Sydney home prices unlikely to slump on loan curbs: NAB

[SYDNEY] Surging home prices in cities including Sydney are unlikely to be affected by the banking regulator's efforts to curb mortgage lending to investors, according to National Australia Bank Ltd.

Markets such as Sydney, where house values have risen 40 per cent in the past three years, are struggling with undersupply amid "significant" foreign demand, Gavin Slater, the lender's head of personal banking, said Wednesday.

"All lenders are responding to the macro-prudential guidelines," Mr Slater said at a business lunch in the city. "I don't believe it will have an impact on house prices."

Rising property prices have triggered concerns that Sydney is in what Treasury Secretary John Fraser has described as a "bubble." The Australian Prudential Regulation Authority in December asked lenders to limit the expansion of mortgages to residential property investors to 10 per cent a year.

Reserve Bank of Australia Governor Glenn Stevens last week described some elements of the Sydney market as "crazy." Pacific Investment Management Co. has called for tighter home lending restrictions to avert risks to financial stability.

An unlikely surge in unemployment or interest rates were the main risks to the country's housing market, Mr Slater said.

Curbs on loans to landlords is part of APRA's measures to reinforce sound lending standards. The regulator has also signalled it will increase the capital lenders set against potential home loan losses. A government review of the financial system recommended in December an average mortgage risk weight of 30 per cent, up from the current 17 per cent at the four largest lenders.

An increase in the measure will make mortgages "relatively less attractive," National Australia Chief Executive Officer Andrew Thorburn said at the same lunch. "They'll still probably be the most attractive parts of the portfolio in banks."

Higher mortgage risk weights and proposed Basel IV rules will mean the four largest banks - Australia & New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia and Westpac Banking Corp - will need A$14.5 billion in additional capital by 2018, JPMorgan Chase & Co. said in a report June 10.

Mr Thorburn is turning the lender's focus to Australia and New Zealand by floating its US unit and planning to exit the UK by the end of the year. The fastest-growing mortgage lender in the country will focus on customer retention over growth, he said.

National Australia will hire 70 business bankers to protect its lead in the segment, Angela Mentis, head of business banking, said at the same event.

The lender is also evaluating its options for its underperforming insurance business where a "lot of capital is trapped," Mr Thorburn said. National Australia will update investors on the next steps for the business at its full-year earnings announcement on Oct 28, he said.

"The challenge is this business is part of our story for the future," he said. "If we want to grow mortgages, small and medium business lending, we need these products and services. We have to work out how to position this business for the next five to 10 years."

BLOOMBERG