Blog

ANZ Banking Group says proposed rules being negotiated by global financial regulators could force up the cost of loans for customers with smaller deposits, especially first-home buyers.

Deputy chief executive Graham Hodges on Friday said changes under discussion dealing with how much capital banks would have to carry could disadvantage borrowers who had smaller deposits.

Mr Hodges made the comments before a parliamentary inquiry into housing affordability, which is also scrutinising the banking regulator’s clampdown on lending to property investors.

“We are working within the new regulatory framework to adjust lending requirements, especially for investment loans in a market that’s moving quickly,” Mr Hodges said in Melbourne.

“Looking further ahead, the committee needs to be aware that proposals under consideration by the international Basel committee could lead to further significant changes to bank capital requirements applying to housing.”

“This could have the effect of increasing the cost of finance, particularly for those customers borrowing at higher loan-to-valuation ratios.

“Over time, this will likely disadvantage those buyers, namely some first-home buyers, with smaller housing deposits.”

The changes Mr Hodges was referring to are being considered by the club of global banking regulators known as Basel, after the city where it meets in Switzerland.

Local analysts have previously said the changes, which are not expected to be implemented for several years, might force banks to put greater weight on loan-to-valuation ratios when determining the riskiness of a loan, and how much capital is held against it.

That compares with the current approach, in which the banks determine a risk weight, which measures the riskiness of a loan, by “probability of default”

JP Morgan analyst Scott Manning said in a June report that “first home buyers may further be locked out of the market” if the changes went ahead.

Such a policy is by no means certain, and Mr Hodges outlined various steps the bank had taken to slow its growth in lending to property investors in response the Australian Prudential Regulation Authority’s 10 per cent a year speed limit in this part of the home loan market.

As well as requiring new investor borrowers to have a 10 per cent deposit, he said the bank used a higher minimum interest rate to assess whether borrowers would cope if interest rates rose.

He said ANZ used a minimum interest rate at 7.25 per cent – up from its previous practice of adding 2.25 percentage points onto the actual rate the borrower paid.

ANZ is one of several lenders that was growing its investor loan book at a faster pace than APRA’s 10 per cent speed limit at the most recent figures from June.

Mr Hodges indicated APRA wanted banks to demonstrate within the next few months that their investor financing had slowed.

The regulator’s cap on housing investor credit, which was announced last December, became a “hard limit” only around May, as opposed to a “guideline”, he said.

In its submission to the committee, ANZ argued the “fundamental” reason housing prices in Sydney and Melbourne had surged was a mismatch between supply and demand.

Mr Hodges said it was not yet clear what the effect of recent changes for investor borrowers would be, because banks had not faced such credit restrictions in decades.

“This is the first time, I think, since the late 1970s, that we’ve actually had a quantitative restriction on what we can lend,” he said.

“There may be some investors who would like to get an investment loan from the banks, but the banks are not overly happy to lend to it.

“I presume it will force some investors outside the regulated market into the non-regulated market.”


Posted by Clancy Yeates – The Age on 14th August, 2015