Adapt to tougher lending rules as mortgages become a tall order

Whether it’s Napoleon, Vladimir Putin or Tom Cruise, powerful short men have long carried a stigma — and this appears to have expanded into the mortgage market.

Australia’s banking regulator, APRA, looks to be suffering from short man syndrome, and it’s hurting the real estate market.

I am somewhat of an expert in short man syndrome, having been taunted for years by tall mates who call themselves the Wall-o-man and me the Gate-o-man. Picture Danny DeVito and Arnold Schwarzenegger in the movie Twins, only with Aussie accents.

APRA, after being belittled by the banking royal commission, has every reason to show short man syndrome behaviours of extra aggression and volatility.

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It was already forcing banks to crack down on lending to property investors before it was singled out by royal commissioner Kenneth Hayne late last year for having never taken a bank to court over misconduct.

So there was no chance of it giving lenders and borrowers a lighter touch as the royal commission wound up last month. And my finance spies tell me APRA is aggressively monitoring lenders’ practices and ensuring they don’t lend money willy-nilly.

Short on cash, short on temper? Understanding regulators’ rules can be a tall order.

However, one person’s “willy-nilly” is another’s demoralising loan rejection, and the tougher stance by APRA is slowing down an already-sinking national property market.

Lenders are much stricter, assessing borrowers’ ability to repay at a 7.25 per cent interest rate rather than the 4 per cent many now pay. They ask people about spending on gym memberships, Netflix accounts and lawn mowing, which may seem like an invasion of privacy but is now part of getting a loan.

Many borrowers cannot refinance to get a better home loan rate because the lending criteria have changed and priced them out of going elsewhere. And if they have suffered house price falls like millions of other Australians in the past year, their chances of switching are dented further.

Compare refinancing home loans

Dealing with this new world of lending requires some fresh thinking, depending on your situation:

• BORROWERS should start preparing at least six months in advance by cleaning up their unnecessary household spending, cancelling credit cards and being able to show a history of saving. Younger borrowers may need to call for back-up in the form of mum and dad going loan guarantor.

• SELLERS are quickly realising that the real estate market is much different than it was a couple of years ago, and many are tempering their expectations. Sometimes a buyer may love a vendor’s property but just can’t get the finance approval for the price they’re prepared to pay.

• INVESTORS have been hardest hit by APRA’s tougher stance, with higher interest rates and sharp falls in key target markets such as apartments. Many investors trying to build a property portfolio will find that once they get to two or three, the doors may shut on any expansion plans simply because each investment loan is assessed to cost them twice as much as what they actually pay. Perhaps it’s time to diversify beyond real estate into superannuation, shares and other assets?

Unless Australia’s real estate market collapses, don’t expect borrowing to get easier soon.

So from one short man all those short-tempered buyers and borrowers battling for a loan: Remember that you’re not alone, it’s not your fault, and you’re probably going to have to rethink your financial situation.

@keanemoney

Originally published as Adapt to tougher lending rules as mortgages become a tall order