EXCLUSIVE Australian banks ease mortgage standards as property market cools

SYDNEY, Nov 10 (Reuters) – Two of Australia’s biggest banks have quietly eased some mortgage lending standards, banking and mortgage brokerage sources said, despite authorities’ calls for caution in recent months amid a falling market. estate market.

Banks are now less conservative in calculating expected rental income when assessing loan applications, the four sources said.

The changes increase the borrowing power of applicants with significant rental income, who typically seek investment loans. In September, about a third of new bank mortgages were for investments.

Westpac Banking Corp. (WBC.AX)Australia’s third-largest property lender, in May cut a rebate on assessed rental income from 20% to 10%, according to three of the sources.

National Australia Bank Ltd (NAB) (NAB.AX)the second lender, has resumed accepting income from short-term rentals, such as those booked through agency Airbnb Inc. (ABNB.O), said two of the sources. Media reported in 2020 that the NAB had stopped the practice.

On Nov. 12, NAB will also halve its rental income discount to 10%, including for Airbnb-style short-term rentals, the sources said.

According to long-standing guidance from the Australian Prudential Regulation Authority (APRA), banks should discount rental income reported by mortgage applicants by at least 20% to create a buffer for periods when properties are vacant. .

A Westpac spokesperson said the bank changes its credit policy from time to time and “any proposed changes are subject to a robust process to ensure they are fit for purpose.”

NAB declined to comment.

Another of Australia’s four largest banks, Australia and New Zealand Banking Group (ANZ) (ANZ.AX), also applies a 10% discount on rental income. A fifth source said she has been doing this since September 2020.

ANZ “acts diligently and cautiously in setting our risk appetite and policy,” a spokesperson said in an email.

“We regularly review our lending policies and guidelines to ensure we operate within our risk appetite and practice responsible lending practices, including adhering to APRA’s prudential standards,” he said. -he adds.

APRA declined to comment but referred Reuters to a letter it sent to lenders in June which said “in the current environment, with high household debt and rising interest rates, it is important that (lenders) prudently manage the risks associated with residential mortgages”.

The Reserve Bank of Australia has repeatedly said this year that while the broader risks to financial stability are low, it is important that lenders maintain prudent lending standards.

FALLING PRICE

As seven interest rate hikes implemented since May deplete one of the world’s most expensive property markets, Australian banks have been battling to increase their shares of a loan pool that has long driven their earnings. .

House prices in September fell 1.4% from August, when the monthly decline was 1.6%, the largest in 40 years.

NAB, Westpac and ANZ trail market leader Commonwealth Bank of Australia (ABC.AX), which holds a quarter of the mortgage market. The Commonwealth continues to apply a 20% rental income discount to mortgage applications, a sixth source said.

“Banks are in a position of power and expertise in the mortgage business, so most people rely on their assessments of what they can borrow,” said Tom Abourizk, senior policy officer at the Consumer Action Law Centre.

“With interest rates and the cost of living rising, banks should be more vigilant than ever to ensure they don’t underwrite unaffordable mortgages that set people up for failure,” he said. he added, commenting on the changes made to the assessment of rental income.

The most recent bank earnings showed arrears and bad loans near record highs, but financial analysts warn those numbers are set to rise as inflation, rising interest rates and rebounding unemployment ease. will install in 2023.

“It takes time for the impact of rate hikes to hit people and make them realize what they can and cannot afford,” said Morningstar banking analyst Nathan Zaia.

“People might have A$10,000 to A$15,000 in savings, dig into it and only realize over time that they can’t handle it anymore.”

($1 = 1.5555 Australian dollars)

Reporting by Lewis Jackson and Byron Kaye; Editing by Praveen Menon and Bradley Perrett

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