HSBC has quietly turned off the tap to new customers seeking loans to buy an investment property as lenders step up efforts to comply with the financial regulator’s growth cap.
Highlighting the range of approaches being used to cool growth, HSBC stopped writing investor loans to new-to-bank and credit card-only customers “until further notice” to help manage its “regulatory obligations to keep investor home loan growth below 10 per cent per annum”.
Existing customers with a retail lending product — such as a mortgage — or those with a deposit account with HSBC opened before January 1, 2015, are unaffected.
In contrast, HSBC recently sliced variable lending rates for new owner-occupier customers to 3.99 per cent as competition heats up for people buying a property to live in.
While HSBC could not confirm when the change came into effect, it follows AMP’s move in July to scrap lending to both new and existing landlord customers.
The decisions reflect a more aggressive approach to slow growth than the major domestic banks, which have in recent months raised borrowing rates for landlords and on interest-only loans. According to broker Mortgage Choice, AMP was previously the only lender on its panel turning away investor borrowers.
But several other non-majors including ING Direct have capped loan-to-valuation ratios at 80 per cent, meaning borrowers need a 20 per cent deposit.
National Australia Bank last week also sent mortgage brokers a list of suburbs where lending criteria was being tightened amid rising concerns of credit stress.
It followed a move by ANZ in June to require a deposit of at least 30 per cent for mortgages in 44 postcodes, including to reflect the “localised downturn in a small number of towns dependent on the mining sector”.
The banking sector’s various measures are taking some heat out of the market. In Sydney, which is most concerning regulators, the weekend auction clearance rate dipped to 69.6 per cent, the lowest for a September in three years. In a statement yesterday, HSBC head of retail banking and wealth management Graham Heunis said: “We have put a number of measures in place to address the needs of our customers and adhere to our regulatory responsibilities.
“These mechanisms include limiting investor home loans to existing customers only, as well as providing owner-occupier customers with a highly competitive variable rate.”
For the year to July 31, the big four domestic banks continued to breach the 10 per cent cap on lending to investors, led by NAB at 14.3 per cent and ANZ at 11.8 per cent, according to Australian Prudential Regulation Authority data.
HSBC grew its investor lending book a slower 9.9 per cent in the 12-month period to $5.15bn.
But HSBC’s investor book is larger than its owner-occupied loans of $4.16bn — considered safer as borrowers are more reluctant to sell — because of the bank’s Asia-focused strategy that has attracted higher-income retail customers that often take out investment loans.
HSBC’s overall housing lending in the past year was 6.9 per cent, faster than Westpac and Commonwealth Bank and in contrast to declining loan balances for fellow foreign lenders Citi and ING, according to Credit Suisse analysts. After “turning up the dial” in recent years as lending standards declined amid hot competition and low interest rates, APRA in December told banks to cap lending to investors at 10 per cent or risk being punished with higher capital requirements. Investors will get an update on investor growth rates today when APRA publishes its monthly lending data.
“We expect investor lending growth rates for the major banks to fall below APRA’s 10 per cent ‘speed limit’ within the next few months as recent changes to lending practices take effect,” Deutsche Bank analysts said ahead of the release.
An AMP spokeswoman yesterday said: “We are actively monitoring our portfolio and, as announced in July, expect to recommence investor property lending later this year.”
This article first appeared in The Australian Business Review.