Commonwealth Bank of Australia (ASX: CBA) has conceded to the pressure applied by the nation's financial system regulators, alerting mortgage brokers that it is taking further steps to tighten its credit policies to curb growth in Australia's booming mortgage market.
The Reserve Bank of Australia has become increasingly concerned about rising house prices, particularly in Sydney and Melbourne, which have restricted its ability to lower interest rates any further. At the same time, the Australian Prudential Regulation Authority, or APRA, has piled the pressure on Australia's largest lenders to maintain their lending standards despite the intense competition for new customers.
As a result, Commonwealth Bank will assess the incomes and existing debts of new customers more stringently to better ensure their ability to repay their loans when interest rates inevitably rise, or if economic conditions continue to worsen.
As highlighted by the Fairfax press, the changes will include a "servicing loading" of 20 per cent, meaning that customers applying for new loans will be assessed on their ability to pay 20 per cent extra per month on any repayments required under the terms of their loan. Meanwhile, it will assess only 80 per cent of income from overtime, bonuses and investment income for any new home and investment loan applications while its maximum loan-to-valuation ratio (LVR) for owner-occupied home loan applications will become 95 per cent, down from 97 per cent as advertised on its website.
Other banks, including Bankwest and National Australia Bank Ltd. (ASX: NAB), have also adopted measures to stem the rate of investor loan growth. These changes are consistent with the need for Australian lenders to comply with APRA's request that banks keep investor loan growth below 10% per annum in what could be just one of the signs that banking profits are sitting near their peak.
