Banks tighten borrowing rules

BANKS are tightening their lending criteria and charging more to higher-risk borrowers as the global liquidity crisis forces them to shift from a long-running scramble for market share to a focus on more profitable lending.

Aussie Home Loans founder John Symond said yesterday the banks' new strategy, driven by a squeeze on profit margins because of the higher cost of funding loans, would result in some borrowers being locked out of the mortgage market.

"That's true, but a lot of those customers got into the housing market when they shouldn't have," he said.

"I don't believe in borrowing the lot (no-deposit lending), and the banks were forced to compete in that area when they didn't believe in it either."

The executive chairman of Bluestone, Alistair Jeffery, who specialises in lending to riskier customers, said self-employed people wanting to borrow more than 90 per cent of a property's value would find it difficult to get a home loan.

Borrowers would also struggle if they had patchy credit histories, meaning unpaid debts of more than $1000, unless they could putdown a deposit of 20 per cent or more.

And low-doc loans, which a year ago would have accounted for 15 per cent of new lending, had fallen to about half that figure.

The crackdown on home finance is a ripple effect of the US sub-prime crisis, which has frozen debt markets around the world.

On top of that, the Reserve Bank is engaged in a long-running battle against inflation, lifting cashrates earlier this month for the 12th consecutive time to 7.25 per cent.

Borrowers have suffered a "double-whammy", with banks rebuilding their profit margins by hiking variable home loan rates in excess of RBA movements.

But amid the gloom on funding costs and a rise in potential problem loans to big corporates, Mr Symond said that the nation's big lenders were actually creaming it on the home-lending front.

"The banks will take their losses on the chin - $100 million here or $200 million there," he said. "But when you look at the size of their profits and businesses, and the opportunities they have to increase profit margins and market share, that's as close to insignificant as it could be.

"I believe the banks will end up in the best position they've been in with regard to home loans."

Mr Symond, who forced the nation's banks to meet his heavily discounted home-loan rates in the 1990s, said his biggest fear was the disappearance of competition, with non-bank lenders such as RAMS no longer a fighting force.

All the major banks contacted yesterday said they had not taken any specific action to restrict the availability of credit.

However, ANZ said that option remained a possibility if market conditions worsened.