Housing investors face crackdown as banks exceed regulator's lending limit

Australia’s growing army of housing investors will find it increasingly difficult to borrow money after figures showing excessive lending by banks were expected to bring a further crackdown by regulators.

Westpac was the only one of the big four banks to not go over the 10% annual growth “speed limit” for property investment loans, figures from the Australian Prudential Regulatory Authority (Apra) showed on Friday.

The Commonwealth (10.2%), NAB (14%) and ANZ (12%) all topped the cap imposed by Apra in December as it acted to cool the huge boom in investor activity. Westpac, at 9.9%, just scraped below the limit.

In a signal that the housing investment boom may be close to peaking, Apra said earlier this month it would make the big four banks hold more capital to guard against riskier loans.

On Friday UBank, part of NAB, said it would increase rates on investment and interest-only home loans by a little more than 0.25%. Also on Friday, Westpac lifted its standard variable rate on investment property loans by 27 basis points to 5.75%.

The Commonwealth and ANZ have already lifted rates on investor loans as they sought to pass the cost on.

The lending figures released on Friday mean the regulator is expected to increase its scrutiny of such loans even further and could take the heat out of the capital city housing markets, especially in Sydney and Melbourne.

Peter Arnold, banking analyst at financial comparison website RateCity, said housing investors will be paying more.

“I think that the low rate party for investors is ending,” Arnold said.

“The lowest rates are going to be offered to people who are intending on living in the property and investors will get charged the full amount and in some cases they will get significantly higher for an investor.”

Overall, housing investors increased their debt levels by 10.7% over the past 12 months, according to separate figures from the Reserve Bank of Australia on Friday.

It is the fastest annual growth rate since early 2008, just before the onset of the global financial crisis. House prices have matched the increases with Sydney prices rising 22% in the past 12 months to give a median house price of $1m for the first time.

Home prices across Australia are expected to record another strong month of growth, with most of the gains concentrated in Sydney and Melbourne.

CoreLogic RP Data will publish its estimate of home values on Monday.

In the meantime, the property market analytics firm said dwelling prices in Sydney and Melbourne were up 3.2% and 4.8% cent respectively in the first 30 days of July.

In total, investment lending by all banks grew by 16.5% in June 2015 compared with June 2014, Apra said. Total investment loans by the 73 banks monitored by Apra has grown from $435.7bn in June 2014 to $507.4bn in June 2015.

This type of lending has grown three times more than that of owner-occupied lending, which has increased just 4.5% from $829.9bn in June 2014 to $866.8bn in June 2015.

The RBA has cut interest rates twice this year to kickstart the sluggish economy. But there are concerns historically low borrowing costs have inflated a housing market bubble.

The RBA board, which has used its monthly statements to promise tougher scrutiny of the housing market, meets on Tuesday, 4 August, to make its monthly monetary policy decision, but it is not expected to move the cash rate from 2%.

Arnold said the tougher regulatory action was designed to stabilise the market and slow housing price growth.

“As an owner-occupier that is what you want: it’s your home, it’s your biggest investment. You don’t want property prices increasing too quickly if that means that they’re going to come down in price at some point.

“It also means that if you’re an upgrader, if investors aren’t running so hot, then it eases the competition for who you’re fighting against in the property ladder.”

Amp bank said it would not issue investor property loans until later in the year and also lifted its variable rate on existing investor property loans.