One of the forces underlying our society is family.
We share mutual obligations with our loved ones, but I want to talk about how families help their kids buy their first home and the ways in which the Big Four banks try to undermine this tradition.
Anyone who’s tried to get a mortgage lately would have run head-long into the tightened lending criteria – a stringency the banks can get away with because in the absence of competition, the Big Four now account for nine out of ten new mortgages.
Specifically, you might have noticed the toughened rules about deposits and where they came from.
None of the big banks are currently accepting gifted money from family as evidence of ‘genuine’ savings.
So, you can be earning $80,000 and have every ability to repay a modest mortgage, but if your deposit was gifted by family, it won’t be counted as savings.
Given the amount of wealth in the Baby Boomer generation, it seems like an extraordinary rule to apply to the mortgages of their kids.
And when you compare this policy to the latest Housing Affordability survey, it’s almost unbelievable.
In the June quarter HIA-Commonwealth Bank survey of Housing Affordability, relative affordability had deteriorated by 32 per cent on the same time the year before.
And Sydney’s affordability fell the most.
We’re out of the worst of the global financial crisis, but a year on, housing affordability has fallen by one-third.
Why the banks have chosen this time to tighten the famous Australia lending criteria, is a mystery.
After all, our conservative lending criteria was already the reason that Australia missed the worst of the GFC.
But as housing affordability reaches its lowest point in years, the banks are making it harder.
They can do this because they work as an oligopoly: where big business corners an industry and runs it at the prices that suit them, and competition goes out the window.
Fifteen years ago, I started a mortgage lender called Wizard Home Loans and together with Aussie and Rams, we forced the banks to reduce the margins on their mortgages and increase their product flexibility.
This week, my new company – Yellow Brick Road – introduced a mortgage product called First Step that will assess gifted money as genuine savings.
Having found that the most important measure of a borrower is the ability to service the loan and a stable work/income history, we didn’t see the need to exclude deposits deriving from family gifts.
It’s a First Step, but a small one.
Oligopoly only breaks down when businesses challenge it, and I expect other non-bank lenders to start offering new mortgage products over the next six months.
Now it’s over to the consumers.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au or check www.ybr.com.au for your nearest branch.