Home Loan Demand Rises, But Credit Standards Remain Tight

John Vaughan (Financial Advisor) @ Lucid Living

The home loan market may be showing flickers of recovery, but don’t count on lenders to make it any easier for borrowers.

While banks are seeing stronger demand for home loans, they’re not loosening up their tight credit requirements, according to the National Credit Regulator’s (NCR) latest stats.

According to the NCR’s statistics banks made basically no change over the last three months in their credit standards for prime home borrowers — those who have relatively high credit scores and well-documented financial statements. And for sub-prime borrowers, credit standards tightened a bit since January.

The NCR’s quarterly survey, however, showed more banks eased standards for unsecured consumer loans.

To understand just how much times have changed from a few years ago, Lucid conducted research with the 4 major banks and asked home loan officers a series of questions about their likelihood of making home loans to certain borrowers today compared with 2006, at the height of the market.

About 60% of lenders said they were “much less likely” to approve a home loan for a borrower with a credit score of 620 who made a down payment of 10% — a big change from the mood in 2006. Even for an applicant with a respectable credit score of 680 and a 10% down payment, 21% of lenders said they were much less likely to say yes today compared with 2006. And 29% said they were “somewhat less likely” to approve that application.