Clancy Yeates| Sydney Morning Herald| 4 June 2016
After banks put the brakes on lending to property investors in 2015, several are now easing off the pressure and trying to spur on more borrowing among buyers who drove the recent housing boom.
The changes are intended to lift banks’ loan growth after a regulatory crackdown, but economists also say stronger lending to property investors could create new risks, amid signs house prices are heating up again.
In what mortgage brokers say is a clear trend, several banks have recently shown a greater willingness to lend for property investment.
Westpac, the country’s biggest lender to landlords, this week began allowing customers to include the tax benefits from negative gearing in their loan assessments, unwinding changes made last year, and last month it started accepting smaller deposits from investors.
Bank of Queensland last month raised its maximum loan to valuation ratio (LVR) for investors to 90 per cent, from 80 per cent, a change that allows investors to have smaller deposits.
Australia’s biggest credit union, CUA, also lifted its maximum LVR to 85 per cent, from 70 per cent.
Other banks are using the other big “lever” at their disposal to ramp up growth – price.
Fixed rate cuts
Lenders including Bankwest, ME and UBank have cut three-year fixed rates for investors below 4 per cent, and brokers say lenders including Commonwealth Bank are prepared to offer discounts of up to 1.5 per cent off their advertised interest rates.
The changes follow a near halving in housing investor credit growth, from a peak of 11 per cent a year in 2015 to 6.5 per cent, after the banking regulator capped growth in this market at 10 per cent a year.
“Banks don’t want to miss the market,” said chief executive of Mortgage Choice, John Flavell.
“If the market has come off a bit for investors, and it has done, then you can turn around and moderate your policies and your pricing to get your loan growth up towards your cap.
“And that’s exactly what’s happened. But it’s for Australian income-earning investors, not those overseas.”
APRA’s cooling move
A boom in lending to housing investors was a key factor behind fears of an overheating housing market in Sydney and Melbourne in recent years, which prompted the 10 per cent cap from the Australian Prudential Regulation Authority.
To comply with the cap, banks slashed how much they would lend borrowers through tougher rules on deposits, borrower income, and by charging investors higher interest rates.
Head of product at CUA, Mark Petty, said its changes were aimed at lifting growth up closer towards 10 per cent, though investor lending only accounts for about a quarter of its home lending. Other lenders have made similar changes, he says.
“Clearly they have managed down their balance growth to below 10 per cent, in accordance with APRA’s direction, and they are seeing opportunities to grow again,” Mr Petty said.
Managing director of mortgage broker, Otto Dargan, said several lenders, including Commonwealth Bank, had become more competitive in their home loan pricing for investors in recent months, by offering lower interest rates.
These lower interest rates are not always publicly promoted, but can include discounts off the standard variable rate for investors of up to 1.5 per cent.
“The name of the game is to get as close to the 10 per cent APRA target without going over it,” Mr Dargan said.
However, the banks’ change in tack comes as house price growth has returned, with figures this week showing Sydney prices jumped 3.6 per cent in May and 1.6 per cent in Melbourne.
If the growth continues, APRA and the Reserve Bank may need to consider lowering the 10 cent cap on investor credit growth, some economists say.
AMP Capital chief economist Shane Oliver said APRA’s 10 per cent cap appeared “quite excessive in the scheme of things” when compared with the much slower growth in household incomes.
Stronger growth in housing investor lending, which was suggested by recent housing finance approvals, would be a concern because household debt and house prices are already at very high levels, he said.
When there are also fears of an apartment glut in some inner-city areas, Dr Oliver said the prospect of looser credit standards and stronger growth in housing investor debt amplified the potential for serious problems to emerge, if there was a slump in house prices.
“The higher prices are when that occurs, then the greater the risk is of a sharp destabilising fall,” he said.