In the space of weeks, the outlook for housing investment in Australia has shifted dramatically. After a long period of fierce debate over the role of investors pushing up the price of established housing, particularly in Sydney and Melbourne, the tide seems to be turning.
Not long after Westpac announced investors would require a minimum 20% deposit in order to secure new mortgage financing, ANZ has followed suit this afternoon, reporting interest rates for its housing investor customers will be increasing in the weeks ahead.
The bank, Australia’s third-largest, announced its variable residential investment lending rate would rise by 27bps to 5.65% on August 10. Fixed rates for residential investment loans would also increase by as much as 0.30%.
“Although interest rates for residential property investors are at very low levels historically, the decision to raise interest rates for residential investment lending has been difficult but necessary in the current environment”, said ANZ CEO Australia Mark Whelan in a statement.
The statement also noted ANZ had “introduced a series of other measures recently to improve the mix between investor and owner occupied lending. For residential investment lending, these include reducing interest rate discounts, increasing the deposit required to at least 10% and increasing interest rate sensitivity buffers”.
What we’re really seeing, though, is a broad crackdown on Australian banks and their lending practices.
The move from the bank follows a concerted effort from Australia’s banking regulator, APRA, in recent months to cool the growth in investor lending following a noticeable pickup in demand over recent years.
Going back further, in December 2014, it also issued a written communique to all Australian authorised depository institutions (ADIs) outlining steps to reinforce sound residential mortgage lending practices across the sector.
While neither APRA nor the Reserve Bank of Australia have verbally expressed serious concern about lending practices by Australia’s big four banks – ANZ, Westpac, the Commonwealth Bank, and NAB – the signs are everywhere that authorities have felt the need to take some heat out of the property finance market.
Some pretty big levers are now being pulls.
One of APRA’s recommendations was directed towards growth in lending for property investment. APRA suggested “portfolio growth above a threshold of 10% (per annum) will be an important risk indicator for APRA supervisors in considering the need for further action”.
In other words, should an individual ADI exceed 10% growth in investor lending over a 12-month period, it may warrant further action (read restrictions and/or increased capital requirements) from APRA to slow its growth.
Certainly lending extended for housing investment have exploded higher in recent years. According to the ABS, investor lending increased to $12.6331 billion in April of this year, a rise of $425.3 million, or 3.5%, on March. Not only was the figure a record high, it took total lending growth from a year earlier to an alarming 23.44%.
Recently ANZ released a note outlining annual growth in lending for housing investment for several ADIs, including themselves. While other financial institutions were shown to be easily exceeding the 10% per annum threshold outlined by APRA, ANZ, according to its own internal research, were not.
Despite this, whether on the back of an acceleration in investor lending growth in recent months, increased capital risk weightings from APRA or just a general unease on the heat in the residential property market, something has certainly changed to prompt the move from ANZ this afternoon.
You can bet that many of Australia’s millions of property investors will be watching to see what comes next, either from APRA or their own lender.
There were signs in May that lending to investors had cooled sharply from levels of only a few months earlier. While too early to tell if it was merely a one-off or the start of longer-lasting trend, given the news from Westpac and ANZ in recent weeks, it’s now appearing more likely to be the latter.