What happened? The Commonwealth Bank of Australia (ASX: CBA) backed lender Bankwest today announced that it would start capping investor loans at 80% loan-to-value (LVR) ratio. This marks a drastic departure from previous policy where the bank was well known for accepting investor loans up to 98% LVR.
Bankwest's move comes only days after National Australia Bank Ltd. (ASX: NAB) flagged a reduction in the discounts offered to investor loans following the Australian Prudential Regulation Authority's (APRA) request to keep investor loan growth below 10% per annum.
What does it mean? Commonwealth Bank and National Australia Bank are two of the more heavily exposed banks to the Australian housing and loan market. The policy changes are a warning to investors and mortgage brokers that times are going to get tougher as APRA works together with the RBA to ensure that the local housing market doesn't get overheated in this period of low interest rates.
This could also be a bad sign for ASX-listed financial services and mortgage broking firms like Yellow Brick Road Holdings Ltd (ASX: YBR), Homeloans Limited (ASX: HOM) and Mortgage Choice Limited (ASX: MOC), however there will be opportunities for switched-on groups.
What now? I expect we're going to go through a very interesting period for residential lending. Some banks, perhaps regionals like Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN) or securitised lenders including Aussie Home Loans and Macquarie Group Ltd (ASX: MQG), could steal considerable market share from the big four banks as their highly leveraged lending is restrained.
All of this comes at a time when home loan sizes have increased by nearly 25% over three years in some sectors and areas, and when 40 suburbs in Sydney now have a median house price of over $1 million!
It's interesting to note that while Sydney and Melbourne house prices have surged 15% this year and nearly 50% since 2011, prices in Queensland, Adelaide, Perth and Tasmania have been far more subdued. This variation makes action by the banks and APRA difficult and puts more onus on other industry players like mortgage insurers to get it right in the quickly-growing suburbs.
What will happen? Who knows! But, investing in property has been as nearly as good an investment as shares over the long term. Both have been through corrections and how you deal with those situations can often dictate your returns.
