Banks Ready for Biggest Credit Boom in History
It was only yesterday that I showed you more than a million Aussies with mortgages are in financial distress…
…yet Aussie banks wouldn’t tell us that.
That’s because they keep their nearly bad debts information close to home.
There’s no way they want you or I to know exactly how many people are struggling to make regular repayments on their mortgages.
Plus, the big banks assure us they have changed their ways.
In this post Royal Banking Commission world, our banks are telling us they are far more cautious about who they lend to.
Hand on heart swearing they’re lending even less and responsibly…
What if I told you, these promises were being made with their fingers crossed behind their backs?
The vicious cycle of continuous spending
Ask yourself this, just how important is lending to the Aussie economy?
In short, it’s crucial.
Let me show you why…
Aside from exporting rocks to emerging markets, Australia produces very little.
Which is why consumption is so important to keep our miracle economic growth story continuing.
And part of that consumption, is our incessant obsession with building houses and paying ever larger amounts for them.
Building those houses and apartments are more than one million construction employees. Roughly 11% of the total full time work force.
Then we have the indirect jobs associated with houses. Real estate companies and home improvement store employees…
Let’s not forget too, that as long as people feel their houses are increasing in value, they are more likely to spend money.
When houses prices increase, people will upgrade their five-year-old car for a brand new one. Perhaps even get that boat they’ve always wanted.
Essentially, increasing house prices mean Aussies will use their mortgage as an ATM for the big purchases.
Then, there’s the little things.
If you’re feeling flush with cash, chances are you’re more likely to go shopping. Eat out with friends, head to the movies or even a family night out bowling.
But if you keep hearing that property prices are falling, chances are you’ll start to spend a little less.
Go out once a month for dinner rather than twice. Probably rethink that Uber Eats order. Shave $50 bucks off that wedding gift you’re about to buy.
That thought process — the reduction in spending — feeds into the bigger things.
The plans for the renovations get shelved.
And if you hear banks are reducing what they’re willing to lend, refinancing the mortgage to buy that boat doesn’t seem like such a good idea anymore.
And really, you don’t need a new car just because the current one has approached the end of the warranty period.
Nope. Give it a thorough service, new windscreen and a clean, and you’ll get a few more years out if it.
Imagine this process happening in every Australian house hold right now.
All around the country, people are reducing what they spend.
And the less you spend, the harder it is for businesses to make a buck.
The harder it becomes to turn a profit, the more likely it is businesses will slowly reduce their staff numbers.
And if people find themselves without work, chances are they’ll stop spending money in the economy on the fun things.
The longer people are out of work, the harder those debts are to pay.
It’s not a recession…yet…but it sure as hell isn’t a sign the Aussie economy is doing well either.
And our banks have noticed this…
Thought bankers were bad in 2017? Just wait…
As long as Aussie banks keep lending, we can continue to buy all the things we want.
Over the last 12 months though, banks have repeatedly told us they are reducing what they are willing to lend.
The mainstream press back this up.
Telling all sorts of stories about people being quizzed on how much they spend on take away.
Then there’s the data from Digital Analytics that says mortgage refinance rejections were six times higher over 2018.
With every mortgage knock back — and every media story that confirms this — the reduction in the supply of credit has compounded the current house price falls.
Which in turn is forcing consumers to spend even less…and putting Australia dangerously close to a recession.
However, our banks have been telling us only what we wanted to hear.
The Royal Banking Commission is done an dusted. And those lending machines are set to fire up once again.
This time, it will all begin with ANZ bank.
Free from restrictions on investor lending, spokesperson from ANZ said they ‘…have decided to increase our focus on the investor market. These changes demonstrate our continued appetite in the investor market, while ensuring we remain in line with our APRA requirements.’
Just how will ANZ ‘target’ the investor market?
With some seriously explosive lending techniques.
The maximum loan-to-value ratio for investing lending is going to increase from 80/20 to 90/10.
Meaning ANZ will now only seek a 10% deposit on an investment property rather than 20%.
Oh, and they will also increase the maximum interest only period from five years to 10 years.
ANZ are doubling the interest only period for investors.
This is truly terrifying.
Not only that, it doesn’t take long for this unrestrained form of lending to filter through to all mortgages.
Bankers only know how to make money one way. That’s by lending ever larger amounts to us.
It won’t be long until 2018’s Royal Banking Commission was nothing more than a nosy government in bank practices. The stories of corruption and rampant lending will become just that…stories.
ANZ targeting investors with unheard of loan conditions is step one. After this is successful (and the bankers will say it was) that will flow through to owner occupiers…
…and Australia is about to see perhaps the most irresponsible lending of our time.
If you thought the past decades’ credit boom was big, I’d say hold that thought.
If ANZ’s new lending plan is anything to go by, we are about to witness the biggest credit boom in Australian history.
Until next time,