The ANZ is tightening the rules for home loans from next week as Australia’s banks start to adjust for any downturn in the housing market.
The bank is taking a tougher view of household expenses, a factor in determining the size of a loan and an applicant’s ability to make repayments.
From Monday, the bank will now work out household expenses according to the level of income rather than using a one-size-fits-all minimum spend.
This will reduce the amount the bank will lend because higher household expenses means there are fewer dollars to service a loan.
Residential mortgages dominate the loan books of Australian banks with low interest rates currently supporting stability in the housing market.
However, there’s increasing worry about the failure of wages to keep pace with rising house prices.
“Deepening affordability shortfalls could lead to an eventual adjustment that would better align house price growth with income growth,” according to analysis of the banking sector by ratings agency Moody’s.
“Although we expect such adjustment to be gradual, the likelihood of an outright house price correction is rising.”
There are already signs of a slowing in house price growth, particularly in Sydney.
An ANZ spokesman told Business Insider the bank regularly reviews credit policies to ensure lending is prudent and aligned with risk in the competitive, economic and regulatory environment.
“For our customers, these changes are designed to ensure that we continue to assess any application for credit in a prudent way in view of their individual circumstances,” the spokesman said.
The change was foreshadowed in a note from the ANZ to mortgage brokers:
Summary of changes to Credit Policy
Change to minimum living expense values
• Introduction of income-indexed minimum living expense values (tiered by income bands) for Single and Couples with provision for up to 10 dependents
For serviceability, ANZ will continue to use the higher of (a) the customer’s stated expenses or, (b) the new applicable minimum living expense.
The ANZ’s share price has been hammered recently after the bank warned of more bad debts from loans to the resources industry.