Tighter credit and changing lending policies are creating confusion and complexity in the third-party channel as brokers receive conflicting messages from bank BDMs and credit assessors on prime mortgage deals.
Fears are growing about a potential “credit crunch” that has largely been driven by the cross currents of regulatory measures, changing bank appetites and greater scrutiny of the mortgage industry from a series of inquiries, reports and most notably the Hayne royal commission.
These factors have had a significant impact on the credit policies of the major banks in particular. While APRA has removed its 10 per cent cap on investor lending, the big four are still very much under the watchful eye of the regulator and have shifted to far more conservative home lending strategies.
Award-winning Queensland-based broker Xavier Quenon told The Adviser that within the banks there is now “conflict” between BDMs, credit and sales.
“Because lending changes are moving so quickly, sometimes the message doesn’t go from one area of the bank to the other, or by the time it does something else has changed,” he said.
“We are also finding that credit assessors have different interpretations of a deal. If you put a deal though a lender and I put the same deal through that lender, we could get different results. You might get yours approved and I might not.
“It is getting inconsistent. It becomes messy for the customer and the broker.”
ANZ, CBA, NAB and Westpac have conceded considerable third-party market share to the challenger banks and alternative lenders in recent months as brokers are forced to look being the big four for their customers.
The latest AFG Competition Index released shows further evidence of what the major aggregator called a “structural shift in the Australian lending market”.
Morgan Stanley this week reported that the non-banks are growing their mortgage books at twice the rate of the big four as tighter lending standards continue to weigh on the majors.
The report found that on a year-on-year basis, major banks’ home loans are tracking at ~5 per cent growth, non-majors or other banks at ~8 per cent and the non-banks at ~10 per cent.
Non-bank lender Bluestone has experienced a surge in demand from brokers over May and June following its entry into the “near-prime” space. Speaking to The Adviser, Bluestone’s head of sales and marketing, Royden D’Vaz, observed that what used to be known as “vanilla deals” have now become a thing of the past.
“The biggest frustration for brokers at the moment is they don’t know what a deal is anymore,” he explained.
“What a deal looked like two months ago, surprisingly they are not going to be able to get it across. This is the bit that they are finding very challenging. I speak to brokers on a regular basis and see their frustration. They get a decline and even the BDM can’t explain why the deal declined because it is all based around the algorithms of the credit scorecard.”
BDMs and credit assessors in the dark
Mr D’Vaz believes that the days of brokers looking at a home loan deal based on an individual’s circumstances are quickly disappearing as the big banks move to automated credit assessment and algorithms to underwrite residential mortgages.
“It’s all based on a historical scorecard or an algorithm that the BDMs and credit guys can’t override anymore. They just don’t know why it has suddenly been declined, because on the face of it, it would have been a deal just a few months ago,” he said.
Bluestone is one of a handful of Australian non-bank lenders that have attracted the attention and capital backing of American investors. The well-timed acquisition of Bluestone’s Asia Pacific operations by Cerberus Capital Management enabled the non-bank lender to realise immediate opportunities. Backed by Cerebus, Bluestone was able to slash rates by 2.25 per cent off its entire product suite and amplify its near-prime offering.
“Near prime is growing. It’s a prime deal that isn’t quite there. Two months ago, it was a deal but it’s not anymore. These are deals that don’t fit the mainstream lenders but are not credit impaired. The borrowers have clean credit histories,” Mr D’Vaz said.
While Bluestone verifies the expenses and incomes of its borrowers with the same level of scrutiny as the banks, Mr D’Vaz says the key difference is in its assessment of deals on a case by case basis.
James Mitchell has over eight years’ experience as a financial reporter and is the managing editor of mortgages at Momentum Media. He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, SMSF Adviser, Smart Property Investment, Residential Property Manager and Real Estate Business.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group. James holds a BA (Hons) in English Literature and an MA in Journalism.
James is also the editor of Wellness Daily.