and now CEO of Latitude Financial Services, the largest non-bank lende
One of the unintended consequences of the Royal Australian Commission, Fahour said, was "increased risk warning."
"I find that the current trend is increasingly conservative, which is not a good thing for the economy," Ahmed Fahour said. After all, if the big four banks collectively tighten credit, the consequences would be quite serious. In fact, the resulting adverse consequences have been highlighted. "
The, Ahmed Fahour also pointed out that although non-bank lenders partly filled the gap left by banks in tightening credit. But if the big four take credit measures at the same time, even all non-bank lenders will not be able to absorb so much market demand all at once, with even more unintended consequences.
Similarly, low-and middle-income groups are the first to bear the brunt. The reason is simple, banks are willing to lend money to high-quality customers. This is especially true in the case of poor overall environmental performance.
For example, a surgeon`s loan to buy a house may have been easy to get 80% of the mortgage-to-loan ratio. Even if credit is tightened, they can still get 70% of the loans because they belong to high-quality customers. By contrast, demand for loans from low-and middle-income groups will be significantly suppressed.
Domestic economy is at risk
South32 and Melbourne Airport Chief Executive Officer David Crawford said the bank`s tightening of credit was worrying. "the credit crunch is not a good thing for a country`s economy," he said.
According to the bank, long-term supporters of some banks have a good credit record, but it is difficult to get the necessary financing from banks for their development projects. "this is a performance of significant pressure on banks, which in turn will have an impact on the outlook for economic growth," he said.
Nicola Wakefield Evans and Jane Hemstritch, directors of (Lendlease), Australia`s largest property development firm, also expressed their views on the economic impact of the mortgage tightening.
Both said: "right now this market is a market never seen before." Previously, the housing market would fall only if interest rates, unemployment rates were high and the economy was depressed. But the main cause of the housing downturn is the changes in domestic and foreign regulations and the credit crunch. "
Australia`s housing market is not expected to improve much in the first half of this year due to new and federal elections, according to its forecast. But in the second half of the year, there may have been improvements.
