The latest loan data was a wake up call to the industry and regulators. Investment loan lending has been running hot, much due to investors seeking to refinance to avoid recent price hikes. We suspect behind the scenes, regulators will be having “a quiet word”.
Analysis of the APRA numbers (contaminated by loan switching of around $50 bn between owner occupied and investment loans) shows CBA trending ahead of its competitors. This chart shows the month on month stock movement. This would be worrying the regulators.
In fact if you annualise the last month, CBA would breach the 10% speed limit (10.3%). The December data showed CBA as the largest investment loan lender by net flow.
Now the CBA Group is about to stop refinancing of investment loans from other lenders according to the AFR. This follows moves by subsidiary Bank West. Will other lenders follow?
We expect to see a flurry of loan applications to smaller lenders as borrowers try to navigate the changes.
Investors are already having to pay more, following out of cycle mortgage rate rises, and we think there are more to come. Some are already paying more than 0.5% above the rate just three months ago. Some investors have little rate headroom.
In addition, we are seeing intense pressure on those holding interest only investment loans, with regulator requirements now forcing lenders to ensure there are concrete plans in play to repay the capital element in the loan.
The 10% speed limit is too high and it seems to me a lower level should be imposed.
Combined the investment property landscape just changed, and this may well be sufficient to turn the property market bull run in the eastern states. Things just got interesting.
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