Banks dial back COVID-19 caution as economy improves

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Banks dial back COVID-19 caution as economy improves

By Clancy Yeates

Leading mortgage brokers say banks are cautiously taking the brakes off home lending and removing extra checks on borrowers that were introduced at the height of the coronavirus pandemic.

The trend comes amid an ongoing surge in new lending, but brokers say they are not seeing a rise in high-risk borrowing, and nor do they believe regulatory caps on home lending will be introduced anytime soon.

The red-hot property market has put bank lending standards under the microscope of regulators.

The red-hot property market has put bank lending standards under the microscope of regulators.Credit:Brent Lewin

With house prices growing at their fastest pace since the late 1980s, the quality of bank lending is under the microscope. Regulators have repeatedly warned they do not want to see a deterioration in credit underwriting standards, noting they could intervene if needed.

Several brokers including Commonwealth Bank’s Aussie Home Loans and its merger partner Lendi said banks had become less conservative compared with the height of the pandemic last year.

Aussie chief executive James Symond said after banks “pulled in their horns” during the peak of the pandemic, they were now taking a more “commercial” approach to credit assessments.

“We are seeing a more balanced approach by the banks. We are seeing less conservatism, but much thought being placed in every single customer application,” said Mr Symond, who also predicted property investors would increasingly come into the market over the next 12 to 18 months.

Data from Lendi - which announced plans to merge with Aussie last year - showed the proportion of loan applications where lenders are requesting more information from the customer has dropped from 48 per cent in March last year to 28 cent this year.

Lendi chief executive and co-founder David Hyman said the decline was a sign that banks were taking a far less conservative approach than they were in the early days of the pandemic, and the aftermath of the Hayne royal commission.

Even so, Mr Hyman said the proportion of loans with a high loan-to-valuation was relatively flat in the last year, and he did not think macroprudential policies were needed at the moment. “There’s a growing fear of missing out as prices rise but we are not seeing borrower behaviour becoming riskier across the board,” he said.

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Homeloanexperts.com.au founder Otto Dargan said last year banks had put in place extra checks to make sure they were not lending to customers whose income was threatened by COVID-19, such as requesting extra employment checks, or ignoring income from bonuses or overtime.

“Now lenders have removed these restrictions and the main problem is that they’re being inundated with applications,” Mr Dargan said, adding the surge in loan applications was leading to delays in approval times.

Chief executive of listed broker AFG, David Bailey, said the key metric he would monitor to make sure the market did not get “out of kilter” was interest-only lending to owner-occupiers. He said that so far this type of lending remained subdued. He said banks were less cautious than at the height of the pandemic, but it remained to be seen how the market would react as government stimulus for first home buyers was withdrawn.

“I think lenders more broadly are getting a better grip on what’s a deal and what’s not a deal,” Mr Bailey said.

The focus on lending standards comes as new mortgage lending has surged in recent months on the back of rapidly rising house prices, ultra-cheap credit, and generous government incentives. Aussie said it notched up record lending volumes in March, with about $2 billion in settlements, while Lendi also said it had a record month.

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