Major international banking giants operating in the Australian mortgage market have announced fresh changes to their home lending criteria.
Late last week ING Direct told brokers that it had changed its underwriting guidelines relating to apartments and unit dwellings with an internal floor space of less than 60 square metres.
Where a proposed security property has an internal floor space of less than 60 square metres (that is, excluding balconies and car spaces) and is less than five years old, ING Direct will limit the maximum LVR on the loan to 70 per cent.
Where a proposed security property has an internal floor space of greater than 50 square metres and less than 60 square metres (that is, excluding balconies and car spaces) and is older than five years, ING Direct will limit the maximum LVR on the loan to 80 per cent.
The new underwriting guidelines are effective for all new applications received from 8 July, 2016.
Meanwhile, Citi's head of mortgage distribution, Matt Wood, told The Adviser that the bank has reduced its LVRs on high density units from 80 per cent to 70 per cent.
Mr Wood explained that Citi also has a list of nearly 260 suburbs (80 postcodes) nationally that its 'high density unit policy' will apply.
“High density is any unit development containing more than 30 units. The bulk of the postcodes are in Melbourne, Sydney, surrounding inner suburbs and up to 15 kilometres from the central business districts," he said.
The lending changes comes as a new report from BIS Shrapnel this week forecasts property prices to deteriorate across all capital cities, primarily driven by an oversupply of apartments.
However, developers are now fearing that a clampdown on new buildings could eventually drive prices even higher if projects fail to get off the ground.
Luxcon Group managing director Ilya Melnikoff said recent restrictions on both developers and foreign buyers could actually lead to price rises by curbing the supply of new units.
Mr Melnikoff, a nephew of Meriton founder and billionaire property tycoon Harry Triguboff, told Mortgage Business that in addition to a crackdown on lending to non-residents, banks are also adding additional restrictions on the amount of pre-sales that developers can accept from foreigners.
"Foreign buyer pre-sales have gone from 30 to 35 per cent accepted to 20 per cent. There are talks of restricting it even more," Mr Melnikoff said. "If projects can’t get the pre-sales, they can’t get started, leading to higher housing prices due to a lack of housing stock – housing demand will in fact increase," he added.
"It’s a real problem because some areas are heavily dominated by Asian buyers, such as Chatswood, Macquarie Park and Epping. You are really slowing down the production. There are a lot of local buyers, but there is a tremendous amount of foreign demand there. Now with the 4 per cent stamp duty on foreign buyers, that has the potential to put brakes on the whole thing altogether."
BIS Shrapnel’s Residential Property Prospects, 2016 – 2019 report, released yesterday, noted that nearly all capital cities are building apartments at record rates on the back of the recent strength in investor demand.
However, BIS Shrapnel senior manager and study author, Angie Zigomanis, said that in New South Wales and Victoria in particular, where the strength of investor demand has been a key driver of the Sydney and Melbourne residential markets respectively, the decline in investor activity has slowed the pace of price growth.
“As investor expectations of capital gains are reduced, investor demand is expected to weaken further, creating additional downward pressure on prices,” he said.
BIS Shrapnel says all markets are forecast to experience falls in prices in real terms by June 2019.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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