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Australian housing seen easing as banks rebuff borrowers
[SYDNEY] Nick Hart bought four homes in Adelaide in less than two years, and was getting ready to make an offer for a fifth, when a regulator-inspired move to cool the sizzling Australian property market spoiled his plans.
"I went to my bank for my next home loan and their response was eligibility assessments have changed, and they can't lend more to me just yet," said the 37-year-old sales manager at a software services firm. Mr Hart said the bank told him his existing loans, equivalent to 93 per cent of the value of his A$1.8 million (S$1.8 million) properties, need to be reduced before he can borrow any more.
Last month, Australian banks raised interest rates for property investors and introduced tougher loan-to-value standards in response to a move by regulators to rein in the riskier corners of the country's house price boom. With interest rates stuck at record lows due to the slowdown in the wider economy, the central bank and the Australian banking regulator have been grappling with ways to prevent a property price bubble.
There are signs that the market may be cooling. Inquiries from property investors dropped by a quarter last month, said Paul Bevan, a Melbourne-based mortgage broker. Price gains in Sydney, the city which has seen the fastest increases, are expected to ease to about a third of the annual pace of 18 per cent seen in the year to July 31, according to a Bloomberg survey of six market analysts.
"All ingredients are in place now to spook the Sydney house-price momentum," said Shane Oliver, head of investment strategy at AMP Capital Investors in the city. "It is better to cool the market rather than wait for the bubble to burst." Low mortgage rates and a flood of Chinese investment have propelled prices 29 per cent higher across Australia in the past three years, according to research firm CoreLogic Inc. Prices in Sydney have jumped 46 per cent over the same period.
Last year, the Reserve Bank of Australia called the housing market unbalanced, and the Australian Prudential Regulation Authority urged banks to limit the growth in investor home loans, which make up a record 53 per cent of all mortgages, according to the latest government figures.
The turning point came last month, when the banking regulator increased the capital that the banks need to hold against potential mortgage losses to an average of 25 per cent, from 17 per cent previously. That will force the four largest lenders to add A$12 billion in equity in a year, according to analysts at Goldman Sachs Group and Morgan Stanley.
In response, banks introduced a number of steps to curb borrowing for investment. They reduced the maximum loan amount they will lend relative to the value of a home, increased the interest rate used to assess borrowers' ability to repay, and reduced the sources of income they would accept in investor borrowing applications.
Last month, the three-biggest lenders - Australia & New Zealand Banking Group, Commonwealth Bank of Australia and Westpac Banking Corp - increased home-loan rates for landlords by as much as much 30 basis points. For the first time since 1997, investors pay more than owner-occupiers on mortgages from those banks.
ANZ and National Australia Bank, the fourth-largest lender by market value, have capped the loan-to-value ratio at 90 per cent, down from as much as 95 per cent.
Commonwealth Bank plans to delay the approval of finance for land buyers until preliminary work such as roads have been completed and the lot is ready for building, the Australian Financial Review said Monday, citing a presentation to brokers. A Commonwealth Bank spokesman declined to comment on the report.
Investors are "still keen" to enter the property market but they would find it difficult to meet the new loan-to-value rules, said Martin North, principal at Sydney-based Digital Finance Analytics, citing a rolling survey of 26,000 households across the country on financial and property expectations.
"While I expect things to slow down through this year and into the next, a price collapse is unlikely when rates are still low," Mr North said.
Property investor Mr Hart says homes are still his safest bet though he acknowledges he wouldn't be able to expand his portfolio as fast as he had expected.
"By next year, I'm sure the value of my properties will rise further and I'd be able to pay down some of my mortgage," he said. "Once that's done, I can go to my bank for the next one."