The recent changes to investor lending and bank capitalisation requirements have sparked intense debate among industry leaders, particularly regarding their implications for brokers, consumers and the wider economy.
The Australian Prudential Regulation Authority (APRA) has been relentless in recent months in increasing pressure on the banks to reduce the size of their loan books directed specifically at property investors, in a bid to both reduce their weighting towards speculative investment lending and also to moderate the bubbling Sydney property market.
Since late last month, ANZ, Commonwealth Bank, NAB, Westpac, Heritage Bank, Suncorp Bank and Bank of Queensland are among those lenders who have changed their rates on a range of products – most combining rate hikes for investors with cuts for owner-occupiers, in effect creating a two-tier lending market.
AMP Bank went a step further, putting a stop on all new and existing investor loan applications until “later in 2015”.
“The whole state of affairs is very confusing for borrowers,” John Kolenda, managing director of 1300HomeLoan, said.
“Not only have there been changes in rates but now lenders loan servicing calculations, loan-to-value ratio (LVR) requirements and using rental income to help service have changed.”
Origin Finance CEO Doug Daniell suggested the situation is a boon for brokers, who are uniquely positioned to help borrowers navigate the rapidly changing lending landscape.
“I was looking at it when it first started [thinking] ‘Well, this is a bit of a threat’. Then I thought, ‘Gee, if I can't go to my bank and borrow a bit of money, who am I going to turn to?’ So it's guaranteed that the broker industry should jump an extra 10 per cent market share because of these changes,” Mr Daniell told The Adviser.
“This hopefully will [also] allow some of the smaller lenders to be able to get some more market share back, which is always going to be good for an industry isn't it? To be able to get a bit more diversification.”
Paul Liccione, eChoice’s general manager of sales and distribution, agreed that brokers will be the big winners.
“An event of this nature highlights a prime reason brokers exist. That is, to deliver better quality outcomes for consumers in relation to the choice of their mortgage product,” Mr Liccione said.
“And with access to a wide variety of products from lenders both large and small, brokers are in the box-seat to deliver even more value to borrowers as the playing field changes.”
Mr Liccione added that brokers already account for more than half of mortgage system growth, which can only continue to grow given consumer confusion about the changes currently taking place.
Property, though, is unlikely to fall out of favour, according to Mortgage Choice chief executive officer John Flavell.
“When we asked potential investors whether or not now was a good time to invest, more than 70 per cent said yes, which goes some way to explaining why so many potential investors are not deterred by the spate of pricing and policy changes being made by many of Australia’s lenders,” he said.
Less enthusiastic about APRA’s moves though is the Property Investment Professionals of Australia (PIPA). Ben Kingsley, chair of PIPA, labelled the changes as “unfair”.
“Increasing borrowing costs for investors, and in some cases owner-occupiers, who bought into the market some time ago seems unfair and detracts from what should be the common goal of creating a balanced property market,” Mr Kingsley said.
“Above all, the industry needs to be united in slowing investor activity in some markets. While PIPA fully supports responsible lending, we believe going forward APRA should take a more transparent approach, rather than continue its current closed-door tactics.”
Hinting at widespread frustration at APRA’s lack of industry consultation before imposing its measures, MFAA chief executive Siobhan Hayden noted that the changes have wide-reaching implications for consumers and the broader economy.
“There is no doubt that the numbers indicate the volume of loans in the investor market versus the owner-occupier sector show a widening gap. APRA’s key concerns are to ensure banks maintain a prudent approach to lending practices particularly in the environment of increasing/high house prices, and increasing household debt/expenses,” she said.
However, in the event of a serious economic downturn in Australia, Ms Hayden said it would be salary-supported owner-occupiers who would present the greatest risk to banks rather than investors.