Westpac and the other major banks are taking action to curb investor lending. Photo: Glenn Hunt
Australia’s biggest lender to landlords, Westpac, will require new property investors to have a deposit of at least 20 per cent, as banks escalate their attempts to dampen the booming growth in borrowing by housing investors.
Westpac will from Wednesday cap loan-to-valuation ratios (LVRs) for new property investor loans at 80 per cent, the toughest limit imposed by a major bank so far.
ANZ Bank is also introducing a 90 per cent cap on LVRs for investor loans as well, which will take effect on Wednesday as well.
National Australia Bank last month capped investor home loan LVRs at 90 per cent, while the Commonwealth Bank has said it will not take the tax breaks borrowers receive from negative gearing into account when LVRs on investor loans exceed 90 per cent.
Westpac’s change is the latest step by a bank to slow in growth in housing investor credit – which expanded at 10.4 per cent in May – in response to the banking regulator’s 10 per cent a year speed limit in this part of the market.
The Australian Prudential Regulation Authority announced the cap in December but official measures of investor credit growth have failed to slow in the first few months of the year, prompting the regulator to up the pressure on lenders.
A Westpac spokeswoman confirmed the introduction of an 80 per cent LVR cap for investor loans and pointed to APRA’s cap.
“As mentioned earlier this year, we are making appropriate changes to ensure we are in line with a 10 per cent benchmark set by APRA for investment property loan growth,” she said.
ANZ’s note to brokers, sent on Monday said: “The housing market is experiencing strong growth across investor lending. In light of these conditions and recent regulator guidelines, ANZ is adjusting its appetite for investor loans and reviewing our serviceability standards.”
Previously, Westpac had allowed housing investors to borrow up to 95 per cent of a property’s value.
The note to brokers said that if borrowers were able to provide two or more properties for security, and one is owner-occupied, these customers may still be able to borrow more than 80 per cent of a property’s value.
A mortgage broker in Sydney, Andrew Woods, said this would make it tougher for people with fewer assets – including first home buyer investors – to enter the market as investors.
“If you’re already rich, with a valuable owner-occupied home, you are going to be fine,” Mr Woods said.
“It’s going to knock out the small-time investors who may be trying to buy their first investment property.”
Westpac’s $150.9 billion investor home loan portfolio is the largest in the country, according to latest statistics from APRA.
In the year to May, Westpac, ANZ and NAB all expanded at a quicker pace than the regulator’s 10 per cent a year speed limit but the banks have vowed to slow down over the coming months.
The banks’ more recent focus on LVRs comes after various other changes from banks in May and June, which included cutting interest rate discounts for investors and a toughening in underwriting standards.
In a sign some of these changes may be having an effect, two of the countries biggest mortgage brokers, Mortgage Choice and AFG, both this week reported a significant decline in the proportion of new loans going to property investors.
Regulators are especially concerned about Sydney’s housing market, where the share of loans going to investors is at record highs and prices rose 16.2 per cent in the year to June 30, according to CoreLogic RPData.
AFG managing director Brett McKeon said that if the recent decline in new lending to property investors continued, it “should help allay concerns about overheating in Sydney.”
Some economists believe the Reserve Bank may be more inclined to make further cuts in official interest rates as measures to rein the borrowing by investor borrowers take effect.
After leaving the cash rate on hold at a record low of 2 per cent on Tuesday, RBA governor Glenn Stevens said the central banks was “working with other regulators to assess and contain risks that may arise from the housing market”.
Tags: westpac & lvr levels
, what lvr for investor home loans
, australian lvrs on mortages