Bank insiders reckon there actually is no credit crunch
So every year, MacQuarie Bank does a shadow shopping exercise into mortgage finance.
That is, they take the same set of details and shop it around to various banks and mortgage brokers to see how much they can get and at what price.
This year’s results were always going to be interesting, because right now, we’re hearing a lot of talk about a ‘credit crunch’.
The key markers of this so-called ‘crunch’ aren’t hard to miss.
• We’ve got banks taking a belting from the Royal Commission, and seemingly scrambling to get their loan books in order.
• We’ve got APRA coming down hard, particular on investor and interest-only lending
• We’ve got a spike in swap rates on international markets and some smaller lenders already passing through the rate hikes.
• And everyone in the game is saying that it’s tougher. Mortgage brokers are having to work harder to get loans across the line, and they’re reporting that borrowers aren’t able to get as much as they used to.
So on the face of it, there’s less money going around, and it’s costing us more. And you’re hearing this ‘theme’ get repeated more and more often, until we’re close to it becoming a consensus.
And I’m saying that it’s still just a theme, because we haven’t seen it really show up in the credit aggregate data just yet. It looks like we may have formed a top, but it certainly hasn’t crunched yet.
So anyway, now is the perfect time to test whether this credit crunch is a reality or not. Enter the spies from Macquarie Bank.
This is what the shadow shoppers found:
“Our findings somewhat contradict the notion that lenders substantially lowered their maximum lending capacities over the course of the last six months.
We found that while banks and brokers appear to be spending significantly more time in getting additional information and responding to exceptions in the application forms, rejection rates remained low and broadly consistent with prior years.”
Ultimately, we expect a combination of weaker house prices; a reduced proportion of interest-only loans; and a further but gradual tightening of credit standards to result in credit growth slowing towards our forecast of ~2% by 2020.
However, our current findings, in our view, alleviate the risk of a credit crunch which would potentially result in a significant economic downturn scenario which would adversely affect banks.”
Ok, so yes, credit is harder to get – we need to jump through more hoops – but the amount of credit on offer isn’t down much, and talk of a ‘credit crunch’ so far looks overblown.
That is very good to know.
And while the majors may be trimming things back a bit, it looks like the smaller lenders are using the opportunity to increase market share.
“…Some lenders (i.e. Pepper) appear to have maintained more aggressive lending policies and were prepared to lend ~$700k.
These pricing trends suggest that lenders are competing aggressively for new business, which is generally not consistent with signs of credit rationing.”
So no credit crunch. Not yet. And without a credit crunch, we’re not likely to see a protracted downturn in prices.
… despite the dominant media narrative.
To me this is interesting. The most like explanation is that we all just got ahead of ourselves. The credit crunch story was interesting, so people put speculation on top of more speculation, and the theory became fact.
That’s probably what it was.
But there’s another story that I wonder about.
We know that the RBA and APRA have been looking for an orderly cooling down in the market.
What better way to do it than to start circulating a story about a credit crunch, and rein in people’s expectations…
That is, maybe it’s a false flag attack.
I’m not sure. It’s just a theory. But definitely a possibility.
Well played, lads.