Banks are tipped to further hike increase mortgage rates for property investors as part of an attack on growth in lending to landlords and to support profits through the increasingly uncertain economic period ahead.
Amid ongoing scrutiny of the housing market, the Reserve Bank’s monthly credit data revealed lending to property investors continued to slowly edge lower, as expected, declining 0.1 percentage points to 10.7 per cent in the past year. But growth picked up slightly in August to 0.7 per cent and the annual rate remains above the banking regulator’s desired level of 10 per cent — a speed limit several banks are still breaching.
“We expect the local banks to lift interest rates on investor lending by at least another 50 basis points over the next 12 months, on top of the 25 basis points rise a few months back,” said JPMorgan economist Stephen Walters.
After cranking up supervision as lending standards declined amid hot competition and low interest rates, the Australian Prudential Regulation Authority in December told banks to cap lending growth to investors at 10 per cent or risk being punished with higher capital requirements.
While banks have blamed the growth cap for their increases to borrowing rates for existing landlord customers rather than just new lending flows, analysts believe it was also done to help offset the blow to returns from other regulations forcing them to increase capital levels.
APRA’s monthly credit data, also released yesterday, showed National Australia Bank growing at 13.5 per cent in the past 12 months, followed by ANZ at 10.2 per cent. Commonwealth Bank slipped below the threshold, growing 9.7 per cent in the past year while Westpac — the nation’s biggest lender to landlords — eased to 7.3 per cent, according to Credit Suisse analysts.
“NAB is a clear outlier on a number of investor lending metrics, in relation to year-on-year and also monthly growth,” the analysts said in a note. “When considering market share movements, Westpac appears to have been the most aggressive in moving to compliant levels of investor lending growth.”
While APRA’s data is blurred by several banks’ recent reclassifications of loan types, Macquarie analysis said annual overall system growth eased to 9.9 per cent.
It was headlined by large falls in August from the likes of Westpac and ANZ, which both also experienced huge growth in lending to owner-occupiers. Despite the “noise” in the data, banks continue to try to stem demand. This week it emerged NAB had tightened lending criteria for suburbs exhibiting credit stress. Also, The Australian revealed HSBC had quietly turned off the tap to new customers seeking loans to buy an investment property, following a similar move by AMP.
NAB’s revision of its “postcode-based” strategies included 22 riskier suburbs in Western Australia where loan to value ratios (LVR) will be capped at 70 per cent — meaning borrowers need a deposit of 30 per cent. A second group of postcodes identified by NAB has a more relaxed LVR cap of 80 per cent for areas “exhibiting characteristics which may indicate future deterioration in credit risk”, including inner-Sydney areas such as the CBD and Glebe.
HSBC’s and AMP’s decision reflect a more aggressive approach, with most major lenders in recent months opting to slow growth by raising borrowing rates for investors and easing prices for customers who will live in their homes. According to comparison site RateCity, almost half of all lenders are offering different rates for investors and owner-occupiers, with the difference up to 85 basis points.
“Given these measures do not, at least yet, appear to be denting investor lending appetite, NAB’s recent move to cap LVRs on lending based upon particular postcodes may be a thinly veiled attempt to bring lending more in line with regulatory guidelines and its peers,” Credit Suisse said.
ANZ has also taken measures on postcodes in riskier mining towns, while CBA and Westpac are also monitoring the different dynamics across the country.
Separately, term deposits held with banks continued to fall in August to $509.9 billion, resulting in the sharpest annual decline in 12 years, according to CommSec.
This article first appeared in The Australian Business Review.