Not enough risk taking by Aussie banks?
Redom Syed
Educating Homebuyers and Property Investors About Home Loans | Available 7 days 0489 943 079 [email protected]
Our lending regulator's job is to protect financial stability.? They are doing a great job at that.
But at what cost?
While their intent might be justified, the impact is clear: they’ve made it unnecessarily hard for Australians to borrow money to buy a home or invest in property.?
The latest lending data shows that risk taking is pretty much LOW on every single metric. While that should typically be celebrated…
On the ground, in reality, it means that money is NOT going to people who may otherwise want it.
This has a disproportionate impact on younger Austrlains and first home buyers - who typically have smaller deposits, require larger lending amounts and are making their way onto the property ladder.
Combined, it all just slows down home ownership and closes some doors to great borrowers…all with no benefit.
The Real Problem: Tight Lending for No Material Stability Gains
Current lending conditions are unnecessarily stringent, even though the latest data from the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) shows we’re in a very low-risk environment. The data reveals:
Despite these risk reductions, the government continues to restrict lending access, making it harder for first-home buyers and those without parental financial support to secure a loan. This overly cautious approach doesn’t enhance stability; it merely blocks people from getting on the property ladder.
Why This Approach Is Misguided
Lending restrictions are typically counter-cyclical—designed to tighten when the market is booming and ease when it slows down. Right now, with rising interest rates and a cooling housing market, conditions should be more relaxed to allow people to borrow within reasonable limits.
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Instead, we’re applying ~ 9% assessment rates to first-home buyers, making it extremely difficult for them to borrow. This simply doesn’t align with the current risk levels or market conditions.?
Will interest rates go up another 3% from here?? Thats way off base.
Whats more baffling is, they’ll likely drop this 3% buffer down to 2 when rates finally come down. Instead of being counter cyclical, they’ll be procyclical again.
And we all see that once prices go up…they don’t really come back down as much.
Who Benefits from These Rules? The Well-Off
The current restrictive lending policies are disproportionately benefiting wealthier borrowers, or those lucky enough to have access to the "Bank of Mum and Dad."?
First-home buyers, who are less likely to have large deposits, get locked out of the property ladder leading to growing wealth inequality.
Smaller deposit loans account for only 8% of total loans for owner occupiers, signalling a significant tightening of access to credit for potential first-time buyers.
This creates a wealth divide, where those with existing financial support can buy homes, while others are left behind. The ‘Haves’ and ‘Have-nots’.
A Smarter, More Nuanced Approach Is Needed
It is very clear that there is a need for more tailored lending rules.
From the 3% lending buffer to how HECS and HELP debts are assessed, APRA has tools at its disposal to allow access for everyday Australians to own a home, not just those on 2, 3 or 400k incomes.
While it may make sense to maintain a stringent lending environment, applying the same standards to all buyers is unjustified in the current market.
The data shows that we are well within APRA’s own demarcated parameters, and relaxing serviceability criteria for first-home buyers would allow them to enter the market responsibly. This kind of group-specific lending policy would ensure that Australians can access the housing market without compromising financial stability.
Experienced Economist I Commercial Analyst I Policy Advisor I Infrastructure Advisor
1 个月Redom Syed, looking at things more broadly, both of us know that the Australian banks are too heavily exposed to the local property market. So they aren't diversified enough in the general sense and neither APRA, the RBA or the Australian Government seem to care too much about this problem. Such lending practices have had ripple effects on the Australian economy. They partially explain Australia's low productivity since the GFC alongside its industrial organisation (with major industries tending to consolidate into oligopolies) and lack of economic complexity. I believe the risk averseness of Australia's banks to assets other than property is a serious problem. There is only ever so much the Australian Government and jurisdictions can achieve with grant programs and R&D tax credits. There needs to be a concerted effort to diversify the lending portfolio of banks. A serious contraction of the local property market can create a financial crisis in Australia. Now some of this risk will continue to be mitigated due to migration and Australia's natural resources exports (which may become more valuable due to Net Zero by 2050 commitments made by most of the developed world).
Private lender @ Archer Wealth | The “Godfather” of Loans and “Angel” of Finance | I help brokers get lightning-fast approvals and settlements on loans in under 5 business days | Connect for actionable finance content.
1 个月"While it may make sense to maintain a stringent lending environment, applying the same standards to all buyers is unjustified in the current market.”. Exactly, a cookie cutter approach doesn’t work.