Spring is in the air : Australia returns to subprime lending

After dodging the biggest financial crisis since the great depression, Australian lenders are starting to return to subprime lending practices, not seen since the start of the GFC.

Mortgage House will start offering 105% percent housing loans next month after applications for its 99% LVR loan introduced last month has been flooding in.

The banks are also relaxing lending standards. The Westpac has increased its LVR for new customers to 92 percent up from 87 percent. The ANZ has bumped up LVR for existing customers from 95 to 97 percent and from 90 to 92 percent for new customers.

Aussie Home Loan’s John Symonds said the return to pre-GFC style lending will be disastrous.

In unrelated news, the South Australian government plans to increase its first home bonus grants in the budget next week to help prop up the ailing residential construction sector as new homes become further out of reach.

ยป Lenders back to throwing cash at buyers – News Limited, 12th September 2010.


  1. “We are being very particular about the borrowers we are lending to, and the types of properties they’re buying” Mr Sayer said.

    “Unless the borrowers have a good credit record – and the properties are readily saleable – we’ll be much more conservative.”

    I think this is the key, – they will be ‘conservative’ until they start losing market share. Then it will be time for some ‘innovation’.

  2. Maybe the banks know the only way to save themselves long term is to get the wheels of lending rolling again?

  3. ‘Saved’ by the banks again.
    They KNEW it was going to crash.
    Now I am royally stuffed and will never get onto the property ladder.
    More house price inflation to come.
    I think this time prices will go through the roof.

  4. Interestingly – two guys I work with attended a property investment seminar last weekend and the industry is now suggesting to would be investors that the RBA, Government and Banks cannot allow capital gains in the property market to dry up, because this would crash the whole economy. There is now an expectation based on the GFC experience that the government won’t let things crash, therefore investment is risk free.

    If the continued capital gains have to be guaranteed by the government to save the economy from crashing, then it is going to lead to a very nasty tax situation in the medium term.

    Large government debt to save capital gains, aging population, and diminishing tax base over the medium to long term present two options. Higher taxes or higher immigration, and we know which option the Gillard Government favours.

  5. FHB,

    I think you’re forgetting something, wages have no kept pace and the gap has been growing, there is a limit, only fools try to stretch beyond this.

    Interest rates will rise, employment and inflation will make it so, employment is solid at the moment but that does not mean wages can rise in line with house prices. I liken this current scenario to the “perpetual motion machine” a theory that discounts the effects of friction and other associated forces.

    Why commit yourself to a lifelong slavery that takes most of your resources and delivers a net gain at the end that can never justify the slavery?

    I recently spoke to someone who bought their first house last year, they began bragging to me about the “$100k” in equity they now have. I then proceeded to list all the costs so far including everything from the initial stamp duty to the interest paid and all the associated bills and rates along the way. So much for their “$100k in equity”

  6. Cash saving on difference between Mortgage Payment and Rent = Real Equity

    Increase in sale price of other houses in your area being drip fed to market = Claimed Equity

    I know which one I’d rather have.

  7. Glenn Otto presented a paper a while back using data showing the Median Price-Rent Ratio for Established Houses in Sydney at around 35 in 2004 see http://members.optusnet.com.au/~g.otto/AEC07_Talkv1.pdf

    I have just come across your website by chance. I think your analysis is excellent. However, you need feedblitz or some sort of service where your blogs will be sent via email.

  8. It’s simple really

    Debt backed by High House Prices, backed by Government which is backed by the mining boom which is backed by China.

    Unless China starts making everything with Bamboo, unaffordable Housing is here to stay.

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