Commonwealth Bank of Australia, the nation’s largest home loan provider, has dismissed suggestions of a housing bubble, claiming recent investor interest in housing was “a rational response to the low interest rate environment created by the central banks”.
The bank laid out five points as to why the housing market was not in bubble territory in its presentation to analysts. They were:
1. There’s more demand than supply, especially as Australia’s population grows and the supply side is responding; 2. Low interest rates had led to rising risk appetite and the pursuit of yield; 3. Lending standards are tight in Australia, more so since the GFC; 4. Housing credit growth is subdued as most borrowers get ahead on mortgage payments. Banks are building in interest rate buffers in writing new loans; 5. The Australian economic growth outlook is respectable with low unemployment and arrears.
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1. Demand and supply are a function of the bubble not separate from it. If supply is growing then look out! 2. Every bubble, every single one, is underpinned by loose credit. This is proof of a bubble not the opposite. 3. Lending standards are better than pre-GFC, not tight, at all. See 2. 4. See 3. 5. Unemployment is still reasonable and arrears are good but both are rising at the margin. Moreover, both are trailing indicators of a bubble not leading indicators.
Lending standards direct from the bank or institute maybe substantial but they have all overcome this by buying broker firms or buying second tier business's that have little to no standards e.g. Rams.
I would think most CBA loans put through Aussie home loans would not meet 'traditional' lending standards.
I have nothing to substantiate this other than anecdotal from recent reports like the Investors Club scam, that was fraud committed via a broker through one of the major 4. If lending standards are strict how did this happen???
I believe a similar fraud conducted by internal staff at CBA that made recent headlines was also blamed on 'a brokerage' service.
I would be very keen to see what percentage of loans written by the big four are done through a main branch to traditional or strict standards and how many are written through a broker or a second tier off shoot?
Agreed with Chris. It is so tempting for lenders to take more risks to make more $$$. Lenders in the US made billions with more "relaxed" leasing standards that I don't see why lenders in other countries would not reproduce the same scheme. History repeats.
Or they could as well have added number 6. Banks and lenders in general have a strong business ethic
I would add that 5. Is BS too. Mining is down, car manufacturing is moving overseas, retail is performing badly, and offshoring keeps going. The analysts from CBA did a scenario analysis of an unemployment of11,5%. It was in the same article. Why would they simulate that ?
I would be very keen to see what percentage of loans written by the big four are done through a main branch to traditional or strict standards and how many are written through a broker or a second tier off shoot?
It depends on the bank. The CBA who were slow to adopt brokers have about 40% written through the broker channel and others like ING who don't have retail branches write about 80% through the broker channel.
Pretty soon brokers will write the majority of home loans in Australia.
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I would think most CBA loans put through Aussie home loans would not meet 'traditional' lending standards.
Actually it's the opposite, the CBA broker initiated loans have a lower arrears rate than branch initiated loans. You won't find anyone from the CBA quoting that in the newspapers, but it's true.
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