Westpac Introduces Toughest Property Investor Lending Rules Yet

Yesterday, Westpac [ASX:WBC] announced that it would make it tougher for investors to get financial loans for property.

From today let’s start, Westpac will need investors to have a down payment of at least 20%. They’re decreasing their own LVR (loan to value ratio) cap to 80%.

Other banks have already made it tougher for investors to borrow. For example, NAB [ASX:NAB] capped their LVR at 90% last month. As well as ANZ‘s [ASX:ANZ] 90% cap comes into effect these days. The Commonwealth Bank [ASX:CBA] is the only big bank that has not really done much. CBA has just made their investor mortgage loan affordability test a bit tougher. But none have gone as far as Westpac.

In yesteryear, investors could get loans from Westpac with as little as a 5% down payment. Many commentators insist that this is what has helped drive up property prices. It makes a lot of feeling; a $50,000 deposit goes a lot further when it only has to be 5% of the total cost.

It will be very interesting, for investors and potential owner-occupiers alike, to see how (or if) Westpac’s new rules change the housing market.

Westpac’s massive buyer loan portfolio

Reducing the LVR is a daring move for Westpac, which receives a lot of business from real estate investors. In fact, according to APRA, it’s Australia’s greatest property investment lender.

It just takes a quick look at APRA’s latest monthly banking stats to see what’s going on.

Source: apra.gov.au
[Click to enlarge]

Westpac has $150.9 billion worth of housing investment loans on its books. Commonwealth Bank has $127.Nine billion, NAB has $65.8 billion, and ANZ has $60.4 billion.

In May 2014, the same time last year, Westpac had $137.2 million worth of investor loans. Without the rounding, Westpac’s investor lending development is sitting at Ten.01%. APRA wants banks to slow investor lending growth to under 10% per year.

Who is it truly going to affect?

On the face of it, Westpac’s new rules sounds like a great tough measure against insane, speculative investing. The thing is, it is going to affect first-time investors more than others.

Investors can still get a low-deposit property investment mortgage if they have their own owner-occupied home that has a certain amount paid off. Or even they can use mortgage insurance, which can potentially cost thousands of dollars in premiums anyhow.

In other words, rich people with plenty of assets to secure their loans will still be able to be lent with high LVRs.

It’s just people who are purchasing their first investment home who will have trouble. Or even those who are buying an investment property before their first house, and renting where they want to live in the meantime.

It affects the people who can least afford to spend years and years saving the 20% deposit, while property prices escalate.

By the way, if you’re thinking about investing in property but are not quite ready to take on a hefty (possibly second?) mortgage, there are alternatives. In his report ‘The Three Best Investments in Australia for 2015 and Beyond’, Kris Sayce explains how you can invest in Aussie property through the stock market. He even indicates a few stocks that he believes will perform well. Click here to find out how to download your totally free copy.

Eva Mellors,
Contributor, Money Morning