Loan Market Group Executive Director John Kolenda said the heightened activity caused by the Federal Government’s decision last October to raise the grant for established dwellings to $14,000 and to $21,000 for new homes had taken lenders by surprise.
Mr Kolenda said there were delays in getting loans approved due to the dramatic rise in the number of first home buyers. He said many people could miss out on the grant if the Government sticks to a June 30 expiry date for the scheme.
“The success of the Government initiatives coupled with the swift and decisive action of the Reserve Bank of Australia in reducing official rates has seen a huge increase in activity in the first home buyer area,” he said.
“We are hoping the Government extends the scheme another six months to allow more people to access the grant and therefore maintain stability in the residential housing sector.”
Mr Kolenda said the exit of many lenders from the home loan market meant prospective mortgage holders were seeking funds from the major banks.
“The difficulty of accessing funds and other constraints has meant a convergence of first home buyer traffic to the big four banks,” he said.
“They have reined in their own expenditure and this has limited their ability to deal with the unexpected volumes.
“Loan Market Group has been working with individual lenders to ensure that there is a process in place for the escalation and fast-tracking of urgent loan applications.
“This has helped to ease the biggest problem brokers had with processing times, allowing them to properly service clients who require urgent assistance, such as those intending to bid at an auction.”
Mr Kolenda said banks reducing loan to value ratios (LVRS) was also having an impact on borrowers.
“There is no doubt that until the capital market, funding costs and overall liquidity comes back to some normality, credit availability will remain tight,” he said.
But he said access to funds was proving to be more difficult for small to medium enterprises, developers and commercial borrowers rather than for residential lending.
“That part of the market has seen a dramatic constraint in credit and this is more likely to be a danger to the overall economy,” Mr Kolenda said.
Mr Kolenda rejected reports Australia could be headed for a United States-style sub-prime mortgage meltdown because of the high number of new borrowers entering real estate markets.
“The move by some lenders to introduce evidence of genuine three per cent savings is a step to tighten some aspects of the credit criteria, cope with the unexpected surge in volumes and reduce the risks of future default,” he said.
“This is further evidence of the banks controlling and tightening criteria to manage the current economic situation, versus relaxing or encouraging people to borrow who can’t afford it.”