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Credit Squeeze Or Credit Shortage?
The expression Credit Squeeze is popping up more commonly. Every Credit Squeeze I have experienced has been a policy decision triggered by deliberately engineered interest rate hikes. Not this time, now it is about risk and rationing.
The Royal commission has come and gone with no recommendation for changes to the responsible lending rules. Nevertheless, those rules which have only been applied with any vigor since about when the Royal Commission came along seem to have been tightened even more.
Anecdotal evidence from mortgage brokers is that the number of loans being refused is higher than ever.
Former Westpac Chief Executive David Morgan recently voiced concern over a Credit Squeeze saying “the interruption to the supply of loans in some markets is a significant risk to the domestic economy.” Talking about banks he said “lending officers at the coalface have seen the CEOs get absolutely cooked in the Royal Commission for some bad loans and they're trying to do the right thing.”
“They will be very risk averse so I would rank that high on my list of risks to the Australian economy.”
Every month we see the tightening in income and expense verification continuing.
Back to the future?
Back in 1972 when I bought my first house you needed a 25% deposit to get a loan from a bank. Alternatively, if you were not in that position, and many people were not, the alternative was to go to a Building Society where you could expect to pay probably 1% more and buy on a 10% deposit.
Through a process of mergers and demutualisation the Building Societies became banks, Suncorp and St George spring to mind. These days Building Societies are few and far between and the whole concept is foreign to most borrowers.
There actually are many lenders outside the big four banks, Suncorp and St George Bank which is a subsidiary of Westpac.
Most people wanting to access these lenders go to a Mortgage Broker all of whom have access to them.
Both the Government and it seems the Opposition have decided to stay away from the Royal Commission recommendation that borrowers pay the Brokers which would have killed the industry and are looking in the direction of income restrictions on Brokers. In the end Brokers will still be around but there will be less of them doing more volume.
While a slowdown in some sectors of the local property market continues the rental market seems to be strengthening. It's too early to say whether this is because people are staying in rental accommodation while they see which way the property market goes and creating a shortage but in February which is a short month we had 1228 rental enquiries and received 88 applications for the 18 properties we leased.
by David Hamilton Credit Squeeze Or Credit Shortage? palmbeachfn.com.au February 2019 First National Palm Beach
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