Lending conditions change continuously-what it means to you
Our largest lender the Commonwealth Bank (CBA) recently announced a number of changes to it’s lending policy. At face value this implies a tightening of who, how and when the bank will lend money. Looking deeper we see the bank simply responding to changing lending conditions. Lending policies are being adjusted to match current market conditions.
The CBA is doing what a lot of other banks and lenders have been doing for a long time. Until these changes the CBA applied it’s lending policies fairly evenly across all postcodes and property types. Going forward some policies will tighten depending on the postcode location and the type of property. I would guess an example would be high rise investment apartments in capital city CBD’s. Nothing new here. Sensible lending really.
Changing credit policies must always be looked at from the point of view of risk. This is not risk to you as a borrower, though there are lessons to learn here, but risk to the bank. The risk they will loose the money they have loaned because the loan has gone sour and the sale of the property will not recover all monies owed. In bank jargon they call it risk appetite. Sometimes they have a large appetite, sometimes not. As lending conditions change, appetites change.
Are there lessons here for you the borrower?
Yes there are.
Banks and lenders devote considerable resources to managing their risk. Why wouldn’t you. When our largest bank decides lending to investors buying inner city high rise units for example is riskier now than it used to be, why would you want to buy one? A reduction of the percentage they will lend on a type of property in certain postcodes, could that mean a greater risk of prices reducing?
If you want to buy a property in the near future, take guidance from what banks and lenders do as lending conditions change. It might just save you from buying the wrong type of property in the wrong location. A lemon in other words!
Before you go too far along the property buying journey, clearly understand your borrowing and purchasing power. You know what they say about proper planning( or lack of).
Let us do this for you. Take five minutes to complete our online form and we will professionally analyse your borrowing and buying potential. Simply click here.
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