The Australian Prudential and Regulatory Authority will embark on further enforcement of banks to cut back on current lending levels of property investor loans.
Available funds will be cut back “by at least a third” within weeks, John Symond, the founder and chairman of Aussie Home Loans believes.
“Banks are going to be knocking back a lot of investor applications,” he told Ross Greenwood on the 2GB Money News program last night.
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It will be because there will be less money available for loans under this macro prudential reform.
“If you are in the process of looking to borrow get in now because rules are going to come in sooner than later, so it going to make it a lot harder to find a lender on an investment property,” he said.
The heat of the lending really centres on Sydney and Melbourne and the inner suburbs, he noted.
“At least half of Australia that hasn’t seen significant house price rises.”
The renewed APRA tightening comes as it appears investor borrowings may already be trending down.
Melbourne stands out in terms of softness in the month of April, Craig MacKenzie of CoreLogic RP Data told the BankingDay website.
Banks have had long enough to “revise their ambitions” and the Australian Prudential Regulation Authority will “be watching carefully to see a moderation in growth in investor lending in the second half of the year,” APRA chair Wayne Byres said in a speech last week.
The regulator has agreed plans with banks and will be “monitoring closely to see that they kick into effect,” he said.
“Given the importance of housing-related lending, it should not be surprising that APRA supervisors are increasingly vigilant on the risks this lending presents,” Byres said.
“Put simply, if all our eggs are increasingly being placed in one basket, we need to make sure the basket isn’t dropped.”
The Australian Prudential and Regulatory Authority in December wrote to all deposit-taking institutions setting out “sound lending standards” including a benchmark for the 10% maximum growth of residential investment mortgages.
Wayne Byres told a Senate committee the move was made “against a backdrop of historically low interest rates, high household debt, subdued income growth and rising unemployment, significant house-price growth, and strong competitive pressures.”
The focus was on high loan-to-value, and high loan-to-income, lending, the growth in investor lending and serviceability.
“Our objective is not to target a particular level of house prices,” Mr Byres said.
“That is not a task that is within our mandate. Our goal is more modest – to make sure that, however the housing market evolves, housing finance remains sensibly founded on sound lending standards.”
Reserve Bank governor Glenn Stevens says his bank is working with other regulators to assess and contain risks that may arise from the housing market.
Recently addressing the Housing of Representative standing committee on economics, Glenn Stevens said it involved more intense scrutiny of investor loan portfolios growing at over 10 per cent per year, with the possibility, ultimately, of additional capital being required if APRA deems it necessary.
ASIC has begun a review of interest-only lending in the context of consumer protection legislation.
This article originally appeared on Property Observer.