Morning Briefing: Household debt to drop bank profits

Goldman Sachs expects profits to drop due to household debt… Borrowers getting mortgages too easily… Sydney's housing market cools down for investors...

Morning Briefing: Household debt to drop bank profits
Household debt send bank profits falling
According to an article in the Sydney Morning Herald, Investment bank Goldman Sachs have maintained their ratings on all of Australia's major banks but have warned of stiff demographic headwinds for the sector as regulatory changes kick in and baby boomers pay down debt
ANZ continues to be rated a buy and Commonwealth Bank a sell by Goldman’s, who have also maintained their neutral ratings on National Australia Bank and Westpac. They have also maintained neutral ratings on Bendigo Bank and Bank of Queensland.

Stricter mortgage approval criteria have been introduced, and the banks are either not providing interest rate discounts on mortgages to property investors, or discouraging discounts.

On the other hand, "our least preferred bank across the sector remains Commonwealth Bank. The bank is the largest Australian mortgage lender and has around 60 per cent of its loan book...derived from domestic housing.”

Borrowers getting mortgages too easily
Home loan borrowers are being given loans too easily and instead their repayments should be assessed on higher interest rates, one of the nation’s biggest debt collection agencies claims.

Prushka’s chief executive officer Roger Mendelson said it was a real problem that many banks were assessing borrowers on interest rates of just seven per cent when signing their up to new loans, and not taking into account whether the borrowers would be able to afford to pay back their loans if and when interest rates rose.

“At the moment you can borrow at rates of about 4.5 per cent,’’ Mendelson said. “Using a benchmark of seven per cent is too low, I think banks need to rein in loans in housing. “I think anyone should factor in at least if interest rates were eight per cent and whether they would be able to cope.”

Sydney's housing market cools down for investors
Australia's biggest wholesale mortgage broker AFG reports large decline in investor property loans over the month of May giving the clearest signal yet that Sydney's housing market is starting to cool, according to an article from the Australian Financial Review.

While the mortgage broker announced a record-breaking volume of $5.1 billion in mortgages processed for the month of June – up 34.5 per cent on June last year - it also reported a "significant cooling" in investment loans.

Investment loans were accounted for 36.9 per cent of the national pool of mortgages down from a peak of 43.1 per cent in April. The figures follow reports from Mortgage Choice that a clampdown on lending to landlords has dragged property investors' share of its loan approvals to a 20-month low.

"These figures suggest that APRA controls are starting to take effect, but not at the expense of the overall mortgage market," AFG managing director Brett McKeon said, "If this trend continues, it should help allay concerns about overheating in Sydney, in particular, as investment levels there come back into line with the sustainable, long term, national average."