Australian banks are prepared to lend about 25 per cent more to home buyers than banks in the United Kingdom or the United States will offer to their customers, despite a tightening in credit standards in recent years, new research suggests.
The findings came as Commonwealth Bank-owned Bankwest became the latest lender to raise interest rates for customers taking out interest-only loans, while also cutting rates for some principal and interest loans.
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Banks have chopped tens of thousands of dollars off the maximum amounts they will lend prospective home buyers in Australia since 2015, in an attempt to dampen risks in the housing market.
New research from Macquarie analysts highlights the extent of the cuts - showing the borrowing capacity of a hypothetical property investor customer has shrunk by $70,000 in the past year alone.
Even so, the analysis suggests Australian banks are still prepared to lend borrowers here larger multiples of their income than banks in the UK and US, despite these countries having lower interest rates.
Canadian banks offered similar borrowing capacity to Australia's banks, the analysts found.
The report predicts "further tightening in borrowing limits", which could dampen loan growth in the banking system.
The findings are based on a "mystery shopping" exercise, where analysts led by Victor German tested how much banks would lend to a hypothetical customer with an income of $105,000, no dependents, and a good credit history.
![The big banks have tightened home lending standards in recent years, and there could be more to come.](http://web.archive.org./web/20170616204153im_/https://www.fairfaxstatic.com.au/content/dam/images/g/n/l/i/2/6/image.related.articleLeadwide.620x349.gwqoy9.png/1497423914366.jpg)
The analysts estimated that on average, the big four Australian banks have in the past two years cut the maximum amounts they will extend to such a person by up to 19 per cent if they were buying a home to live in. The cut to borrowing power was greater, at 26 per cent, if they were buying an investment property.
"While this reduction appears significant, we note that current borrowing capacity remains above the 2011 levels and we continue to expect further tightening in borrowing limits," the report said.
"Our international comparison also highlighted that UK and US banks were generally prepared to lend 20 per cent to 25 per cent less than Australian banks for owner occupier debt, despite lower interest rates in these markets. "
The average borrowing capacity for the hypothetical customer was $570,000 if they were seeking an owner-occupied loan, down from $680,000 two years ago.
In comparison, borrowing capacity for the customer in the UK was equal to $460,000, and $440,000 in the United States.
If they were buying an investment property, the analysts estimated the customer would be able to borrow up to $770,000 from the big four Australian banks, on average. That compared with $840,000 last year, and $960,000 two years ago.
Separately, Bankwest will on Friday hike fixed interest rates for interest-only customers by between 0.04 and 0.34 percentage points, and will no longer offer interest-only fixed loans as part of a key package deal.
At the same time, it will cut variable rates on principal and interest loans for new customers by up to 0.4 percentage points, an attempt to encourage customers to switch into loans where they are also paying down their debt.
It said the changes were "introduced to maintain the appropriate balance across Bankwest's home loan portfolio in line with regulatory guidance."
Banks have in recent years cut back the maximum amounts they will lend to customers by adopting more conservative assumptions about living expenses and customers' sensitivity to higher interest rates.
Before this crackdown commenced in 2015, competition had eroded some mortgage lending standards to "horribly low" levels that lacked "common sense," the Australian Prudential Regulation Authority said in late 2015.
Since then, APRA says the quality of bank lending has improved, though it remains focused on the "heightened risk" it sees from an environment of very low interest rates, soft household income, and a recent house price boom.