Lending criteria for home loan customers has been stiffened by Australia’s third largest credit union and is placing heavier scrutiny on spending patterns and household expenses when assessing borrowers, but as compared to many economists it has a more optimistic outlook on Australian house prices.
There had been a more rigorous approach to home loan serviceability over the past few months, said Steven Laidlaw, chief executive of People’s Choice Credit Union, which operates 44 branches in the Northern Territory, Victoria, South Australia and the ACT.
With home loan growth in the first few months of 2018-19 increasing by about 6 per cent, but this hadn’t resulted in a drop off of home loan customers. Sitting at $6.7 billion is the People’s Choice Credit Union residential home loan book. In the wake of the reputational battering that the big banks had received at the Hayne royal commission, Mr. Laidlaw said the group had been picking up extra customers.
Leading some analysts to believe it could trigger a credit crunch, Australia’s big four banks have all toughened up their lending criteria, that would worsen property price declines. There could be a 30 per cent collapse in house prices, UBS on November 13 said in a worst-case scenario, and widespread litigation against the banks for mortgage mis-selling.
People’s Choice had a more optimistic outlook on the Australian property market than many others, which has 365,000 members with accounts. Historically low interest rates and strong migration levels, this was because of solid underlying economic growth.
The group is predicting that Melbourne and Sydney house prices will be marginally negative to flat, on a three-year view out to 2021 but what some players have been predicting there won’t be the substantial falls of between 10 to 20 percent.
With the Northern Territory around 12 percent and Victoria at 10 percent, South Australia makes up about 70 per cent of its home loan exposure. The remainder is spread across the Western Australian markets and ACT.
He said over the next three years, the Adelaide housing market was likely to make small gains. Mr. Laidlaw said ‘it’s been somewhat counter cyclical traditionally. He expected over the next three years Adelaide and Hobart house prices would hold up better than the other state capitals.
In pushing via an out-of-cycle home loan interest rate rise a couple of months ago, People’s Choice joined most of the banks. However, it wasn’t enough to cover increasing funding costs, said Mr. Laidlaw. He said, ‘For us it was trying to find the middle road.’ For some time, Reserve Bank of Australia to lift official interest rates isn’t expected by the group.
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