Australia's Household Debt
Australia's Level of Debt
After a decade of housing price rises, very low interest rates and credit that has been quite easy to secure, the outcome has left Australians now carrying the second-highest level of household debt in the world. The problem is that new information claims even a small rise in interest rates will result in household stress to more than one million people.
The problem is despite efforts by government and banks to tighten lending and toughen the criteria to borrow money the lending culture as bank staff and mortgage brokers are still expected to meet tough lending targets. Even worse is that in some banks and financial institutions staff have been threatened with dismissal if they do not meet the banks' requirement and sign up more borrowers to ensure their targets are met for the month.
In fact, this problem with the lending culture was acknowledged by the banks themselves earlier this year in a review conducted about this very subject. For bank staff, this is still a primary motivator as they receive incentive payments for achieving these lending targets
Internal performance expectations for some bank lenders, include targets of nine home financing requests per week and between two and three home-loan drawdowns a week. And all the big banks have performance targets though most bank CEOs claim changes had been made and not all the targets were simply sales targets. Most banks claim targets were weighted towards good customer outcomes and customer satisfaction and that he targets are not all about sales, not about the number of mortgages.
Banking regulators have also moved to tighten lending, trying to force banks to make investor loans harder to obtain yet some bank staff say they still had to meet tough performance targets. A recent ABC article states that some banks have sent staff letters telling staff who had not met their targets ‘that their positions were under review, and canvassed the possibility of termination’ As part of regular reviews, staff are assessed based on a mix of financial and non-financial objectives.
"Product sales is one of these measures and most banks stating that delivering the right outcomes for customers is also important."
Incentives driving the mortgage brokerage industry however have continued and borrowing criteria though tightened is still easy to obtain.
And that brokers are under extreme pressure — most of them don't have a base salary, and most brokers had lending targets they needed to achieve with some as high as $3 million a month and if targets were not met, the brokers re often forced out of the industry.
The problem is too many people in the finance industry have been lending their clients too much money, encouraging them to borrow more than what they can comfortably afford. This is causing a perfect storm of problems and Australian banks now hold at least 60 per cent of their loan assets directly to housing.
Some economists and former bankers are growingly increasingly concerned about the impact of any housing downturn on the banks and on the wider Australian economy. Time will tell and once interest rates begin to rise we will see the impact of this on the Australian property market.