With the regulator and big four banks implementing changes designed to make property investing less attractive, mortgage brokers could be heading into rough seas.
That includes the likes of Australian Finance Group Ltd (ASX: AFG), Mortgage Choice Limited (ASX: MOC), Homeloans Limited (ASX: HOM) and Yellow Brick Road Holdings Ltd (ASX: YBR).
Interestingly, Commonwealth Bank of Australia (ASX: CBA owns more than 20% of Mortgage Choice, while Homeloans counts National Australia Bank Ltd (ASX: NAB) and Macquarie Group Ltd (ASX: MQG) as major shareholders.
Yellow Brick Road, headed by chairman Mark Bouris, has Macquarie and Nine Entertainment Co Holdings Ltd (ASX: NEC) as 18.4% and 17.8% shareholders respectively.
Yesterday, Aussie Home Loans CEO James Symond said the surge in lending to investors has created significant uncertainty, and that he wasn't sure if anyone knew what the right moves were to curb investor growth. Aussie is majority owned by the Commonwealth Bank. Mr Symond said that about 30% of his company's lending was to investors and that recent moves would 'no doubt have some impact on us'. He also said that other brokers typically lend between 40% and 50% to investors.
The banking regulator, the Australian Prudential Regulatory Authority (APRA) last week increased the levels of capital the major banks had to hold against mortgages from 16% to at least 25% by the beginning of July 2016.
Australia and New Zealand Banking Group (ASX: ANZ), and Commonwealth Bank have increased interest rates for investors, while Westpac Banking Corp (ASX: WBC) has also implemented measures limiting lending valuation ratios (LVRs) to as much as 80% for investors.
National Australia Bank Ltd (ASX: NAB) has capped investor loan LVRs at 90% while increasing interest rates on interest-only loans – the majority of which are taken out by investors.
This could be a return to years gone by, when investors regularly paid as much as 1% more on their interest rates than owner-occupiers.
According to mortgage broker Australian Finance Group, investor loans dropped to 36.9% of all loans in June across the country, compared to a peak of 43% in April this year. In NSW, investor loans fell from 49.8% in May to 41.6% in June. That may have something to do with fears that Sydney's housing market has gotten out of control and was heading for a bust or a severe fall.
The Australian Bureau of Statistics (ABS) has also noted that the total value of housing finance has dropped recently by 4.4% to $32 billion in May 2015, although owner-occupied housing fell 5.3% and investment housing a lower 3.2%.
Foolish takeaway
With the regulator and the major banks taking action to limit investor loan growth, and housing finance falling, mortgage brokers could take a hit to credit growth, potentially resulting in falling revenues and earnings in the year ahead.
