Bankwest, which is owned by the Commonwealth Bank recently announced a change in policy for calculating loan eligibility on investor housing loans. In particular, the bank has advised that negative gearing benefits would not be allowed when calculating loan eligibility for new loans (and potentially some existing loans).
While no detailed reasons have been given for the change in policy, it would appear that the Australian Prudential Regulatory Authority’s (APRA) guidelines on investor loans may have something to do with it. This policy change closely follows CBA’s announcement that it would be indefinitely suspending new finance applications for some investment home loans.
According to APRA’s December data, investor lending is rising at an annualised 10.1% cent. This growth rate if left unchecked could potentially put the level of investor lending above the APRA’s 10 % annual “speed limit” on the growth of individual banks’ investor loans.
APRA has also recently updated its expectations for residential mortgage lending practices, including lending on investment properties, which focused on current practices in calculating investment property costs when it comes to determining the net income of investment properties.
So, what does this all mean? Banks and ADI’s continue to look to manage their loan books to maintain the 10% APRA “speed limit” on lending growth. From a borrower’s perspective, expect it to become a bit more difficult to get a property investment loan from a bank or ADI. Restrictions on the amount of money banks and other ADIs are able to lend will mean that borrowers will be looking for other “non-bank” alternatives to funding.
This naturally lends itself to other lending vehicles such as mortgage funds and peer-to-peer lenders which are not constrained by growth rate inhibitors, where demand, supply and price act as a natural regulator of lending growth rates.