Westpac eases investor lending restrictions

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After tightening up its loan book in response to the Australian Prudential Regulation Authority (APRA) driven crackdown last year, major lender Westpac is set to make life easier for investors.

According to a report in Fairfax media outlets, the big four bank has advised mortgage brokers that its loan to value ratios (LVR) for investment loans will move back from 80% back to 90%.

Philippe Brach, chief executive officer of Multifocus Properties & Finance, said the move by Westpac came as no real surprise.

“I’m not surprised. The reason they reduced their LVR to 80% in the first place was because they needed to fit in with the APRA guidelines and reduce the growth of their investment loan book to under 10%, so they had to take some drastic measures,” Brach said.

“It was also foreseen that as soon as they got things under control that they would go back [to 90%] because at the end of the day the banks need to make money and by having an LVR at 80% there’s a big chunk of business that goes off to other lenders like CBA that are doing 90%,” he said.

Not surprised by the move, Brach also thinks lenders such as Westpac will take further action to make borrowing easier for investors.

“They were bound to come back [90%], but what they haven’t done yet is to allow for negative gearing calculations in their servicing calculators,” he said.

“I think that that will be next and it will be reintroduced pretty soon.”

While Westpac’s move may seem to go against APRA’s desire to keep investor lending under control, Brach said people should not be overly concerned that lending standards have slipped.

“The lending standards in Australia are fairly good.

“Now they’ve [brought investor lending growth to under 10%] and things are under control, they’re sort of relaxing a little bit. At the end of the day the default rates of mortgages in Australia are extremely low and that’s because there’s a good screening process in place.

“I know there’s been some stuff in the press recently about Chinese borrowers and fraudulent loans, but by and large in the mainstream Australian lending market the banks have got really good lending standards.”

Brach said in particular lending standards in Australia are much more strict than those in the United States, something that will help the market here maintain its strength as overseas commentators predict a collapse.

“I’m a bit sick and tired of all these people from other countries coming in and telling us what the Australian market is like when they’ve got no idea.

“Coming from the US you had Jeremey Grantham who kept saying that property prices would fall by 40%, you had that Jeremy Tepper, a Brit who lives in the US saying similar things, but they don’t understand how our market works.

“I would not like to make any comments about the US housing market because I don’t know it. It’s certainly a very different market form ours, starting with the fact that in the US they have non-recourse loans so if you default on the loan you just walk away, give the keys to the bank and you’re scot free, whereas here the banks will come after you. There’s a lot more responsibility in lending here than there is in the US.”

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