How long did it take banks to loosen lending after GFC

Discussion in 'Property Finance' started by see_change, 18th Jun, 2015.

  1. see_change

    see_change Apprentice Timing Lord

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    Obviously the latest changes in banks LVR's are going to impact the ability of those who like to stretch the envelope in terms of how much they borrow .
    Last time this happened ( as far as I recall ) was after the GFC .

    The potential of measures targeting Sydney remain , but as this previously linked article mentions the RBA doesn't want the market to tank elsewhere and some growth will be good for stimulating the economy .

    How long did it take for the banks to start loosening the screws on lending after the GFC ?

    Any thoughts on what might happen ?

    Cliff
     
  2. tobe

    tobe Mortgage Broker

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    great topic.

    The GFC disrupted lending by disrupting,and then killing the securitisation market, which by that point was used by almost every lender for every resi deal.
    The lenders that remained (the big four) and their mortgage insurers, changed their policies to make their books less risky.

    So where there were 100% lends, that reduced to 90%, genuine savings once again became mandatory for anything mortgage insured. low docs became scarcer. Credit scoring came back.

    Apart from Low doc policy, the GFC didnt have a great deal of influence over lending to investors. Negative gearing was never removed from calculators, rental income was always used, etc etc.

    So how long did it take for lending to return to 'normal' after the GFC? Obviously it hasn't returned to what it was immediately prior to the GFC. Gen savings is still a big part of lending, 100% loans are non existent except as a guarantor or cocktail loan, and low docs are still scarce.

    Is this normal? Hard to say, Ive only been in the industry 15 years. Over that time, yes, the current lending standards are pretty average, at least until a couple of weeks ago when the first investor changes started to happen.

    Personally I don't think the current crack down by APRA is going to be anywhere near the effects of the GFC. Markets beat regulation every time.

    The market will get around APRA's controls, there will be non bank lenders fill the niches for investors with multiple properties, and for the vast majority of investors in Australia who only have one or two investment properties, nothing will change except perhaps their interest rate by half a percent.

    The major hump I see for investor lending is if the government ever tried to help the reserve and APRA with the heavy lifting. Changing negative gearing or CGT would dramatically change the investment landscape, I think for the better for existing investors.
     
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  3. Redom

    Redom Mortgage Broker

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    Great post tobe and great question sea change.

    I think if its in light of the current tightening, the more relevant question is how long did the tightening take to loosen post the 2002-03 Sydney Boom.

    The GFC was largely market driven - funding sources got clamped up around the world and that caused all sorts of issues as well as some regulatory response to a negative economic event.

    In 02-03, there was a very similar set of circumstances, albeit multiplied in verocity. APRA pulled out a bag of tricks then and cooled the market. Much more similar. However, back then there was some serious monetary policy tightening going on as inflation started kicking up - which makes it hard to judge how successful APRA's actions were.

    They've also gone on record talking about their experience in handling booms before referencing that experience.

    Cheers,
    Redom
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    From a policy perspective, not a lot actually has eased off since the GFC. 95% lending policies are still uniformly in place with the first and second tier lenders, genuine savings can still be fairly brutal.

    What has eased off has been things like credit scoring and risk appetite, but these are quite difficult to quantify. For roughly 12 months after the GFC lenders were looking for reasons to decline loans, it took a while for their attitudes to change. I recall one discussion where a BDM was venting his frustration that the culture change within the banks towards risk was taking time to adjust.

    I guess what I'm saying is that risk appetite tends to be reasonably fluid, but you'll never get a definitive answer on how this is assessed. Policy tends to be fairly static, it takes a very long time to change but at least it's written down and clear. Unfortunately most of the recent changes have been implemented via policy. I don't expect this to adjust any time soon.
     
  5. Terry_w

    Terry_w Member

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    I would say things haven't gone anywhere near back to what they were like prior. There has been some minor loosening, but not much. It will probably be the same this time.

    just got an email from NAB just now, they are tightening up even more.
     
  6. see_change

    see_change Apprentice Timing Lord

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    On top of what they did at the end of last week :confused:

    With their changing their serviceability calculations :(

    Cliff