For consumers searching out a new mortgage or credit card, now’s a good time to shop. A recent survey amongst loan officers with Australia’s major and regional banks found an expectation that loan standards would tighten as 2010 progresses.

The survey, conducted in December by investment bank UBS, shows that credit underwriting standards are likely to be tightened in the first six months of the year, particularly for home loans, consumer loans, and small to medium-sized businesses. Loan standards for large corporations are not expected to change.

Questions were targeted for chief risk officers or chief financial officers with both the major banks and the regionals.

Credit standards were already tightened across Australia in the final six months of 2010. Most affected were real estate loans, both mortgages for purchase and loans to property companies, as well as loans to financial institutions, such as other banks, and most categories of consumer loans.

Affected somewhat less strongly were loans to corporations, and applications for credit cards.

The tightened standards for mortgages include requirements for collateral, and higher loan pricing and fees not interest based. For corporations, pricing tightened considerably, as did requirements for collateral, fees not interest based, and maturity dates.

The reason most often cited for tightened lending standards among both consumer and corporate loan officers was higher costs for funding loans. The second reason was the economic situation, while banking competition was also mentioned. Reasons that were cited as unimportant include unemployment prospects, real estate prospects, and proposed regulations for tightening capital requirements.

During the final six months of 2009, demand for home loans and consumer credit increased slightly, while all other categories including demand for business lending either remained unchanged or decreased. The largest fall was in credit demand from large corporations and property companies.

For 2010, bankers expect demand for credit from all categories of borrowers to remain steady, with credit growth of 5–10%. UBS, author of the survey, forecasts growth of 2%.

Source: http://news.smh.com.au