by AB23 Nov 2016
The Reserve Bank of Australia and the International Monetary Fund have issued a notice warning households and governments to improve financial resilience in the face of increasing market volatility.
Major banks have responded by imposing new assessments on the wealthiest property buyers in Australia, requesting for more extensive information on their existing loans, according to the Australian Financial Review.
ANZ has begun examining the loan terms and conditions of properties valued at more than $4 million that are owned by buyers on the upper rungs of the property ladder. Meanwhile, National Australia Bank (NAB) expects to set new lending criteria, beginning this Saturday, for property buyers or owners looking to switch loans to the major bank.
Currently, residential mortgages make up 42% of ANZ’s loan book, 52% of NAB’s loan book, and 60% of Commonwealth Bank of Australia’s loan book, according to latest lending figures.
ANZ’s Property Risk division has also placed certain blue-chip postcodes, such as the Sydney suburbs of Bellevue Hill, Double Bay and Rose Bay, under automatic review, to ascertain whether buyers of houses within these elite suburbs should be required to pay larger deposits. The new assessment process will include a reviewing of lending criteria, valuations, and risk decidions made to lower levels.
President-elect Donald Trump’s election promises have spurred expectations of higher inflation and thus higher rates in the global markets. In response to the resulting higher funding costs, ten lenders, including non-bank Firstmac and loans.com.au, have raised their fixed term rates.
Lenders are also beginning to limit their exposure in the mass market to focus instead on the high-end market with bigger margin property funding, according to analysis by JP Morgan.
Martin North, principal of Digital Finance Analytics, explains: “Large loans are potentially more risky, as top end property is likely to fall in value first in a downturn, together with inner city apartments. But there is still a need to lend, as it’s the only growth engine in town; they need to drive on the accelerator and brake at the same time!”
Under NAB’s new lending arrangements, from their current hypothetical rate of 30% – which is added to the loan, the new assessment rate will be at 7.4%, or 2.25% plus the current borrower rate. For new loans, the bank will expect additional details on the type of loan, current balance and interest rate, as well as the loan’s expiry date.
"This change ensures that we continue to lend responsibly, and make the most accurate and precise assessment of a customer's ability to repay their loan both today and in the future," a NAB spokesperson said. “Customers will now all be assessed by the same calculation for both new and existing debt.”