Is this a credit crunch?

Finding it tougher to get credit?

You’re not alone. This is a very tricky credit environment right now.

The Royal Commission has got banks running scared. They’re a little freaked right now.

What’s come to light is that banks have been playing a little fast and loose with the rules.

One of them is around HEM – Household Expenditure Measures. This is a bench mark figure to determine what a household needs to survive.

Banks have been using this to assess serviceability. How much can you afford? Let’s look at how much you need to survive.

But APRA is saying that this isn’t good enough. Banks shouldn’t be using benchmarks. They should be looking at actual spending figures.

(To be fair, these rules have been in place for a while, so the banks should have known better.)

But I can see the logic here. The question around what you can service really comes down to what’s left over after your basic expenses are met.

But most people spend more than the basic amount because they can. No point living in poverty if you don’t have to.

But that also means they’ve got a buffer. If things got tough and I couldn’t meet a mortgage repayment, I’d cancel three of the overseas holidays I’ve got planned this year.

The point is that to me, using HEM seemed reasonable enough. The banks probably thought so too.

But not APRA. And now the banks are falling over themselves trying to keep their noses clean (or clean the muck of their noses).

In turn, that’s translated into a much tricker credit environment. Abandoning HEM means that our expenses rise and our serviceability falls. No way around it.

It also means we’ve got to jump through a lot more hoops.

This will knock the wind out of the market to a degree.

But with every crisis comes an opportunity.

To me, I’m looking at this as temporary.

The rules will be tighter going forward, sure, but there’s an air of panic to the credit market right now.

That means than any dip that comes out of this kerfuffle will be lower than it needs to be.

That creates a buying opportunity.

This means it’s a great time to get your house in order. And if you’re still doing deals (I am) then really go after deals that give you a lot of equity to play with. Make sure your deals are setting you up for the buying opportunities ahead.

But don’t get too hung up on the fear and drama. This will pass, and good properties will always be good properties.

Spiro Kladis
Managing Director, Cashflow Capital

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