Atlas Market Insights

What are the big banks’ approach to lending in the current market? Big banks have come a long way since their risk averse policies during the 2008 Global Financial Crisis. They were far stricter on mortgage repayments and quickly foreclosed on houses where borrowers were in extended periods of mortgage arears. However, the precedent has now been changed due to the pandemic. This approach has mostly been established by the Government setting a new attitude for the banks when dealing with financially distressed borrowers. Instead of being risk averse and foreclosing on houses in arears sooner rather than later, all the banks simply offered to pause repayments and help coach borrowers through financially difficult times. Means testing for applying to pause your repayments was also fairly easy with little to no verification of financial difficulty needing to be proved evident. Separate to this in July 2019, APRA adjusted lending policies where the assessment rate, or the rate used for the bank to calculate whether you can afford a loan, is scaled based on a margin above the current interest rates. Previously, this was a firm 7.25%. Now, as interest rates decrease, it is easier for consumers to borrow money as the assessment rate subsequently reduces as well. Since the introduction of this new policy in 2019, there have been six RBA cash rate cuts, which means six instances where borrowing power potentially became stronger depending on each banks’ lending policy. This has made home loans more accessible and affordable than they have ever been for most buyers, which sets the foundation for more buyers to compete in the market and drive prices higher. With regards to assessment, banks are really scrutinising over borrowers who received a cash boost or job keeper during the pandemic, which doesn’t necessarily impact your ability to get loan approval, but the bank will deduct this out of your revenue. However, if banks see that you deferred your home loan repayments, ironically a service that they readily offered, they will be more apprehensive to approve your loan. With the cash rate at a historic 0.1% low, and the big banks following suit with rates as low as 2% there appears to be plenty of opportunity to borrow in the current market. Theo Chambers, Chief Executive Officer of Shore Financial, discusses the mortgage market landscape and the banks’ approach to lending in the current market. What does property finance look like in a historically low interest rate environment? INSIGHTS - FINANCE 14