Commonwealth Bank further tightens on borrowing with Bankwest move
The Australian 12:29pm February 13, 2017
Michael Bennet
Commonwealth Bank has further tightened borrowing requirements across its more than $400 billion home loan book, ceasing to acknowledge negative gearing benefits for mortgages written by subsidiary Bankwest.
Perth-based Bankwest, which CBA acquired during the global financial crisis, today confirmed an update to its “serviceability calculators” to remove negative gearing tax benefits, effective last Friday.
As the banking regulator continually probes whether banks are adhering to its 10 per cent growth cap on lending to property investors, Bankwest cited the need to comply with “regulatory guidance”.
“For customers who operate their investment property at a loss, where the income of the investment property does not exceed the costs, the related tax benefit will no longer be included in Bankwest’s calculation for serviceability of the loan,” a Bankwest spokesman said.
“This impacts all new applications involving an investment lending facility and any existing deals which may require a new serviceability calculation after February 10, 2017.”
The move, which may affect some existing borrowers, builds on CBA’s recent tightening of lending standards as lending to property investors hovers around 10 per cent growth a year, a level the banking regulator has told banks they should not exceed or risk having to increase their capital requirements.
CBA, the nation’s biggest lender, last week revealed it had also cut off lending to some new property investors, citing “regulatory commitments”. CBA’s annualised investor lending rate is 10.3 per cent, above the speed limit, according to APRA’s data for December and researcher Digital Finance Analytics.
On Friday, Australian Prudential Regulation Authority chairman Wayne Byres in a speech reminded banks that they should be “under no illusions” they would suffer the punishment of higher capital requirements if they exceeded the 10 per cent cap. It came as the Reserve Bank reiterated concerns that the surge in inner-city apartment developments in recent years, particularly in Melbourne and Brisbane, had increased risks of settlement failures.
Other banks have also increased their investor lending in recent months amid a pick-up in demand that the RBA said could be being driven by buyers completing the purchase of off-the-plan apartments previously committed to.
“The benchmarks that we communicated — including the 10 per cent benchmark for annual growth in investor lending — remain in place and lenders that choose to operate beyond these benchmarks are under no illusions that supervisory intervention, probably in the form of higher capital requirements, is a possible consequence,” Mr Byres warned.
“If that is encouraging them to direct their competitive instincts elsewhere, then that’s probably a good thing for the system as a whole.”
CBA’s ownership of Bankwest makes it the most exposed lender to the Western Australian economy, which has concerned analysts amid the slowdown in mining activity.
Ahead of CBA’s first half results on Wednesday, CLSA analyst Brian Johnson last week told clients the end of the construction phase of the resources boom was pushing up unemployment, resulting in falling house prices.
In a report today, JPMorgan economist Tom Kennedy said rising debt servicing costs was the “next hurdle for Aussie homeowners” amid record high housing debt to gross disposable income of 132 per cent.