Duncan Hughes| Australian Financial Review| 24 September 2018
Westpac Group, the nation’s second largest lender, is giving risky property investors less than one month to find another lender amid growing concerns about the impact of rising rates, falling values and oversupply.
The bank is sending single page letter to investors warning it can “no longer support our commercial relationship with you”, adding it will work with the borrower to help them find a new lender.
Victor Kumar, a director of Right Property Group, a buyers’ agency, who has seen the letter sent to property investors, said: “This is of concern because they have used the banking system to get these loans.”
The brief letter informs borrowers Westpac is a responsible lender, claims it can no longer support the relationship and volunteers to help them find another lender, he said.
Martin North, principal of Digital Finance Analytics, who has also been in contact with borrowers who have also received the letter, added: “There is a sense of panic among lenders about the risk in their portfolios. They still want growth but there is concern about poor lending standards.”
Westpac denied the claims. “We don’t support the claims made regarding the Westpac customer communications,” a spokesman said. “Based on the limited information we have been provided, the statements made are incorrect.”
It comes as new APRA analysis reveals a sharp spike in higher risk loans by major banks in the three months to the end of June, despite prudential regulators increasing pressure to toughen serviceability.
The analysis reveals a near-three fold increase in the number of loans during the past 12 months that are outside the prudential’s new guidelines on borrowers’ capacity to service their loans.
Mortgage brokers, buyers agents and analysts claim the Westpac letters are sending a shiver through an already nervous property sector facing rising lending costs and lower values.
They warn it could cause fire sales, as distressed borrowers struggling to finance their properties decide to cut their losses and sell into a falling real estate market.
Some of the affected borrowers have been told they have until 20 October – or less than one month – to find a new lender.
Westpac’s move comes amid intense pressure on lenders from rising lending costs, tougher prudential controls and the interim findings of the royal commission into banking and financial services, which has already provided humiliating disclosures about shoddy practices across the sector.
Banks are forensically examining their lending books for examples of high risk lending because of pressure from prudential regulators and to pre-empt findings of the royal commission.
The Westpac letters are typically being set to interest only borrowers with multiple properties and high loan to value, usually 80 per cent, or above. The investors often have up to six properties.