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CBA, NAB, Westpac turning up heat on property buyers
Australian Financial Review Dec 5 2016 5:06 PM
Duncan Hughes
Commonwealth Bank of Australia, the nation's largest mortgage lender, National Australia Bank and Westpac are turning up the heat on property buyers by cracking down on loopholes or cranking up variable and fixed term interest rates.
CBA, which last week announced rate rises of up to 65 basis points on fixed-term owner-occupied and investment loans, is set to close a popular loophole used by property buyers to switch from principal and interest loans to interest-only, which require lower monthly repayments because principal payments are deferred.
NAB will increase its variable rate on new and existing residential investor home loans by 15 basis points to 5.55 per cent from next Monday.
Westpac is also lifting rates by between 8 basis points and 15 basis points.
Lenders are raising rates to counter rising international funding costs caused by the "Trump effect", as they bring in tougher underwriting standards, tighter rules and growing pressure on net interest margins on property lending.
"These changes reflect the increasingly challenging environment we operate in," said Anthony Cahill, NAB's chief operating officer. "We have to consider the ongoing need to hold longer-term stale sources of funding, continued elevated funding costs, regulatory requirements and competitive pressures."
The Reserve Bank of Australia, the Australian Regulation Prudential Authority, and the Australian Securities and Investments Commission want to cool over-heating property markets in Melbourne and Sydney by putting pressure on lenders to clamp down on interest-only loans because of concerns buyers could face difficulty repaying the principal, particularly if there are more interest rate rises.
APRA has imposed a growth speed limit of 10 per cent and lenders are asking borrowers to advise on their repayment strategy.
Major lenders claim there is still strong demand for interest-only loans and recent official statistics reveal strong investment growth.
Under CBA's new arrangements, to be introduced next Monday, any request to switch to interest only within 90 days of loan funding will be automatically assessed by Retail Credit Decisioning, a specialist team that will scrutinise the borrowers' reasons for switching and capacity to pay.
"This change will help ensure that customers can service the higher principal and interest repayments that will apply after the interest-only period," a bank spokesman said.
Mortgage brokers claim many borrowers were taking out principal and interest loans with the intention of switching after loan approval. Under the current arrangements, the borrower only had to complete a form, the brokers say.
"All [future] interest-only switching requests will be reviewed to ensure the change in process has been followed," a bank spokesman said.
Westpac is raising residential investment interest-only property loans by 8 basis points from 5.6 per cent to 5.68 basis points. The rise will also apply to St George, Bank of Melbourne and BankSA.
Westpac's owner-occupier, interest-only home loan will rise by 8 basis points from 5. 33 per cent to 5.41 per cent. Rates on its equity access range will increase by 15 basis points.
George Frazis, chief executive of Westpac's consumer bank, said principal and interest borrowers had been spared from any increase.
Mr Frazis said the increases were made because of changing "economic and market conditions" in a "dynamic and complex" market.