(28 March 2010 – Australia) The Reserve Bank of Australia has issued a warning to banks amid concerns they are beginning to lower their mortgage their lending standards.The central bank also flagged that banks should accept that rapid growth achieved prior to the global financial crisis would never be enjoyed again.
In a review of the stability of the financial system, the Reserve Bank yesterday noted that competition for new mortgage customers was leading banks to increase their maximum loan to valuation ratios.
‘Increasing competition in housing loans is starting to put pressure on lending standards,’ the bank said.
The second-tier banks, along with credit unions and building societies, have been trying to regain market share with cut-price mortgage deals.
A rise in the number of home-buyers refinancing their home loans has been driven by borrowers seeking to lower their costs by turning to the second-tier lenders.
‘If industry participants were to attempt to sustain earlier rates of domestic credit growth, they could be induced to take risks that may subsequently be difficult to manage,’ it said.
The Reserve Bank says the number of housing loans that are falling behind on their payments remains subdued at just 0.7 percent.