We all lived through the infamous GFC of 200. Which just to refresh some memories, was a worldwide crisis where the banking industry lost confidence in itself, as a consequence of convoluted funding schemes (called subprime loan securitisations), which their own internal banking brain trusts had created.
Basically, these funding schemes resulted in there being trillions of money’s lent into unworthy credit risks, which lead to just about every bank in the world having to write hundreds of millions, and in some cases billions, in bad debts, off their balance sheets simultaneously.
Thankfully here in Australia, the Federal Government gave the bank’s own depositors, a Government Guarantee for their deposits, which enabled the four pillars of the Australian banking industry to quickly go back to the Capital markets, and raise additional capital with share issues, and then simply start lending again with their revamped balance sheets.
Some international banks did not survive the inevitable run on the Banks, which follows the traditional wide spread fear of a credit collapse, which was being mooted, with Lehman Bros being the most famous casualty.
There were a host of others including HBOS and Bank of Scotland which would have collapsed if they were not bailed out.
Right now, in Australia, there are some worrying signs, re the health of our financial sector, which is leading to speculation that maybe the Australian Banking sector has again allowed itself to get carried away with recent lending policies which have led to concern about future property market sustainability.
Indeed on, March 20th, The Treasurer Scott Morrison, announced that he is in discussions with Council of Financial Regulators about the high proportion of investor loans on which only interest is being repaid. This combined with recent annual property value rises of between 13 and 18% in Sydney, Melbourne and Canberra particularly, has flagged the likelihood of Bank’s tightening the rules to try and restrict investment loans.
It has already started, and we are seeing
- Interest rates being increased on investor loans
- Tough property valuations being completed
- higher deposits being required
- Insistence of borrowers being able to demonstrate an ability to meet loan repayments on a principal and interest basis.
- a limit being placed on the ratio of ‘investment’ lending being conducted, in comparison to owner / occupied lending.
On the same day, the Chairman of ASIC spoke at their Annual forum, about what he considers to be the international ‘norm’, in terms of what the average housing price as a ratio against average income, should be. These figures are generally in the range of 5 – 6 times.
His observation that this ratio in the USA is currently about 5 times. In Melbourne it is currently 9.5, and in Sydney, 12.2. As a point of comparison, in Perth it is between 6.0 and 6.5 times. This is leading to use of the terminology “Housing Bubble”.
It is obvious that the situation is worse and more risky in some parts of the country than others, but it again seems that Banks are bringing in new lending rules, which are standardised around the country, regardless of the local situation.
So yet again, somebody sneezes in Sydney, and we in the West, get diagnosed with pneumonia.
We are seeing ridiculous approval conditions being imposed on modest investment transactions in the Perth Metro area, and even more ridiculous and negative property valuations being produced.
And guess what. It’s already having an effect, but is a slowing of an already stagnant economy what we really want and need at the moment, particularly here in WA?
And the thing which really irks me is that whatever lending has been conducted to allow for this ‘over heating’ of the investment property market, has been conducted by the Banks themselves. It’s been their own policies, their own products, their own marketing and distribution systems, which has lent the money to fund this surge.
And now the whole market suffers because of Bank’s previous policies.
That’s my view point.
Muzza from Perth