Borrowers face shock when banks slash home loan approvals by at least a quarter: Gottliebsen
The number of houses being passed in at auctions and the easy availability of inner-city apartments is not just the result of regulatory measures, but also a loss of confidence stemming from the extremely tight bank lending rules.
Columnist Robert Gottliebsen labels it as the “tea, coffee and cosmetics” (TCC) approach to home lending in his recent piece in The Australian.
While attempting to explain the confusion among many young real estate agents about the number of houses passed in and the desperation of apartment developers to sell, Gottliebsen says there are many reasons, but “none so powerful and potent in what is happening in the lower management levels of some of the big banks”.
He says it’s conventional to blame the APRA and the regulators for the credit squeeze but the problem is “multiplied by a middle management loss of confidence stemming from the looming retrenchments and the bank scandals”.
This has forced the banks to be more restrictive, especially the ones facing scandals such as the Commonwealth Bank.
TCC has even spread to small business lending, writes Gottliebsen.
He says borrowers are shocked that the new tests by banks had slashed the amount they would lend by a quarter and even a third.
Borrowers are being asked for information about basic living expenses, such as clothing, footwear, cosmetics, dining out, after-hours school care, dining out to name a few.
Gottliebsen states that this banking approach, which he has spoken of earlier, if it continues will see more serious falls in the prices of dwellings, widening the 10% fall in Sydney apartments to other areas of the residential market, including Melbourne.
This is already the case in inner city markets of Sydney, Melbourne and Brisbane now, which also have many unsold houses now.
He says the “crackdown is much wider than TCC and covers restrictions on interest-only loans, higher interest rates for investors, threats of higher interest rates, no money for Chinese borrowers” and so on.
Also, the rising gas and electricity bills further hit confidence.
“The trouble with these uncoordinated attacks is that they start with the aim of stopping a boom, which threatened to turn into a bubble collapse.”
According to Gottliebsen, this activity looks very little on the surface initially and as the squeeze continues, it hurts confidence.
“We are not there yet but once it happens — and the illogical approach of TCC lending will bring it on — confidence will take a long while to restore.
“And it spreads to small business.”
But the banks’ reluctance has opened up opportunity for non-bank lenders, which are seizing the opportunity.
The “regulators’ response is to clamp down on filling the bank-created void, so damaging the nation”.
In conclusion, Gottliebsen suggests that a banking royal commission is not a “good idea at this time”, but if there is one, it should cover regulators too.
