Commonwealth Bank of Australia, along with it’s subsidiary Bankwest, has slammed the brakes on property investment lending for new customers. With the increasing charges by up to 60 basis points and constricting terms and conditions for expatriate and overseas’ customers, it has become tougher for existing customers with investment loans.
The changes in the terms and conditions has failed to wholly explain to its customers or mortgage brokers, that act as intermediaries between the bank and clients, the reason for the move. But it is suspected the bank has exceeded or is close to the Australian Prudential Regulation Authority 10% lending speed limit, which is calculated on a monthly rolling basis.
A memo to brokers from the bank claims that it remains dedicated to supporting an unchanging national housing market and sustainable in line with regulatory guidance. It was also confirmed by a bank spokesman that it will no longer accept applications from new customers who are looking to refinance their standalone investment lending from other financial institutions.
It impacts a very small number of applications and the bank continues to assess investment lending applications from present and potential customers who meet relevant criteria. CBA & Bankwest has provided no guidance on how long the new policy might apply or offered options for mortgage brokers or customers.
The confidential memo to brokers claims that the impact on this change to customers and the market will continuously be monitored in order to maintain prudent lending and sustainable business. Latest Reserve Bank of Australia market analysis shows investment loans across the industry grew at 0.8% in December 2016, which is twice as fast as owner-occupied loans meaning that about one in three loans is for investment.
Phillip Lowe, RBA Governor, said that supervisory measures have strengthened lending standards with leverage increasing, and some lenders are taking a more cautious attitude to lending in certain segments. The bank has told its brokers that it will no longer accept applications from new customers seeking to refinance their stand-alone investment lending.
The bank’s pulling of its Complete Variable Home Loan investor special rates last July caused industry suspicion it needed to cool lending. Other lenders such as Teachers Mutual were forced last year to temporarily withdraw popular investing products after exceeding the APRA limits.
Bankwest is attempting to offset the impact on its loan book with special discounts for owner-occupier lenders. This includes the waiver of the $695 application fee on its popular Equalizer Home. But terms and conditions for other loans are being tightened.
It is lowering the maximum investment loan to value ratio for overseas borrowers to 60% where the borrower lives overseas or where a short-term resident or an overseas citizen is involved when borrowing in partnership with an Australian citizen or permanent resident.
It has also raised investor property home loans for existing loans for more than $200,000 on loan-to-value ratios of less than 80% by 20 basis points to 4.54%. The comparison rate increase, which takes account of fees and charges, is 60 basis points.
CBA and Bankwest’s total market share has fallen from 29 to 24% since last April. The combined share in Western Australia is about 32%. Other lenders are expected to lift investor loan rates as wholesale and regulatory costs rise. Banks will want to continue to grow their mortgage books as it is the main profit driver of retail banking in Australia.
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