Lenders Return to Property Investors

It was only a matter of time.

A banking sector return to aggressive lending to property investors could stoke the ire of the Australian Prudential Regulation Authority, which had been trying to calm the exuberance of capital city housing markets.

The analysts’ warning came after Westpac lowered the bar for investors seeking home loans, easing the deposit requirement for prospective landlords in line with major Australian rivals.

Westpac, the nation’s biggest lender to property investors with a loan book worth $136 billion, increased the maximum loan-to-valuation ratio (LVR) for prospective landlords from 80 per cent to 90 per cent, effective last Monday, meaning investors only need to stump up a loan deposit of 10 per cent, compared with 20 per cent previously.

The move marks a partial reversal from the industry-wide clampdown on investor lending last year, sparked by APRA seeking to limit annual growth in investor loan books to 10 per cent in a bid to cool the frothy property market in cities such as Sydney and Melbourne.

In July, Westpac tightened the LVR to 80 per cent, from 95 per cent, around the same time AMP took the surprising step of freezing investor lending to sneak under APRA’s 10 per cent speed limit.

Banking analyst Martin North, of Digital Finance Analytics, said as major banks dialled back investor lending last year, growth in owner-occupier loans was enough to support the entire loan book.

“That growth in the refinancing sector has slowed, so now the banks are trying to work out where the next growth boom is,” Mr North said.

“Effectively, all the gloom about a possible house price collapse has gone, and because interest rates are so low and the stockmarket is still wobbly, there’s definitely heightened demand for property from investors, so we’re seeing a little bit of relaxing of lending criteria.”

But there are concerns in the market that a $30bn spate of loan ¬reclassification from the nation’s lenders over the past six months has “fudged” the figures on investment lending growth, which are thought to be running higher than official data shows.

Adding to these fears, house prices in Sydney have increased more than 3 per cent since the Reserve Bank cut the official cash rate to a record low this month, according to RP Data.
Analysts also raised the prospect that the election of the Labor Party to office could unleash a flood of investors into the ¬property market before negative gearing laws are grandfathered.

In what may be his last public remarks as the central bank boss, RBA governor Glenn Stevens yesterday said the measures taken by financial regulators had so far been effective and the watchdogs would continue to keep an eye on record high levels of household leverage.

“There were some supervisory measures by APRA and ASIC that I think have worked pretty effectively to just calm down part of the market that was showing the most exuberance,” Mr Stevens said.

CLSA banking analyst Brian Johnson said while house prices were strong in Sydney and Melbourne, apartment markets were looking shaky in Melbourne and Brisbane, and house prices in Western Australia were likely to continue to slide.

But he said Westpac and Commonwealth Bank, the latter of which requires a deposit of only 5 per cent on loans for all customers, were going for market growth at the expense of profit margin.

Mr Johnson noted that Westpac subsidiary Bank of Melbourne had “recanted” on its lending -conditions for overseas borrowers, after it said the LVR for temporary visa residents remained at 90 per cent, and “not 70 per cent as previously stated”.

Whether APRA would “come down hard” depended on lending and house prices over the next few months, Mr North said.

“There’s always a lag between the regulators and the market,” he said.

* theaustralian.com.au