Significant delays in the lending approval process have been added as another hurdle to overcome for borrowers, on top of tightened lending standards.
A recent analysis of 30,000 mortgages reported in the Australian Financial Review* showed that approval times for investors have doubled, and are up by 50 per cent for owner-occupiers.
The more stringent interpretation of responsible lending requirements by banks looks to be behind the delays, which includes much more involved – and lengthy – investigations into borrower expenditure and debt. This appears to be due, in part, to lender nervousness post-royal commission following the criticism of banks’ conduct. Another factor, lenders say, is concern over borrowers’ capacity to pay, given household debt is at record highs and mortgage arrears are beginning to rise.
Regardless of the reason, we are seeing a general slowdown of the lending market as banks need more staff and resources to assess each submission and get it through to settlement. Unfortunately, this increases the cost of writing loans too. While customers are yet to see fallout from the increased cost of loan assessments, it certainly poses that risk.
The data shows that banks are indeed being more cautious. Before the Royal Commission, around 40 per cent of loan applications were held up by “MIR” or More Information Required. In the first quarter of 2019, this figure jumped to 67 per cent. Lenders are even requesting MIR on items outside the standard policy, and this trend is also increasing. The percentage of MIR loans that attracted non-policy questions rose from 30 per cent in March to 47 per cent in April this year.*
This can have flow-on effects for brokers too, as lenders more frequently come back with questions for brokers, and requests for more details from customers. Lender changes to policy are certainly lowering the borrowing capacity of many, and more borrowers are simply unable to get a loan at all. It is estimated that around 22 per cent of loan applications that were settled prior to the Royal Commission would no longer meet serviceability requirements.*
A flow-on effect of all this is that conditional approvals are much harder to get, as banks are typically not happy giving even “in principal” approval without more information. This makes it tough for home buyers who are unsure how much they will be able to borrow.
There isn’t a lot that borrowers can do about this latest trend in lending standards. However, Smartline Advisers are keeping right on top of the latest changes in the way banks are assessing loan applications. Our existing relationships with each of our lenders mean we know how they differ in their assessment of various borrower circumstances, expenditure levels and debts.
As the plot thickens on the tightening lending environment, using a Smartline Adviser makes more sense than ever before.
SOURCE: * www.afr.com/business/banking-and-finance/home-loans-delayed-denied-and-dearer-post-hayne-20190422-p51g5h
DISCLAIMER: The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.