Strict interpretation of responsible lending laws has created a bottleneck of mortgage applications with massive delays in the approval process contributing to a rise in the cost of credit and vastly reduced borrowing capacity in the post-royal commission environment.
Data from Lendi, run by David Hyman, shows that conditional approvals are a thing of the past. Peter BraigAnalysis of more than 30,000 mortgages from online broker Lendi has found approval times have more than doubled for investors over the past 18 months while the wait time for owner-occupiers has increased by more than 50 per cent as the banks demand more information from borrowers.
Lendi managing director and co-founder David Hyman said more the stringent approach from the banks could be traced back to the first hearings of the Hayne royal commission and was adding to the costs of originating and writing loans.
"It means the market slows down. All lenders and brokers are requiring more resources in order to get each submission through to settlement and customers are having to wait," Mr Hyman said.
Housing finance figures from the ABS released earlier this month showed a 2 per cent rebound in home loan approvals after several months of falls. New lending fell almost 20 per cent in calendar 2018 as the banking royal commission took place, the biggest decline since 2008.
Advertisement Lendi's data reveals the scale of the supply-side credit squeeze driven by the banks' nervousness about a looming update of responsible lending obligations, known in the industry as Regulatory Guide 209. In March the Australian Securities and Investments Commission chairman James Shipton said the idea that regulations were making it harder to get a loan was a myth.
The data, however, shows the banks are considerably more cautious. The percentage of home loans held up by the More Information Required or MIR stage has risen from 40 per cent of all loans pre-royal commission to 67 per cent of all loans in the first quarter of 2019.
Founder of Wollongong-based broker Mortgage Success Katrina Rowlands said all brokers were feeling the pinch as assessors tried to squeeze out as much information as they possibly could about each applicant, chewing up additional hours and tying up brokers and their staff.
"It seems like the assessors feel they are not doing their job unless they come back to you with more questions," Ms Rowlands said. In one particularly memorable instance, she said a bank would not approve a customer's home loan until they were told how many dogs the applicant owned.
Delays in approvals have been exacerbated by the types of information assessors are requesting, which are often unusual and difficult to predict.
A sub-set of 100 recent loans from the Lendi sample showed that lenders are asking borrowers questions outside stated lending policies.
"Looking at the MIR questions being asked in March and April of this year it is clear that lenders are not asking additional policy-based questions but questions outside of the standard policy," Mr Hyman said.
The number of questions outside stated lending policies had risen sharply in the last few months. In March the percentage of MIR loans, which attracted non-policy questions, was 30 per cent. In April the percentage of MIR loans that attracted non-policy questions had risen to 47 per cent.
Mortgage brokers are saying the banks' new-found vigilance had seen the borrowing capacity of many borrowers curtailed with others being turned away.
An assessment by Lendi of loan applications settled before the royal commission found that 22 per cent of those would not meet the more onerous serviceability requirements being demanded now, Mr Hyman said.
Another byproduct of the focus on responsible lending is the near-abandonment of conditional approvals from the banks. Conditional approvals could be described as in-principle agreements to lend and allow customers to make bids at auction pending final approval.
At the beginning of 2018 63 per cent of all Lendi's loans were granted conditional approval however by the first quarter of 2019 this had plummeted to 16 per cent.
"This is the clearest indicator that the banks are more cautious and less likely to move forward without significantly more information," Mr Hyman said.
The demands for more information are having a direct and measurable impact on the length of time the approvals process is taking. The data shows that the average time from submission to settlements has blown out from six weeks or 39 days pre-royal commission to nine weeks or 62 days.