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  • In a report titled, “Financial Stability Review, April 2019”, the Reserve Bank of

  • Australia stated that recent measures to reduce high-risk lending had curbed the maximum loan

  • sizes available to most borrowers.

  • They described housing credit conditions as being, “tighter than they have been for

  • some time”, which has resulted in housing credit growth nosediving in recent years as

  • shown in this chart.

  • Owner-occupier growth, shown in orange, has fallen significantly in the last couple of

  • years.

  • But by far the biggest fall in credit growth has been with investors, shown in yellow.

  • Quite simply, investors are pulling out of the property market and putting their money

  • elsewhere.

  • Interest-only loans have collapsed in the last few years.

  • In early 2015, interest-only loans made up almost 45% of new loan approvals.

  • Now that's down to around 16%.

  • Perth homeowner, Julia, has been hit by the lending crackdown.

  • She said that she and her husband could not afford the $900 jump in monthly repayments

  • for their investment property in Perth's south-east.

  • She said,

  • When I came to refinance … I was told in short there was nothing they could do anymore.

  • My interest-only term had expired and they had to roll me over to principal and interest.

  • I've always been able to roll over my interest-only term when that expiresand now they've

  • said, 'You can't do that anymore'.

  • We've got two young children, a two-year-old and a four-year-old, so the stability is everything

  • to us, it determines every decision we make as a family.

  • This is not something I want to sell, I've had this property for 10 years.

  • I'm selling because I have to.”

  • Property analyst, Gavin Hegney, spoke of the looming crisis in Sydney.

  • He stated,

  • Values are off 18% in Sydney, which is an important number because that takes away

  • 20% growth on the way up in a market.

  • So for those buyers, they are now probably in negative equity situations and are probably

  • feeling a little bit uncomfortable.

  • We'd have to go back to the mid-1970s before we had the last credit squeeze in Australia.

  • Although banking has been tight before, it's just been the drastic changewhere it's

  • gone from quite liberal lending to quite tight lending over such a short period of timethat's

  • caught quite a few people unaware and affected the market quite significantly.”

  • The RBA estimate that around $120 billion of interest-only loans are scheduled to convert

  • to principal and interest repayments this year.

  • Most of these loans were made prior to 2015, when lending standards were a lot weaker,

  • so ultimately it's going to prove quite challenging to those borrowers when their

  • mortgage repayments start increasing.

  • With regard to the stricter lending standards, Amanda Bearcroft, a property owner in Sydney,

  • said that she was trying to sell her property on the Hawkesbury River, north-west of Sydney.

  • But the couple who were keen to purchase it were simply unable to secure financing, despite

  • raising a 30% deposit.

  • Ms Bearcroft said,

  • At first they were told it would be 30%, then the banks finally came back and said

  • it was 35% at the very end.

  • They also went through their statements for the past year, I believe right down to the

  • smallest expenses, including a $9.70 charge on the statement which turned out to be a

  • coffee and banana bread.

  • The banks have just got too difficult to borrow money off.

  • We're really going to need a cash buyer to come in and people don't have that cash just

  • lying there.

  • It's really difficult.

  • Everybody that's come through and have been interested have been told they are required

  • to pay 30%.”

  • Information sourced from the data company, Digital Finance Analytics, shows the riskiest

  • suburbs for home loans from a banking financial perspective.

  • With higher-risk suburbs, lenders apply tighter lending criteria and require borrowers to

  • find larger deposits to avoid paying costly mortgage insurance on top of their loans.

  • Canberra has a relatively low risk overall.

  • It's riskiest postcodes include 2600 at a risk score of 11.5, and 2603 at 11.0.

  • Melbourne has a number of postcodes that are above a risk score of 20.

  • These include 3980, 3796, 3782, 3977, 3978, and so on.

  • Sydney also has a number of suburbs that fall in the 20 range.

  • These include 2106, 2105, 2101, 2083, 2754, and 2104.

  • Postcodes 2106 and 2105 are the riskiest at 24.2, and 23 respectively.

  • Hobart postcodes 7024, 7012, 7025, 7055, 7170, and so on, all have scores above 20.

  • Brisbane postcodes 4064, 4184, 4129, 4169, 4102, 4156, and 4000 are also considered quite

  • risky for lenders.

  • Adelaide is not faring so well.

  • The following suburbs all have a risk score greater than 25.

  • These include 5064, 5069, 5081, 5168, 5015, and 5095.

  • But Perth is by far Australia's riskiest city with a whole bunch of suburbs having

  • risk scores above 30.

  • These include 6069, 6003, 6061, 6056, 6167… the list goes on!

  • Good luck getting a loan in Perth at the moment without a huge deposit.

  • Caylum Merrick, team leader of finance at Momentum Wealth stated,

  • It's probably been the most difficult time to acquire money in a long time, so a lot

  • of people are probably being caught off guard.

  • It's a bit of a perfect stormwith the Banking Royal Commission, that's provided

  • a whole other raft of challenges for borrowers regarding serviceability.

  • The big thing is the way the banks are assessing loans at the moment is a lot different to

  • what it was three to four years ago.

  • And a lot of clients probably don't understand that's changed and are finding all of a sudden

  • they can't borrow as much as what they once [could].”

  • So that's the current state of the Australian housing credit situation.

  • People are having a tough time getting the finance they need to purchase the houses they

  • want.

  • Consequently, house prices are falling as nobody can afford the higher house prices.

  • In my opinion, this is good.

  • Credit shouldn't be easy to get.

  • By allowing people to easily borrow large amounts of money, we're creating a culture

  • where people don't want to save anymore.

  • And unfortunately, this culture is coming back to bite us.

  • We can see it in the house of cards that is the property market as it crumbles down around

  • us.

In a report titled, “Financial Stability Review, April 2019”, the Reserve Bank of

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