The most notable thing about the news yesterday that the NAB had joined the ANZ and Commonwealth Bank in hiking interest rates for investor home loans was the radio silence from Westpac.
But Fairfax reports this morning that Westpac’s silence is not for lack of trying. Rather, Westpac’s “computer systems do not allow it to charge property investors and owner occupiers different interest rates.”
That means it is forgoing as much as $1 million a day in extra interest income while it tries to sort out the problem, Fairfax says.
Westpac’s problem is not fresh news around banking circles. When the RBA first released the rules on disclosure surrounding its massive bank bailout fund, the Committed Liquidity Facility (CLF), there were many Australian ADI’s (banks, building societies, and credit unions) who said they would have trouble getting all the data that the RBA required.
That’s because many core banking systems, where all the banks’ transactional data is stored, were written many years ago and either don’t capture the data or don’t talk to the loan origination systems. That’s the system the home owners details go into when they initially take out the home loan.
It can also be difficult because investment properties are often cross collateralised against owner occupied homes with both being treated as retail loans. That’s even though investment properties are clearly commercial in nature – the reason why the tax man allows the tax deductibility of interest and costs under negative gearing.
It appears it’s not just Westpac with systems issues, Fairfax says.
Even though the NAB yesterday increased rates by 29 basis points it did not differentiate between owner-occupiers or investors. Rather it targeted interest-only loans. Again, Fairfax reports that “sources say NAB is constrained from charging different rates to investors and owner-occupiers because of technical problems.”
So, in an effort to target investors it seems the NAB has picked interest only loans which many investors use to maximise their negative gearing benefit by only paying interest, and no principle, on the investment property while they pay down their principal place of residence at a faster pace.
It’s worth noting that either way Australia’s banking regulator, APRA, does tend to see interest-only loans as more risky than the usual principal and interest. So, the NAB might be having a different types of conversations based on the structure of its balance sheet with APRA than the other banks.
That’s something NAB group executive personal banking, Gavin Slater, said in the NAB’s press release yesterday. “In an environment of record low interest rates, NAB believes it is important to encourage our customers to pay down their home loan,” Slater said.