Money Property Time to loosen the credit lending restrictions? The bank thinks so
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Time to loosen the credit lending restrictions? The bank thinks so

The buffer requiring new borrowers have the capacity to pay a 7.25 per cent is under attack.
The buffer requiring new borrowers to have the capacity to pay 7.25 per cent is under attack. Photo: Getty
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The chief executive of ANZ has urged the Australian Prudential Regulation Authority to rethink the mortgage credit lending rate.

ANZ boss Shayne Elliott said it was time to consider changing the buffer requiring new borrowers to have the capacity to pay a 7.25 per cent interest rate.

The current measure that banks apply is the benchmark mortgage rate plus 2.25 per cent or 7.25 per cent, whichever is higher.

“We had a floor like this before the APRA requirement, it’s prudent … I’m just saying I think common sense says it should be relative to where the interest rate cycle is,” Mr Elliott said.

Shayne Elliott said it was time to rethink the buffer.
Shayne Elliott said it was time to rethink the buffer. Photo: AAP

“The lower interest rates get, the less likely it is that rates are going to get to 7.25 per cent any time soon.

“At some point, you need to rethink it … common sense says it should be relative to where the interest rate cycle is.”

The March housing finance figures showed a seasonally adjusted drop in home lending of 18.4 per cent year on year.

Nationally, lending for investment dwellings also dropped, down by 25.9 per cent since March 2018, the lowest level since March 2011, the ABS data showed. 

As the Reserve Bank of Australia considers one rate cut, probably two, in 2019, there has been mounting pressure to loosen the buffers established by APRA five years ago.

Deloitte partner Nicki Hutley says that the economic “conditions have changed significantly” since APRA brought in the 7.25 per cent buffer.

“We have to remember it was done quite some time ago, before a rate cut was likely. It was considered a prudent level to ensure that if interest rates were to go up, that people could still service their debt,” she told The New Daily.

“They were worried about household debt and wanted to make sure the banking system was in good shape.

“House prices have come down. Investors have left the market. There’s more interest from first-home buyers. Conditions have changed significantly.”

Mr Elliott’s tentative call to reassess the restrictions came just after ANZ reported a 12 per cent plunge in net profit from its Australian operations due to the property downturn.

While the Commonwealth Bank provided a statement to The New Daily, it said nothing about a relaxation of the current buffer. The NAB and Westpac did not respond to inquiries before time of publication.

The bottom line

Dr Cameron Murray, of the University of Sydney, argues that Australians should be wary of trusting the banks to make responsible decisions when they’re about their bottom line.

“What they’re doing is lending against the person’s future cash flow,” he told The New Daily.

“That income has been shrunk so they’re trying to offset the tightening of lending, which came as a response to the royal commission. They’re saying we are being responsible so can you be more flexible.”

While lowering the buffer rate may be OK for most borrowers, for some it would come close to danger zone, he argues.

“For prime borrowers, so borrowers with no debt, a good income, steady employment, they can get cheap interest rates at 4 per cent. But a lot of non-prime borrowers are getting rates at 6 per cent, so that’s a small buffer,” he said.

“If we decided we want to move to an era of responsible mortgage lending, keeping a fairly big buffer is a good idea.”

Real estate analyst Terry Ryder says he is seeing people who could easily service a reasonable loan be knocked back.

“It’s just harder to get, it takes longer and in some cases, they’re not getting over the finishing line,” he told The New Daily.

“Everyone is experiencing it. Everyone’s got wrinkles that create a lending problem. I’m classified as being self-employed because I run my own business and that is a black mark instantly. If you’re a little bit older that’s also counts against you.”

Mortgage broker Louise Lucas says that lowering the rate is about creating equality.

“I think lowering it will make it much easier for normal people to qualify for a reasonably sized loan and it will support property prices,” Ms Lucas said.

“They’ve been worried that people are over-borrowing, but people have proven that’s not the case. They’re not taking a half million mortgage on a whim. Everyone is entitled to have that same opportunity.”