Banks slammed on 100% lending

ANZ, Commonwealth Bank, NAB and Westpac will still lend 100% of the purchase price of a property, less about 3% mortgage insurance, according to broker Loan Market Group. St George will lend 100%, including insurance, at a higher rate.

Consumer protection and welfare groups have described the ongoing practice as "staggering" given the outlook for the housing market, with capital city prices down 0.3% this quarter and some analysts predicting a fall in prices of up to 10% in the next year.

But banks say their low mortgage default rates show their lending practices are sound - contrary to those of some "innovative" non-bank lenders.

David Imber, of the Victorian Council of Social Service, said 100% loans were luring people who could least afford to borrow.

"If we're seeing people borrowing 100% of the price of a property in an unstable market, it's reasonable to conceive that we could be seeing more people in negative equity," he said.

Negative equity occurs when the value of a property falls below the sum borrowed to buy it. British credit data shows that one in seven homeowners could soon have negative equity after house prices fell 8% in a year.

It is predicted US house prices will have fallen about 30% in two years, and that close to a third of home owners will be in negative equity.

Australian house price data suggests it is those in outer suburbs who are at greatest risk of negative equity.

BIS Shrapnel residential property analyst Angie Zigomanis said home owners in western Sydney had suffered increasingly from negative equity and foreclosure after job losses and severe house price falls. He said Melbourne had similar, smaller pockets of weakness.

Ian Mackintosh, of the Financial and Consumer Rights Council, said it was the responsibility of lenders to properly inform consumers.

"Banks and other lending institutions must share the responsibility of heightening consumer awareness," he said. "It is not just the financial situation of would-be purchasers that must be considered. The personal and social damage that is caused by financial stress is something everyone has a stake in.

"We find it staggering that banks could even be contemplating 100% housing loans . . . All the reading we have been doing indicates that housing prices are not stable and may continue to decline in the outer suburban markets."

But the major banks defended their lending practices, saying it would be bad for business to lend to risky clients.

A Commonwealth spokesman said the bank had not changed its lending standards and still lent 100% to first-home buyers, who had to pay about 3% lender mortgage insurance.

"The performance of banks in lending has been responsible," he said. About 80% of repossessions were on loans that originated with non-bank lenders, he said.

ANZ, NAB and Westpac said they lent 100% before lenders mortgage insurance was deducted.

St George said it would occasionally lend 100% including insurance, but client checks were extremely tight.

St George said it had about 500,000 home loans. Of those, about 80 houses were repossessed each year and mortgage arrears were consistent.

Arrears on "subprime" loans - generally made to riskier borrowers - in Australia grew about 4% in the three months to March 31, according to credit data.

But subprime loans account for only 1% of the Australian market, compared with about a quarter of the US market.

Loan Market Group chief executive Jennifer Nielsen said she expected banks to strengthen their criteria. "If you were a borderline 'yes' in the past, your chances of being a 'no' today are getting higher," she said.