Barrenjoey banker says mortgages becoming ‘luxury good,’ calls for lending reform

Increasingly strict lending conditions have “forced” first-home buyers out of the market, with a major investment banking firm calling for change.

A senior analyst at a major Australian investment firm has feared mortgages are quickly becoming a “luxury good,” urging the government to ease barriers for first home buyers to accessing lending.

Speaking to a senate inquiry into borrowing regulation on Wednesday, senior Barrenjoey analyst Johnathan Mott proposed a three-part reform package which he said would help more first home buyers access financing to get into the housing market.

This included calling for HECS-HELP debt to not affect an applicant’s borrowing capacity and implementing a “modest” reduction to the 3 per cent buffer imposed by banks to ensure borrowers can meet higher repayments.

Mr Mott, who appeared at the inquiry representing the major Australian investment firm, also called for first home buyers to be allowed a lowered “risk weightings” which would reduce the capital a younger borrower would need, and in turn reduce their interest rates.

This would also be adjusted depending on whether they bought new homes off-the-plan, or existing homes.

Barrenjoey banking analyst Johnathan Mott said lending restrictions needed to be eased to allow first home buyers access capital to enter the housing market. Picture: NewsWire/ Gaye Gerard

Citing data from Commonwealth Bank, he said there was an “increasing skew of new lending to high income households”.

In data in the six months to June 2024, CBA lent two-and-a-half times more mortgages to households earning $200,000 than to households earning less than $100,000.

“They’re quite extreme numbers. Now, effectively, mortgages have now become a luxury good,” said Mr Mott.

He said the lending reform was needed due to increasing house prices, which were locking first-time out of the market.

“It is the first time buyers who are being impacted by this more disproportionately, and who are being hit by the reduction in borrowing capacity,” he told the committee.

Mr Mott added the changes would “rebalance” the market, which had become increasingly risk-averse following the Global Financial Crisis.

“We’re just saying that we need to help young people back in the house and market, and I think that’s in the interest of all young Australians,” he said.

“We’d all like to see young Australians enter the housing market, and see the opportunities that previous generations have experienced.”

RBA assistant governor Sarah Hunter said that while any changes to the interest buffer would be decided by the regulator APRA, she said there were a “a number of different factors to consider in any kind of decision like that”.

Instead, the RBA would review and assess if there were any major risks which would eventuate as a result of the policy.

RBA assistant governor Sarah Hunter said reform to lending restrictions were APRA’s domain. Picture: NewsWire / Martin Ollman

While prudential regulation doesn’t “innately” eliminate all risks, Dr Hunter said the goal of APRA and the RBA was to “balance risk against other outcomes”.

“There are many reasons why (a person with an individual loan) may not be able to continue to afford repaying it, and some of these reasons will be really very challenging and difficult to hear,” she said.

“It can be job loss, it can be illness … those sort of idiosyncratic-type events. We can’t eliminate that kind of risk, and we’re not looking to try and do that.

“What we’re concerned with is making sure that the banks are able to absorb that loss and continue to operate and be stable and provide that stability to the economy.”

Earlier in the hearing, Housing Industry Association (HIA) senior economist Tim Reardon said lending policies over the past decade had “forced first-home buyers” out of the market, with banks required to “hold more collateral for every dollar they lend”.

As a result, he said banks were “increasingly lending to those that already own a home and punishing those that do not”.

“The combination of the doubling of capital plus all the additional regulations has meant that it is extremely difficult for a first-time buyer to meet the conditions necessary to get a mortgage,” Mr Reardon said on Wednesday.

“So we’ve now arrived at a situation where banks aren’t competing with each other to pursue first-home buyers.

“They are competing for investors, and investors therefore get a far more competitive interest rate than first-home buyers or owner-occupiers that own at least one home.”

A senior economist says lending regulations are punishing first-home buyers. Picture: NewsWire/ Gaye Gerard

While he wouldn’t comment directly on the policies concerning HECS debt, or the interest rate buffer, Mr Reardon said allowing more first-home buyers into the housing market wouldn’t necessarily create more demand in the market.

Instead, he said demand was more affected by migration and population growth.

“Over the course of the past decade, we have forced first-home buyers out of the market and that hasn’t reduced demand for housing,” he said.

“If we reduce those restrictions, and we see home ownership rates increase, that is not an increase in demand for housing because it did not affect our population or the average number of people per home.”

The HIA is also advocating for a 10 per cent GST exemption for overseas developers to build high-density housing in Australia that Mr Reardon said would boost new home builds.

“If you were to look at one really easy tax that the federal government has direct control over, then removing the GST off new (builds) would certainly see more new homes built than attempting to tinker with negative gearing or capital gains tax,” he said.