Banks again tighten investor lending

Australia's big banks are further tightening lending to housing speculators as authorities continue to fret about risks to the country's hot property market. 

Westpac, the largest lender to housing investors, from Wednesday will limit loans to 80 per cent of the value of homes being bought by prospective landlords, from 95 per cent previously. At the same time, ANZ is capping its loan-to-value ratio at 90 per cent, down from 97 per cent earlier. 

It follows similar steps to lower lending ratios in recent weeks by Commonwealth Bank of Australia and NAB, which with Westpac and ANZ dominate the mortgage market. 

Home prices have continued to rise across most of Australia, particularly in Sydney where they have jumped about 40 per cent since 2012. New lending has been dominated by investor mortgages, which the central bank has warned is distorting the market, and last year prompted the banking regulator to call for investor lending growth to be limited to 10 per cent. 

After opting to keep the benchmark cash rate at a record-low 2 per cent on Tuesday, Reserve Bank of Australia governor Glenn Stevens said the bank was working with other regulators to assess and contain risks that could arise in the property market. 

Some economists have said concerns about overheating the property market have stayed the central bank from another swift rate cut to further stimulate other parts of the economy as investment in the mining industry falls. 

Wayne Byres, chairman of the Australian Prudential Regulation Authority, last month told a senate committee hearing in Canberra that the regulator would be watching carefully for the banks to revise policies to ensure they had ended lending practices that were "less than prudent".

Success in ensuring mortgage portfolios remained low-risk would be measured by changes in house prices, he said. 

The four big banks in May cut discounts to advertised lending rates being offering to new property investors. 

Westpac said it had introduced the latest changes to ensure it meets APRA's 10 per cent target. A spokeswoman for ANZ said the bank was adjusting its appetite for investor loans, including reviewing standards it requires borrowers to meet to service their loans. 

The lender told its mortgage brokers that from July 25 it would introduce a 7.25 per cent interest rate "floor," effectively meaning borrowers would need to show they can continue to make payments even if interest rates rise that high. 

In several towns across the country dependent on mining companies struggling with a slump in prices for key commodities such as iron ore, ANZ recently required all new customers including landlords put down a minimum deposit of 30 per cent of the property value. 

NAB last month reduced its investor loan-to-value ratio to 90 per cent from 95 per cent. In letters to brokers, Commonwealth Bank last month said it would tighten standards, including enforcing a minimum rate floor of 7.25 per cent on all loans, changes to the way overtime and bonuses of customers is assessed, and reducing the assumed gross rental yield on properties.