Banks urge COVID-19 caution as economy improves

Leading mortgage brokers say banks are cautiously taking the brakes on home loans and removing additional checks on borrowers that were introduced at the height of the coronavirus pandemic.

The trend comes against a backdrop of a continuing surge in new lending, but brokers say they don’t see an increase in high-risk borrowing, nor do they believe regulatory caps on home loans will be introduced anytime soon.

The hot real estate market has put bank lending standards under the microscope of regulators.Credit:Brent Lewin

With house prices are rising at their fastest pace since the late 1980s, the quality of bank loans is under the microscope. Regulators have repeatedly warned that they do not want to see a deterioration in credit underwriting standards, noting that they could intervene if necessary.

Several brokers, including Commonwealth Bank’s Aussie Home Loans and its merger partner Lendi, said banks had become less conservative about the height of the pandemic last year.

Australian Managing Director James Symond said that after banks “pulled their horns” during the peak of the pandemic, they were now taking a more “commercial” approach to credit ratings.

“We are seeing a more balanced approach from the banks. We’re seeing less conservatism, but a lot of thought is put into every client application, ”said Symond, who also predicted that real estate investors would increasingly enter the market over the next 12-18 months.

Lendi data – who announced plans to merge with Aussie last year – showed that the proportion of loan applications for which lenders ask for more information from the client rose from 48 percent in March last year to 28 percent this year.

Lendi chief executive and co-founder David Hyman said the decline was a sign that banks were taking a much less conservative approach than they were at the start of the pandemic and in the aftermath of the Hayne Royal Commission .

Despite this, Mr Hyman said the proportion of loans with high loan-to-value valuations was relatively stable last year and that he did not believe macroprudential policies were needed at this time. “There is growing fear of missing out as prices go up, but we don’t see borrower behavior getting riskier across the board,” he said.

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