“This includes the details that are gathered by mortgage brokers, who generate about 50 per cent of the loans, regarding the living expenses customers provide in their home loan applications.
“It is also likely that the duration to approve loans will be significantly increased, and significant reduction is projected in borrowing capacity (as per UBS, house borrowing capacity could be cut by 21-41 per cent, depending on the borrowers’ income).
He said that areas with oversupply, low economic and population growth, and invester properties (not suited to fmailies) will be hit hardest by price corrections.
“Properties that largely appeal to investors, (i.e. not suited to families), such as small units, carry a higher level of risk. The likelihood that some investors do not have sufficient cash to cover ongoing shortfalls between the mortgage repayments and the rental return is higher,” said Mr Peleg
“Investors often use creative financial planning, and they often place strong reliance on cashflow and negative gearing. Therefore, further scrutiny on property investors is likely to significantly reduce their borrowing capacity, and this will mean demand for such properties will be reduced.”
More expensive areas and properties will also feel the pinch of tighter lending practises.
“Significant reduction to the borrowing capacity will have a direct impact on these properties," he said.
“On the other hand, houses in capital cities that enjoy strong economic and population growth, e.g. Hobart and the western suburbs of Melbourne, which are affordable areas that appeal to both owner-occupiers and investors, carry a lower level of risk."
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I think that the banking ombudsman could have done a better job even considering that some victims may have been surprised to learn they were robbed. None the less, we now need to prepare for the fallout as the banks make plans to soften the impact to share holders. I expect those banks with pending class actions will fare worse as existing borrowers are leaned on. Share distributions will be slimmer perhaps?