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Banks dial back COVID-19 caution as economy improves

Leading mortgage brokers say banks are cautiously taking the brakes off home lending and removing extra checks on borrowers that were introduced at the height of the coronavirus pandemic.

The trend comes amid an ongoing surge in new lending, but brokers say they are not seeing a rise in high-risk borrowing, and nor do they believe regulatory caps on home lending will be introduced anytime soon.

The red-hot property market has put bank lending standards under the microscope of regulators.

The red-hot property market has put bank lending standards under the microscope of regulators.Credit:Brent Lewin

With house prices growing at their fastest pace since the late 1980s, the quality of bank lending is under the microscope. Regulators have repeatedly warned they do not want to see a deterioration in credit underwriting standards, noting they could intervene if needed.

Several brokers including Commonwealth Bank’s Aussie Home Loans and its merger partner Lendi said banks had become less conservative compared with the height of the pandemic last year.

Aussie chief executive James Symond said after banks “pulled in their horns” during the peak of the pandemic, they were now taking a more “commercial” approach to credit assessments.

“We are seeing a more balanced approach by the banks. We are seeing less conservatism, but much thought being placed in every single customer application,” said Mr Symond, who also predicted property investors would increasingly come into the market over the next 12 to 18 months.

Data from Lendi – which announced plans to merge with Aussie last year – showed the proportion of loan applications where lenders are requesting more information from the customer has dropped from 48 per cent in March last year to 28 cent this year.

Lendi chief executive and co-founder David Hyman said the decline was a sign that banks were taking a far less conservative approach than they were in the early days of the pandemic, and the aftermath of the Hayne royal commission.

Even so, Mr Hyman said the proportion of loans with a high loan-to-valuation was relatively flat in the last year, and he did not think macroprudential policies were needed at the moment. “There’s a growing fear of missing out as prices rise but we are not seeing borrower behaviour becoming riskier across the board,” he said.

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