Non-banks set to boom thanks to APRA crackdown on property investors
Smaller mortgage lenders are queuing up to take a bigger slice of the the big banks’ hefty profits from home loans, as banks are forced to tighten the screws on landlord borrowers.
As Westpac and Suncorp became the latest banks to raise interest rates for investors on Friday, the country’s biggest non-bank lender, Firstmac, said it was seeing early signs of a surge in demand for property investors.
Chief financial officer James Austin cited a spike in online searches for investment loans, which he said was a “red flag” that could signal a looming wall of credit applications in response to tighter credit policies from banks.
Banks are tightening their lending to landlords and forcing borrowers to stump up bigger deposits in response to a 10 per cent a year cap on their loan growth – but less regulated non-banks have no such cap.
It came as non-bank lender Pepper Group enjoyed a bumper share market float, with its stock price surging 27 per cent.
Meanwhile it has emerged that the housing investor loan market is expanding even faster than thought, with figures showing growth accelerated to 10.7 per cent a year in June after billions of dollars in loans were reclassified as investor mortgages.
The Reserve Bank on Friday revised up its credit growth figures, further exceeding the banking regulator’s 10 per cent speed limit. The change occurred after ANZ Banking Group reclassified the figures it provides to the Australian Prudential Regulation Authority, lifting APRA’s measure of ANZ’s investor loan book by more than $20 billion.
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Mr Austin said there were now signs the Australian Prudential Regulation Authority’s 10 per cent limit on housing investor credit growth was sending customers to seek credit from outside the banks.
He said visits to its website, loans.com.au. had jumped from 4000 a day to 7000 a day in the past month and Google searches for investment loans had “skyrocketed” and this was a signal people were looking for alternatives to the big banks.
The surge is coming
“We keep expecting to see this surge in investors and we haven’t seen it to date. However in the last four weeks, the surge is now coming,” he said.
“That’s a red flag to us that the pipeline is there and we need to take action,” Mr Austin said.
That’s a red flag to us that the pipeline is there and we need to take action.
James Austin, Firstmac
On Friday, Westpac raised its advertised variable interest rate for investors by 0.27 percentage points, to 5.75 per cent.
The Australian Securities and Investments Commission this week said several lenders had flaws in how they were assessing borrowers for credit.
Mr Austin said ASIC had imposed the same restrictions on Firstmac as the banking regulator, APRA, has on banks.
This includes requiring it to “stress test” every loan a borrower has to ensure they can still repay their loans at a 7 per cent interest rate.
Non-conforming lender Liberty Financial, which has a loan book of about $3.2 billion, most of which is mortgages, said two years ago 10 to 15 per cent of their new loans went to investors. That is now down to 5 per cent. But he expects that to reverse with the actions by banks because their interest rates were now back to the same level as Liberty’s.
“Yes we expect some additional inquiry really because now our rates on prime mortgages, which is about a third of our portfolio, are equal with the banks,” said chief financial officer Peter Riedel.
Brett McKeon, the managing director of AFG – one of the country’s biggest mortgage aggregators – said most non-bank lenders have not made any move to reduce their exposure to investment loans and should see growth in applications from investors that have been turned away by banks.
“There is a definite opportunity for second-tier lenders to get more business. There is probably head room with a lot of lenders to take some extra volume, but it would then only be a matter of time before they would get rather full and be looking to re-price.”
The shares of lender and loan servicer Pepper Group jumped 27 per cent above its debut price of $2.60 within hours of listing on the Australian Securities Exchange .
The stock first traded at $3.05, before rising to $3.30 on Friday. Priced at 10 times forecast 2015 net profit, analysts said the chief reason for the price spike was the cheap price.