Blood in the streets – investment lending

investment lending collapse

The prudential regulator has shaken the branches when it comes to investment lending in fact I haven’t seen this level of lender reaction since the GFC and maybe not even then.  Let’s look at the results so far lender by lender on investment lending only:

  • AMP have withdrawn completely from investment lending
  • ANZ increased rates on new and existing loans reduced LVR 90%
  • CBA increased assessment and interest rates on new and existing loans including fixed rate loans while tightening servicing
  • Heritage max lending 80% LVR
  • ING increase all interest rates reduced max 80% LVR  and tightened servicing
  • Macquarie increased rates on new and existing loans
  • NAB increased rates on new and existing loans
  • Suncorp something but too obscure to figure out what
  • Westpac reduced discounts and tightened servicing

As for the other lenders on panel – well nothing much has changed.  We can still get 95% investment loans on interest only and we can get interest rates as low as 4.04% variable and 4.29% fixed so the question is; how long can this situation last and how much damage will be done to  the lenders above?

Initial response from clients has been anger.  If the situation persists I can see some second tier lenders doing very, very nicely out of this.

More level playing field for smaller banks

Level the playing field for lenders

The Australian Prudential Regulator ( APRA ) has announced the the four major banks and Macquarie will be compelled as of 1st July 2016 to increase their risk weighting for home loan lending to 25 percent up from the current 16 percent.   This will bring them a little closer to the 35 percent that applies to other non-IRB accredited lenders which basically represent the rest of the market.

The move will be welcomed by the regional/second tier lenders who have argued for several years that the risk weighting has been biased in favour of the major banks.  This will to some extent level the playing field as the major banks will be required to fund their lending with between $10 and $12 billion dollars of extra capital.  Meanwhile there is still a possibility that APRA could lift the 25 percent figure further, depending on the outcome of the Basel Committee on financial regulations later this year

This will probably result in increased interest rates or more likely reduced discounts, which have recently been seen as high as 1.35% off the standard variable.   Where as ten years ago discounts were closer to 0.60% to 0.80%.

ABC reports Westpac CFO Peter King said that, while Westpac had started increasing its capital position, customers and shareholders would be forced to bear the costs.

“We are well placed for this change, having already taken a number of significant steps to boost our capital position,” he said. “While Westpac is well-placed to meet these changes, increased capital does come at a cost. The cost of holding higher capital will inevitably be borne by customers and shareholders.”?

 

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