Compared to the years before, people are struggling to get loans in Australia. In the past, large banks have been called by the media and the financial services royal commission for having lax lending standards. Data from the Australian Prudential Regulation Authority (APRA) show granting of new loans fell from 7.4% from 2017, the biggest drop since the same period in 2010. What causes a declining number of approved loans in Australia?
This decline in the number of approved loans is due to the intensifying crackdown on investor loans and other factors including avoidance of high-risk loans and the increasing number of paperwork required from borrowers.
These factors affect property buyers. They are struggling to get financing for their homes. Real estate agents feeling the crunch as fewer people attend auctions and open homes. Since the royal commission pointed out some serious problems in bank’s lending policies, the banks are now taking a more conservative approach.
This impact the real estate industry. As there are few buyers able to get financing, property prices are going down. Home prices in Melbourne and Sydney are likely to have sharp falls.
Banks are no longer keen on using an automatic system when it comes to approving loans. The crackdown has also led to the shift in the types of persons who can borrow money.
Independent Mortgage Planners Managing Director Craig Morgan claimed that a huge percentage of people who used to qualify for a loan about two or three years ago would not qualify for that loan today. He added that lenders now have a better comprehension of what responsible lending is.
Lending Criteria for Home Loans
Loan approval depends on a number of factors. Banks would examine what type of borrower you are and your capacity to pay. Below are some of the factors that may affect home approval:
To qualify for a home loan, borrowers must at least be 18 years old. Generally, they are also less likely to approve loans to older borrowers. Borrowers over 55 years old may have to provide more documents to have their loan application approved.
Most banks would prefer to grant a loan to permanent residents of Australia. However, this does not mean that non-residents cannot borrow. Non-residents may be approved but with limits on the amount they can borrow. Some banks require larger deposits and may ask for a Foreign Investment Review Board approval.
Lenders will be interested to know if the borrower applies for a loan as an individual or as a trustee of a trust. Trustees can borrow money but lenders may ask for specific paperwork and often use lending criteria specific for trustees before they are approved. Note that not all companies can apply for home loans. Lenders cannot approve home loans for clubs, associations, and limited liability companies.
Due to the regulation by the royal commission, banks are now required to dig deeper into a borrower’s work situation to know if the income qualifies for a loan or if the work status is sufficient to pay for the loan, if approved.