Changes to Lending Criteria
The Australian Prudential Regulation Authority (APRA) in May 2015, released for consultation, a draft prudential practice guide that provides guidance to the banking community on sound risk management practices for residential mortgage lending.
Residential mortgages constitute the largest credit exposure in the Australian banking system and, for many banks, well over half their total credit exposures. The current environment highlight strong pricing pressures in some housing markets, particularly Sydney and Melbourne, and very active competition between lenders.
The Draft outlined prudent practice in addressing housing credit risk for the banks and emphasis was placed on the residential investment market in particular.
In response to these guidelines a number of banks have changed their lending criteria.
On the 18th of June 2015 NAB advised the broker channel of the following changes. These changes are typical of the changes being made by all major banks and lending institutions.
NAB considered that the current low rate environment has helped drive significant growth in the investor housing market and it’s important for us (NAB) and the industry to ensure any growth is sustainable
Maximum LVR for investment loans
Effective Saturday 13 June 2015, the maximum LVR (including LMI capitalisation) for investment loans has reduced to 90%.
Serviceability loading on existing mortgage repayments
Effective Saturday 13 June 2015, a loading has been applied on existing mortgage repayments as part of the serviceability assessment
New affordability rate
Effective Saturday 13 June 2015, the affordability rate used in the serviceability assessment has been amended to be the higher of 7.40% or 2.25% above the effective borrower rate
Verification of external existing mortgage repayments
Effective Saturday 13 June 2015, customers must provide evidence of non-NAB loan repayments
On Friday the 19th of June the CBA announced a range of extensive changes to their lending criteria including a 20% servicing loading on all existing loan repayments. The LVR on owner occupier loans has been reduced to 95% from 95% plus capitalisation of LMI insurance. This may restrict first home buyers or those will small deposits.
The changes that have been made are numerous and vary from bank to bank. It supports even more that borrowers should be using the broker channel when considering getting a loan. A financial mortgage broker’s responsibility is to ensure that they secure a loan for the borrower that is best suited for their current financial position. The broker channel is probably the one that will have a comprehensive knowledge of what is being offered by the whole market. Obviously if a borrower just enquires at any one bank they will only be offered their products.