“Completely false”: the economist’s warning on endemic mortgage loans and the decline in business loans

He said businesses are finding it more difficult to obtain loans and are more cautious in the face of economic uncertainty related to the COVID-19 pandemic.

“What we have also seen in the corporate sector is two things. First, it has been more difficult for companies to extract money from banks – banks are asking a lot more questions given the ‘economic environment.

“And second, companies have been lukewarm about investing, deploying their cash until we saw a bit of that economic uncertainty emerge.”

Bagrie said the good news is that the uncertainty should start to dissipate over the next six to 12 months and hopefully encourage companies to invest.

“We have to see companies investing on the trail and one of the main indicators of that is whether the money is going out the door of the banks and flowing into the business sector.”

While business lending has taken a hit, mortgage lending is seemingly unstoppable despite government action to dampen the market.

Bagrie said that although investor borrowing is down slightly, homeowners remain strong.

He said the Reserve Bank’s introduction of loan-to-value ratios (LVRs) had had little success in deterring investors.

“Banks have applied these [LVRs] for a while and we’ve seen a slight pullback in investor borrowing, but overall if you look at homeowner business it’s still pretty much the game. “

The government announced a series of housing changes in March in an attempt to mitigate skyrocketing house price growth. The changes included removing the ability of homeowners to offset interest charges to reduce their tax liability, bringing them into line with homeowners.

The Reserve Bank also introduced lending restrictions. Only a small fraction of bank loans can now go to investors with a deposit of less than 40%.


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