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How Westpac could be about to send house prices tumbling

House Prices

Westpac Banking Corp (ASX: WBC) could be about to send Australian house prices tumbling with changes to lending requirements.

As one of the biggest lenders in Australia, Westpac is a key cog in keeping the economy moving, particularly when it comes to Australian house prices.

I’m sure you remember the financial services royal commission? I think tougher lending requirements were a big factor in why Australian house prices fell by more than 10% in Sydney and Melbourne.

According to reporting by the AFR, Westpac is about to make it tougher for self-employed people to get a mortgage. The hard coronavirus conditions are causing Westpac to be stricter.

From this Sunday, Westpac is going to increase the deposit needed for a loan to 20% of the property’s lender-assessed value. That means that sole traders who want to buy a home will need to have a large amount of their own cash saved up.

These new rules also cover applications who receive income from a business wholly or partially owned by their spouse. Lenders’ mortgage insurance will also not be available for self employed people.

What does this mean for Australian house prices?

It’s suddenly going to be harder for a significant portion of the public to buy a house. What if it encourages other major lenders like the other big ASX banks to do the same thing?

Is Westpac thinking about doing the same thing for borrowers for employees? Probably not at this stage, but it adds even more uncertainty to the situation for people thinking about buying a house.

I’ve seen that analysts are already predicting that Australian house prices will fall by double digits. Time will tell whether it’s closer to 10% or 20%. I’m definitely not looking at investment properties right now. The only residential property I want to buy is the one I’ll live in. Otherwise I’d just get my exposure through an investment like REA Group Limited (ASX: REA).

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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