How Australia’s biggest banks have been forced to restrict their mortgage lending – Andrew Mirams

How Australia’s biggest banks have been forced to restrict their mortgage lending – Andrew Mirams

Our finance expert Andrew Mirams, from Intuitive Finance, tells us how Australia’s biggest banks have been forced to restrict their mortgage lending, in a move that could severely impact investors. APRA has ordered some banks to increase the amount of capital required for their residential mortgage exposures. In today’s show Andrew looks at how that will flow through.


Kevin:  Some sobering news on the horizon – a warning of heightened levels of risk in the housing market. After that warning, APRA has ordered five banks to increase the amount of capital required for their residential mortgage exposures. This could be just the tip of the iceberg in terms of changes that are on the horizon that are going to impact you and me as property investors.
With more information on this, Andrew Mirams from Intuitive Finance joins us. Andrew, what do you believe is ahead?
Andrew:  Good day, Kevin. How are things? There are probably a lot of changes that we have already seen happen, and I think that it would be naïve to say that there are not more coming. We’re seeing quite a number of lenders already changing the way they assess borrowers and more particularly, the lending to investment has gotten quite harsh.
We had some of the before-and-after examples where we’ve seen clients going from being able to borrow up around $1 million, and that’s now come down to around $400,000. Every client is different, and there are a whole range of different serviceability measures and things that we do.
Kevin:  On this point of the notice by APRA to the banks, what does that actually mean? Explain to me how that works.
Andrew:  Basically, what APRA has said is they’re worried about the banks’ liquidity and if the market was to crash – as they’re all fearful of – they’re worried whether the banks have enough capital to be able to fund and absorb any losses. Right at the moment, the Big Five banks – ANZ, Commonwealth, NAB, Westpac, and Macquarie Bank they’ve put in there because they are quite strong in the investment lending – all hold around about 16% of liquidity or capital that is set aside…
Kevin:  As a buffer.
Andrew:  Yes, to be able to withstand or withhold any adjustments in the markets and things like that.
From July 1st next year, they’re going to be asked to have 25%. What does that mean? That doesn’t sound like a lot – 9% – but if you put it into some big numbers like what the banks do, that means they’re going to have to put aside billions of dollars in capital that they can no longer use. What that will mean for you and me potentially is that it might cost us all more to get access to what they can lend out.
Kevin:  Less funds and probably more requirement for a bit more “hurt money” from people who want to buy property.
Andrew:  Yes, absolutely. Again, we’re seeing changes coming through with banks and what LVRs they are willing to do for investors. We’re seeing quite a number now restricting the investment loans back to 80%. Mortgage insurance going up to 90% and 95% is no longer available.
I think it would be naïve to think that it’s not only a matter of time until most of the lenders follow suit, because they’ve all been asked to restrict or slow down on their investment lending. While we’re seeing some come through quite quickly, I think most of the other lenders are probably sitting back as well, going, “What does this mean for us? How do we implement it?”
Some of them have system constraints. It’s not as easy as flicking a switch so they’ll be working on things. I know that for a fact because I’m in regular contact with a lot of the major lenders and senior management.
Kevin:  With these changes, does it look like they’re going to tighten up on lending in self-managed superannuation funds, as well, Andrew?
Andrew:  Yes, it is, Kevin, and it’s happening already. We’ve had a couple of lenders pull out of self-managed super fund lending altogether, the National Australia Bank probably being the largest one of those. We just recently had Sir George – who has been quite a big player in the self-managed super fund space, as well – reducing its LVRs for super funds from 80% if you have a company in trust back to 70%.
The other thing to note with that is it’s almost like reducing it back to 60% because now they’re also asking that the super fund has at least a 10% liquidity. If you’re buying a property for $500,000, you would need to contribute $150,000 plus your associated stamp duties and costs plus also make sure you have another 10% in liquidity sitting aside.
Kevin:  It’s certainly getting tougher, isn’t it?
Andrew:  It is. Yes, it’s like every part of the cycle. It’ll get tougher and the measures will be implemented to slow things down, and then what we’ll see is in time, it will rebalance itself. Home-occupiers and buyers will get out there and hopefully take advantage of the low rates and upgrade and things like that, and it will turn around again.
Kevin:  There is a positive in all of this, too. That is that I think anything that strengthens the banking industry and keeps it nice and stable as opposed to what it had in America, I think is a good thing.
Andrew:  No doubt. Our banks were very strong through the GFC and the measures that our banks and probably the regulators have had and been able to manage our process and everything like that, all the way through was very strong. There is no doubt that the intentions are right.
The other thing is it takes a little bit of heat out of the markets, where we’ve said that Sydney and Melbourne have been very strong of late. It probably is going to avoid a crash where we’re going to get that boom/bust cycle. If we just take a bit more measure to the markets, then hopefully it should be a good thing for all of us in the long term.
Kevin:  Always good talking to you, Andrew Mirams from Intuitive Finance. Thanks for your time.
Andrew:  Pleasure, Kevin. Thanks.

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