Last week’s announcement by the banking regulator that it will remove the investor mortgage loan growth limit has sparked expectations that the competition in the investor segment of the mortgage market, which has picked up this year, will further intensify.
The Australian Prudential Regulation Authority announced that it would remove the investor mortgage loan growth benchmark of 10 per cent it introduced in 2014. The restriction will stop on July 1 for any authorised deposit-taking institution that has been operating below the benchmark for the past six months.
According to the latest Mozo Banking Roundup, a number of lenders reduced the mortgage interest rate premiums they apply to investor loans, including interest-only loans, in April.
Heritage Bank cut its investor P&I rates by 25 basis points, with the headline rate now 4.34 per cent. It also cut its interest-only package rates by 30 bps.
ING cut rates for investor interest-only loans by 10 bps for loans over $150,000.
Greater Bank cut package fixed rates for investors by up to 40 bps, with the greatest reduction for its five-year interest-only rate.
Suncorp cut fixed rates for all borrowers making P&I repayments by up to 30 bps.
BCU has reduced or removed ongoing annual fees on a number of owner-occupier and investors, providing savings of as much as $949 a year. It also cut rates on a number of investor loans by five bps.
Bankwest cut the variable rate on its Complete Home Loan investor package by 40 bps, where the LVR is 80 per cent or less. The new rate is 4.44 per cent.
In March, RateCity.com.au reported on what it called a “rate war” in this segment of the market.
Commonwealth Bank announced rate cuts of up to 50 bps for fixed-term investor loans, including both interest-only and principal and interest. The bank cut its two-year rate from 4.84 per cent to 4.34 per cent.
Also in March, ANZ cut three and five-year investor package rates by 40 bps, offering 4.49 per cent for three years. There were no changes to owner-occupier rates.
NAB cut two, three and five year rates by as much as 50 bps. It is offering a three-year P&I investor rate of 4.09 per cent and a three-year interest-only investor rate of 4.19 per cent. The changes included owner-occupier and investor loans.
APRA has set some conditions for its new approach to investor mortgage lending. ADI boards must provide written confirmation that their policies and practices meet APRA’s expectations. ADIs should confirm lending policies, such as interest rate serviceability buffers above 2 per cent and interest rate floors above 7 per cent; and discounts on uncertain and variable income (20 per cent for non-salary income).
The benchmark on investor loan growth that APRA introduced in December 2014 was designed to be a temporary measure, introduced at a time when lending standards were “not as robust as they needed to be.”
APRA says that since the benchmark was applied, the industry has taken steps to improve the quality of lending and increase balance sheet resilience. There has been a clear reduction in higher-risk lending, with investor loan growth moderating, interest-only lending declining and high LVR lending also markedly lower.
It says a return to more rapid rates of investor loan growth would raise concerns.
As part of their assurance requirements, ADI boards will also have to commit to improving the collection of information on borrowers’ actual expenses, to reduce reliance on benchmark estimates.
They must also commit to strengthening controls to verify borrowers’ existing debt commitments and developing internal risk appetite limits on the proportion of new lending at very high debt-to-income levels.