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Thursday, 18 March 2021

Lending standards remain robust

Lending standards chat

There's been a bit of idle social media talk about lending standards, which overall remain relatively tight.

There has been a modest increase in the market share of higher LVR loans, driven by the success of the First Home Loan Deposit Scheme (FHLDS), but overall lending is far tighter than it used to be (with just with a little more oxygen now than during the dark days of the banking Royal Commission). 

There's almost no SMSF or low doc lending now, loans to overseas residents are way down, and the stock of interest-only loans has plunged a massive 55 per cent lower since 2017.

In fact the stock of IO loans represents the lowest ever share of the housing loan stock, now at under 15 per cent, as more and more borrowers have switched across to paying down debt. 

There has been a bit more lending at high debt to income ratios of 6x or above, which is barely an issue given serviceability ratios are at the easiest level in nearly 45 years.

Regulators mightn't want to see a combination of high DTI ratios and skinny serviceability calculations, mind you, and as such it's possible that 25 basis points might be added to higher LVR mortgage assessment rates before the year is out, just to nudge things back into line.

Overall, though, most of the economist chat simply overlooks that competition in the mortgage lending space and record low rates are driving asset prices higher, much as you'd expect. 

Investment loans also remain at very low levels, although this will likely change before the end of 2021.

Overall, lending standards remain robust, as anyone who's been through the wretched process would know! 

Borrowing capacity has also been slashed over recent years.