It seems BankWest is heeding ASIC chairman Greg Medcraft’s warning that Sydney and Melbourne property might be in a bubble.
A spokesman for the bank, which is a subsidiary of the Commonwealth Bank, confirmed to Business Insider what Twitter first suggested Tuesday night. That is, it has now capped the loan to valuation ratio (LVR) on investment lending at 80% for all investment properties Australia-wide.
This cut, which is down from the previous cap on investor borrowing at a 95% LVR, means that investors need to have a bigger deposit on any investment property purchases. It also means that the leverage on that property falls from 20:1 at the previous minimum 5% deposit to just 4:1 at the new 20% minimum deposit which translates to an 80% LVR.
As a responsible lender, Bankwest has reviewed the acceptable loan to value ratios for investment purposes to ensure sustainable growth in the home loan investment sector and to protect both investors and the home loan market.
BankWest appears to be making the first real acknowledgement from a major Australian lender, translated to action with the LVR cut, that the rampant growth in investor lending which has jumped 104% in four years is becoming a danger to not only the market itself but also those buying at current prices.
That fits with recent RBA revelations obtained under a Freedom of Information release that showed the Reserve Bank also has concerns about investor activity. Documents released on the RBA website showed that internal analysts said:
Extra speculative demand can amplify the property price cycle and increase the potential for prices to fall later. Such a fall would affect household spending and wealth. This effect is likely to be spread across a broader range of households than the investors that contributed to the heightened activity.
The BankWest spokesman stressed that “more than three-quarters of Bankwest’s investor loan book is currently below a LVR of 80%.” But, the bank clearly sees the risks to the marginal borrower leveraging up right here and right now.
Australian property investors, you have been warned.