Home buyers knocked back as banks run scared

The founder of the country’s largest mortgage broker believes tighter lending restrictions have ‘gone beyond reasonable’.

Brett McKeon, CEO of the Australian Finance Group.

The founder of the country’s largest mortgage broker, Australian Finance Group, believes tighter restrictions resulting in borrowers being knocked back for loans has “gone beyond reasonable” but the situation will continue to worsen until the end of the banking royal commission.

As regulators continue to push for improved standards in the banking sector after years of loose lending, borrowers are finding their income and expenses subject to increasingly tough examinations, often leaving them unable to secure loans as large as they had hoped.

The restrictions, along with prudential limits being placed on the amount of investor loans and interest-only loans banks are able to sell, has sparked a fall in ­demand for housing, which has filtered through to a 30-year low in Sydney auction clearance rates.

“We’re seeing people with ­really good lending capacity not being able to get loans. We’re seeing it every day,” Brett McKeon of the Australian Finance Group told The Weekend Australian.

“You’re getting a lot of upset consumers and small business owners who are getting denied credit when they are creditworthy because the banks are running scared. The bankers have got their own job fears and it’s playing ultimately through to this credit squeeze that we’ve got going on.”

Reserve Bank deputy governor Guy Debelle this week told a financial industry forum that ­recent interventions by the Council of Financial Regulators in the $1.6 trillion housing market were aimed at shoring up standards and reining in loose lending, and had delivered a more resilient system. But he said banks were now willing to lend less, by an average of 20 per cent. “There has been a decrease in maximum loan sizes offered by banks to new borrowers in ­response to the tightening of the serviceability requirements,” Dr Debelle said.

He said the overall number of borrowers “near their maximum loan” and affected by the measure was small, but for those constrained by the change, such as younger borrowers or those with chequered credit histories, “the effect can be quite large”.

It comes as banks intensely examine loan applicants’ income and expenses after being shamed during the banking royal commission for breaching responsible lending obligations which require lenders to ensure customers can repay their loans.

Westpac is asking prospective home buyers about their expenditure on pet insurance, gym memberships and media streaming services.

National Australia Bank chief economist Alan Oster said limiting the amount of money borrowers could access would take heat out of the property market.

“If you make people look more carefully at their expenses, if you make it more difficult to get those sorts of loans, it can reflect back in the amount of debt these people can carry, and to some extent, what they can put house prices up to,” Mr Oster said.

But he said the housing market wasn’t at risk of tanking.

“The RBA are pretty relaxed about what’s going on in the housing market. If you’re going to have some sort of adjustment in the housing market, it’s going to be mild,” he said.

Mr McKeon said tighter ­restrictions would be around until after the royal commission reports in February and the future of financial regulation became clear. “It’s uncertain as to where all this is heading, so it’s easier to just deny people credit,” he said.