Why home loan approvals are falling : 5 reasons for the decline
The number of home loan approvals have continued to fall over the past several months. Property experts at SQM Research say the pattern continued throughout April and is continuing still into May.
- The number of home loans approved in March fell by 2.2%, according to the latest figures from the Australian Bureau of Statistics (ABS).
- The value of properties also fell between February and March, for both owner occupied housing and investment housing.
- In seasonally adjusted terms the total value of all dwellings fell by 4.4%. The value of investment housing fell by nearly 10% in the month.
- The number of constructions approved also fell by 4.4%.
So why are home loan approvals falling? Here are our top 5 reasons for the decline;
1. Investment loan credit approvals tightening
Several banks and lenders have been tightening their credit policies on investment loan purposes to meet the APRA introduced cap on investment lending. Whilst APRA have recently lifted the volume restrictions for investment lending, they haven’t removed the volume restrictions for interest-only lending, which is a favourite structure for investors.
Source: CoreLogic
2. Banks are tightening their lending criteria because of the Banking Royal Commission
The major banks are on notice following their public demise in the Banking Royal Commission and have already started changing their policies and practices when it comes to providing home loan approvals. They are changing their lending calculators on a regular basis and credit policy is open to even more “interpretation”. This means the lending space is changing on a daily basis and bank credit departments can’t keep up. In the fear of doing something wrong, inexperienced credit staff are declining home loan applications.
3. Online lenders and comparison sites are riddled with inexperienced 'lending advisers'
The growth of the online lending market is downplaying just how difficult it is to get a home loan approval without the right advice and experience behind the consumer. These quick, inexperienced options are targeting first home buyers by proclaiming to be an ‘easy’ solution, but the reality is, most of these online companies blatantly recruit lending “experts” with no previous lending or finance experience. The outcome may well result in a higher number of declined applications.
Not all mortgage brokers are created equal. Unfortunately, even big name players like Aussie Home Loans advertise that ‘no mortgage experience is necessary’ to become an Aussie mortgage broker. Image from Seek.com.au
Some online lenders think a Mortgage Broker role is 'Sales'. When consumers deal with a 'sales representative' earning 'lucrative, uncapped remuneration' - behaviours change, to the detriment of the consumer.
Some are even requesting borrower’s sign a declaration stating their living expenses.
4. Borrower’s living expenses under more scrutiny
A direct result of the Royal Banking Commission has been an increased scrutiny of the borrower’s living expenses. Lenders are now demanding more information and supporting documentation to confirm a borrower’s living expenses. Some are even requesting borrower’s sign a declaration stating their living expenses. And with credit history and data becoming more widely available, borrowers need to consider how their bank statements reflect their true living expenses. For example, if a borrower has regular deductions from an online gambling site or after-pay credit facilities, the lender will consider those as ongoing expenses, not one offs.
5. Housing demand falling in capital cities
The government’s pressure on investors and foreign buyers has now hit ground zero and has resulted in buyers pulling out of the market. With less demand, property prices fall… and here we are.
In a statement, Louis Christopher of SQM Research said, “The evidence now suggests that action to reduce borrowings risks is now affecting the national housing market. This action, predominantly targeted at property investors, has triggered a decline in demand for residential property.
Perth skyline - Photo courtesy of The West
Even in Perth, experts are concerned there could be fewer home buyers in Western Australia (WA) after the state government increased its Foreign Buyers Surcharge.
Overseas investors wanting to buy a property in WA will now be hit with a 7% surcharge, thanks to a new state budget measure. With even more hinderance to potential buyers, it’s likely we’ll see WA property prices drop even further.
Here’s the reality of a home loan approval – it is tougher than it has ever been before
A borrower’s first choice of how they go about securing a home loan is the most important element to a home loan approval. An experienced mortgage broker is the best way to source a home loan approval and Mint Equity offers their mortgage broker services free of charge. Data on loans sourced from mortgage brokers provide consumers with more lending options, and lower interest rates than a direct channel and almost 60% of all home loans in Australia are arranged through a mortgage broker.