Warning over loose lending rules

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Mortgage companies that loosen their lending rules to gain market share may turn credit worthy borrowers into high risk customers who default, warns Mark Bouris, chairman of non-bank lender Wizard Home Loans.

Monday, March 19th 2007, 9:19AM

by Maria Scott

Bouris’s warning comes as the US banking industry struggles to contain losses on “sub-prime” lending to people who have had previous difficulties with debt. Problems in the market have unsettled Wall Street and contributed to recent share price volatility. Australia has seen some difficulties in the sub-prime market, said Bouris. “It is working its way out of the system but hasn’t happened yet.” The sub-prime market is developing quickly in New Zealand and several mainstream banks are now moving into the area.

Bouris said he did not know whether the market in New Zealand was big enough to produce significant problems for lenders. But he said New Zealand’s property and credit markets would benefit from stabilisation. “Competition here is pretty heavy. There probably needs to be some stabilisation.”

“I get very concerned about loosening of credit criteria.

“The danger is that you are lending to people who can’t afford it.

You can create a sub-prime borrowers by lending more to people who really can’t afford it because you are chasing market share.”

Bouris said that announcements last week by Reserve Bank Governor Alan Bollard of plans to tighten the tax rules on property investments were unlikely to halt house price increases. The introduction of capital gains tax on investment property gains in Australia in 1985 had been absorbed by investors, he said. In the early 1990s the country experienced its biggest ever property boom.

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