Australia’s major home loan lenders are clamping down on investment property loans.
So far BankWest has reduced the maximum loan to value ratio for customers to 80% while at the same time cutting any discounted loan rates for investors. Other banks have followed suit to various degrees by discontinuing discounts, tightening discretion on loans, and changing income inclusions and expense assessments.
Across various institutions, the changes are being communicated as measures aimed at protecting borrowers from themselves and the market.
“Prudent lending,” they say.
But what is clear is that these changes are being driven by Australia’s top dog in banking regulation, Wayne Byers, and his team at APRA.
Mortgage Choice CEO John Flavell told Business Insider that while he hadn’t had any meetings with APRA, the anecdotal feedback he was getting from the lenders he speaks to is that they are under pressure from the regulator which is having some “very serious conversations” with them.
APRA is firmly in the driver’s seat.
“There has never been more margin” in home loan lending, Flavell said. He added that the fall in both wholesale borrowing costs and more recently deposit rates would be delivering a lower blended costs of funds which would continue to make home loan lending extremely profitable for the banks.
That’s particularly so for the major banks and Macquarie, who are on an advanced risk assessment model, given how little capital they hold against home loans, both individually and in aggregate.
That, Flavell said, suggests the banks wouldn’t be restricting the volume of loans they are lending to investors or changing the price unless this is being driven by APRA.
Westpac, in a note to its mortgage broker network obtained by Business Insider, on credit policy changes effective May 23, said:
The housing market environment and its conditions continue to evolve and change. Banks, brokers and regulators are conscious of ensuring we are all doing the right thing for customers and balancing the needs between all in the housing market. To this end, Westpac has made a number of policy changes which ensure we align with Regulator requirements to further improve home lending practices for customers.
Australia may not have gone down the path of macro-prudential rules to limit lending that New Zealand has but it’s clear that APRA’s aggressively targeted approach might be just as effective in the long run.