NEWS ANALYSIS
INVESTORS
LEFT
CONFUSED
AS LENDERS
CHANGE
THE GAME
Lenders are sending mixed messages to investors, with credit policies changing
on a weekly basis. Why is the current mortgage market so chaotic and
confusing, and what can investors do to stay on top of ever-changing policies?
Philippe Brach explains
I’VE BEEN in the mortgage broking
business in Australia for many years
and I have to say it’s never been a more
confusing time to obtain a mortgage.
In the good old days, before APRA
got involved, the mortgage market was
largely predictable. Every mortgage
provider had similar policies, give or
take some niche products that allowed
them to have a ‘point of difference’.
By and large, it was reasonably easy
to navigate the lending landscape
as there was consistency in product
offerings. It now seems like those days
are gone.
Today, the mortgage market is a
mixed bag of completely unpredictable
agendas and shifting goalposts.
In May and June of this year, for
instance, a number of lenders changed
16
AUGUST 2016
their policies both for and against
investors:
• Macquarie Bank dropped its
investor LVR to 70% for a number of
postcodes in Brisbane, Melbourne
and Sydney.
• Westpac bumped its investor LVR
back up from 80% to 90%.
• Teachers Mutual Bank and UniBank,
which operate one loan book under
two different brands, put a freeze on
any new investment loan business
after going well over the watchdog’s
10% annual lending growth limit.
And we can’t forget AMP, which took
the unprecedented step of removing itself
from the investor marketplace altogether
in 2015 in an effort to curb growth in its
investment portfolio. It came back to the
| yourinvestmentpropertymag.com.au
investment market after achieving its goal
and meeting APRA requirements, but
then announced it would restrict lending
in certain postcodes.
Is this the new normal?
This increasingly odd lending
environment is distorting the mortgage
market, and it’s hard to say when things
will return to ‘normal’, if at all.
When APRA announced the 10%
growth rule for investment lending, as
well as other measures mainly relating to
capital adequacy ratios, each bank reacted
very differently. I was expecting that
everyone would largely go the same way:
that they would put in place consistent
measures to comply with the new regime.
For instance, I expected they would
either reduce LVRs for investors, or would
NEWS ANALYSIS
way or the other, borrowers are
going to suffer. A couple of months
ago, my company arranged a
loan for someone at Macquarie
Bank because it offered a very
competitive variable rate
and the client could service
the loan well. But no sooner
had the loan settled than
Macquarie changed its variable
rate, so it was nowhere near as
competitive as the next bank.
We can’t get our clients to
refinance every five minutes to a
more suitable product, and this type of
ensure banks can sustain the next shock,
if there is one.
One thing driving the banks for sure is
profit, and providing a strong return to
shareholders, so it will be interesting to
see if this volatility continues, and how it
is going to impact on banks’ profitability.
How are they going to sustain growth and
profits when they’re impacting on lending,
which is their main source of income?
If banks are reducing their reliance on
household mortgages, and at the same
time business lending is not picking up, the
only way to sustain profits is to increase
margins on residential lending. This is
The only way for banks to sustain profits
is to increase margins on residential
lending. This is one reason why I don’t
think rates will go much lower than they
are now
not allow negative gearing deductions
in servicing calculations, or would use
higher assessment rates, or a combination
of the above.
While a lot of these measures have been
adopted, they haven’t been adopted in a
uniform way. Each lender has dealt with
the issues in a very different way.
It was my view, and the view of many
others in the industry, that once the
banks and lenders were under the 10%
growth mark in their loan books, things
would quieten down and return to an
orderly fashion.
But I haven’t seen that happening!
I’m as surprised as investors are by the
fact that banks keep on chopping and
changing all the time. It’s becoming
particularly difficult and confusing
because the banks are changing
their policies at a rapid rate, and at
different times.
With different lenders announcing
significant changes every single week, it
means keeping on top of who’s doing what
is becoming harder and harder.
The reality of the situation is that, one
unpredictability in the market makes
things even more complicated. There’s
nothing to stop the bank you are with
from changing its rates or policies
tomorrow; banks are changing the rules
as they go along and that has a real impact
on people who are already in a mortgage.
Incidentally, this has to have an
effect on investors buying off-the-plan
properties. How can you be confident
that you will be able to obtain finance one
to two years in the future when the rules
keep changing? A case in point is the
recent sudden restrictions on lending to
foreigners. How many of them will be in
trouble when looking for finance now?
Will mortgage rates go any lower?
I thought things would have returned
to ‘business as usual’ by now. That
hasn’t happened, and I don’t think it
will happen. The lending landscape has
changed forever and there is a worldwide
priority to make sure banks stay strong.
What APRA is imposing on the banks
has been mooted at an international
level, through the Basel Committee, to
one reason why I don’t think rates will go
much lower than they are now. Banks will
be keeping at least part of any future rate
reductions by the RBA. ANZ has already
done that with the last rate cut, and the
others will follow with the next one.
If you’re currently navigating the
mortgage market, my suggestion to you
is to not even consider going it alone. In
this environment it makes even more
sense than before for borrowers to use a
good mortgage broker who can navigate
the constantly changing landscape of
offerings and provide sound advice about
the most suitable products for their
circumstances.
THE EXPERT
AUGUST 2016
Philippe Brach is
the CEO of Multifocus
Properties & Finance,
established in 2005
to mentor investors to
create wealth through
property investing.
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