Banks urged not to relax mortgage standards

Reduced demand for home loans has intensified the competition in the mortgage market down under.

The economic recession has deterred a lot of people from committing to any serious finance or credit package and lenders are battling it out with each other to attract new customers.

Of course, increased competition between banks is great news for the Aussie on the street, as they can find far better value when they compare home loans.

Some lenders have proposed relaxing their mortgage standards by hiking their loan-to-valuation ratios to boost their market share.

However, Credit Suisse has warned banks against this, as this could lead to increased mortgage arrears.

Analyst at the organisation Jarrod Martin suggested that lenders can survive a sudden fall in house prices as things stand, but constant degradation of original underwriting standards can be dangerous.

"Banks [are] selectively retaining mortgage credit risk that previously would have been transferred to the lender's mortgage industry," he remarked.

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