The major banks have ramped up actions to slow lending to property investors in the face of growing regulatory heat and surging prices in Sydney, increasing the cost of loans and tightening serviceability models.
After the banking regulator last week warned it would “increasingly” crack down on aggressive lenders, CLSA analysts said mortgage broking contacts had experienced a “notable tightening of lending standards over the past couple of weeks, particularly for investor lending”.
Mark Hewitt, general manager sales and operations at major broking group AFG, confirmed the big four banks and Macquarie had in the past “few days” taken steps to tighten lending standards.
It came as Reserve Bank deputy governor Philip Lowe yesterday said the surge in asset prices amid record low interest rates must be “watched very carefully” due to several previous examples of painful routs, particularly when highly leveraged.
“In recent days, there’s certainly been some actions taken by some of the banks to tighten up a little bit on investment lending,” Mr Hewitt told The Australian.
“There’s probably four or five different levers they can pull — product features, price, fees, serviceability of what loans qualify and what don’t. But price is probably the one lenders do to get an immediate response.”
According to CLSA’s seasoned analyst Brian Johnson, National Australia Bank, Commonwealth Bank and Westpac will no longer offer additional discounts above published “package discount” rates for investor loans.
It led to “differential pricing” between owner-occupied and investment property lending, such as NAB’s Advantedge business offering a 15 basis point discount on the former.
CLSA’s research also found investor serviceability models have been tightened to remove assumed negative gearing tax flows, reducing assumed rental incomes by 20 per cent and even more by Westpac, the biggest lender to investors.
Australian Prudential Regulation Authority chair Wayne Byres last week lashed “less than prudent” practices in the industry, including lenders relying on anticipated negative gearing tax benefits to “get a borrower over the line”. Lenders were also assessing credit on a lower level of living expenses than declared by borrowers and not taking into account investors’ existing debts, APRA said.
“(Banks) with more aggressive practices should fully expect to find APRA increasingly at their doorstep,” Mr Byres said.
“(Banks) have now had long enough to revise their ambitions where needed, and we will be watching carefully to see a moderation in growth in investor lending in the second half of the year as revised plans are implemented.”
According to APRA’s most recent data, overall investor lending is rising at 11 per cent a year — above its desired level of 10 per cent — with NAB growing fastest of the majors. But the chiefs of NAB and Westpac have assured steps were being taken to cool growth.
Mr Johnson said a major mortgage broking aggregator had seen Westpac’s investor lending flows drop 50 per cent in the past week, with the flow taken by CBA.
He added ANZ’s investor property serviceability model was allegedly materially more difficult than its three major rivals, backing up claims by chief Mike Smith.
“In the words of one credible mortgage broker, present conditions in the investment property market feel like a ‘mini-GFC’,” Mr Johnson said. “There are still channels for lower-quality lending but the major banks are definitely winding back their residential investment property lending tolerance.”
But fears are growing APRA will step in with firm macro prudential measures after New Zealand took fresh steps to cool its own property boom, including higher risk weighing for the banks’ investor lending and forcing investors in Auckland to have a 30 per cent deposit.
“While APRA has typically taken a more hands-off approach ... the stubbornness of the Sydney housing market could force them to become more active,” Macquarie analyst Mike Wiblin said.
Citi economists added the Reserve Bank’s recent rate cuts raised risks as the “housing markets in Sydney and Melbourne remain overheated”.
This article first appeared in The Australian Business Review.