Banks Ease Credit Rules?

Westpac BankYesterday Westpac lowered the amount of deposit needed for investors to purchase a property. While they are not the only bank to offer a 90% loan to investors, it is a noticeable move from a big player. It also flies in the face of last year’s APRA ruling on banks loaning to investors.
(You can see more on APRA’s activities here and here.)

Two weeks ago Barclays bank in the U.K. changed their lending rules to support the re-introduction of 100% lending. This is also a large turn around in their lending criteria. A look at the fine print does show you the need to have another person involved to ‘allocate’ the 10% deposit via an equivalent amount of equity. This ‘deposit allocation’ is cleared and the third party released, after 3 years if the borrower has not defaulted.

In the same week, Halifax in the U.K. raised its age limit for borrowers to be able have a loan until at least their 75th birthday. They said this is in response to an ageing demographic and changing work practices.

Back home, and St George (owned by Westpac Group) not only matches its big brother with the 90% investor loan but also has a loan for investors at a rate of 4.24%.

These events show us two things:

1. More banks will follow
2. This is exactly what the property clock says will be happening

Last week we released an article on the Property Cycle and included Philip J Andersons’ property clock. The clock says we are coming to a time of banks expansion and moving into easier credit.

Until these most recent announcements, you could be forgiven if you were thinking the opposite was happening. In fact much of the media has been talking about the poor stability of the market and how property markets are cooling and need to cool.

Banks still need to make their money and we all know loans are a big part of that. The expansion of banks (and therefore the expansion of the money system) and the supply of credit is what banks do. Even though ANZ has announced layoffs last week and Suncorp has amalgamated (closed) branches, they will still always be aiming for profitability and returns for the shareholders.

All this comes together to position banks to do what they do best; make loans, supply credit and increase the money supply. This will form the basis for the catalyst of continued inflation, especially in fixed assets like real estate.

To break this down:

• Banks will always seek profitability, as they are a business and report to shareholders.
• Banks are seeking to improve revenue streams and loans play a big part of this
• Banks relaxing the lending criteria will make it easier for people to get loans
• More people getting loans will create more money in the system and of course continue to fuel the property cycle.

The property clock said this would happen and it will happen until a mid-cycle slow down in 2019.

While these events are different to what has happened in previous cycles, it is actually just more of the same.

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Scott Northcott Australian Property AdvisorSince 2004 Scott Northcott has been helping people buy the best properties for their needs at prices that simply speak for themselves.
Scott has been instrumental in bridging the gap between financial planning and traditional real estate transactions through his property advice model. By carefully considering his clients’ goals and planning for market changes via demographics and trends, Scott designs a future proof outcome not only specific to the client’s needs but dynamic in its execution with performance indicators and exit strategies built in.