What’s happening in the loan space?
ANZ has declared that they will prioritise lending standards over turnaround times, reflected on the state of the current housing and lending market at an EFG briefing on Thursday. They share their vision that banks should be conducting heavier checks on loan applications even if it means it stretches out approval times.
The current growth isn’t sustainable
Big banks are trying to address housing affordability in their own ways. Speaking to investors at an environmental, social and governance (ESG) briefing on Thursday, ANZ Chief Executive Shayne Elliott expressed concern around house prices outpacing income growth, operating pressures for small businesses and higher levels of household debt, particularly for first home buyers.
There’s also a big rise in parental guarantees over the last five years as well as families and friends assisting with building deposits. This is something Mr Elliott believes is unsustainable.
Doing the right thing by tightening lending standards
ANZ’s view is that now is not the time to be loosening risk standards but to tighten them to “really understand a borrower’s expense profile and their income outlooks”.
“And so, guess what, that may take a bit more time to do and may make the banks a bit uncompetitive in terms of things like turnaround times, but it’s still the right thing to do and I think in the long term, it’s actually in the shareholders’ interests to do so.” says Mr Elliot.
Upon hearing the news about longer turnaround times, you kind of thought brokers would have to spend more time dealing with the bank, but they wouldn’t. At the beginning of September 2021, ANZ reported that it would be working to reduce broker turnaround times after its loan book slimmed from $262.8 billion in June to $261.8 billion in July. They had made progress in assessing applications received from brokers down to around seven days, which is no small feat.
Elliott commented that ANZ will still do in-depth assessments of broker applications but clarified that the broker-originated home loans are not a cause of concern from a risk perspective.
The RBA has been properly monitoring both the housing and mortgage markets working with fellow watchdog APRA to collect data from banks and talking directly to financial institutions. RBA signalled that it would take action alongside APRA if it deemed lending growth is too strong with a high rate of debt-to-income growth.
APRA and RBA have considered tools such as raising the minimum interest rate that banks use for home loans and potential portfolio LVR restriction or DTI restrictions.
“The solution isn’t higher interest rates” Dr Lowe says
“Ultimately, the main drivers of housing prices over time aren’t within our control… Interest rates are pushing up housing prices at the moment, and their influence is global. But in the end, if society wants to do something about the overall level of housing prices, the solution isn’t higher interest rates,” he said.
“If we had higher interest rates now, sure, housing price growth would be lower, but fewer people would have jobs, and wages would be lower. So, that’s not an attractive trade-off, and it’s certainly not one the Reserve Bank has a mandate to make.”
Source: https://www.theadviser.com.au/breaking-news/42039-prioritise-lending-standards-over-turnarounds-anz-ceo