A second lender is set to announce that it is cutting back on lending to high-rise and high-density apartments.
Firstmac, which has about $8 billion under management, is confidentially warning mortgage brokers about plans to toughen lending criteria and tighten the definition of “high density”.
The clampdown is targeted at both non-residents and investors, who in some cases will not be able to include rental income for debt servicing.
“It is quite obvious there is going to be a problem in the future,” said FirstMac chief executive Kim Cannon about why it was tightening lending for high rise apartments.
“Look at the number of cranes everywhere. In the cities, along train lines in the outer suburbs there are apartments being built and people are beginning to ask who is going to live in them.”
Mr Cannon added it focused on high quality low-rise dwellings and has no exposure to high rise..
Firstmac is a non-bank lender that generates funding from overseas investors that are asking whether a bubble is inflating in the Australian market.
“Naturally we are conservative about lending,” he said.
Lenders are also fearful that overseas buyers, many who purchased multiple apartments because of generous conditions offered by banks, might forfeit deposits and renege on off-the-plan purchases.
Tighter lending could also spook property developers, some of whom have suffered 20 per cent losses as Perth’s boom market went bust.
Under Firstmac’s new arrangements, any apartment in a development with more than six floors will be considered “high density”.
The changes will hit large numbers of high rise apartments in the lender’s hometown of Brisbane’s central business district, inner suburbs and the Gold Coast.
It will also directly impact lending around central Sydney and Melbourne and surrounding high rise precincts, such as South Wharf, Southbank, Docklands, parts of South Yarra and South Melbourne.
Firstmac said loans of up to 70 per cent of the apartment’s value can be considered but rental income will not be included for servicing the debt.
Loans over 70 per cent and up to 80 per cent will be considered if the borrowers have lender’s mortgage insurance, which is fee charged for finance lenders for buyers with deposits less than 20 per cent of the property’s purchase price.
“Non-resident lending will not be considered under the high density policy,” according to James Govind Firstmac business development officer
It follows Macquarie Bank’s plans to hit the brakes on lending to high-rise and high-density apartment dwelling in up to 120 postcodes around the nation.
Macquarie Bank, which did not limit the restrictions to apartments of six floors or less, also imposed higher borrower deposits and tougher income checks and closer scrutiny of employment references.
More than 210,000 apartments are expected to flood into Melbourne and Sydney over the next two years, which is the equivalent to the existing number of apartments for sale, according to analysis by RP Data Core Logic, which analyses property sales and rents.
Several thousand are expected to be completed in central Brisbane over the same period.
A “red alert” – an underperformance warning – has been issued for inner-city Brisbane apartments by SQM Research, which monitors prices and performance.
For example, the asking price for apartments in Brisbane has increased by 1 per cent during the past 12 months, less than the rate of inflation. In Sydney and Melbourne it is about 6 per cent.
Firstmac sources more home loans online than NAB-owned UBank, according to recent research.
Property valuer Gavin Hegney recently said a 20 per cent fall in Perth apartment values and rents was triggered by the same mix of demand, supply and pricing now happening in Sydney, Melbourne andBrisbane.
In a separate move, AMP Bank tightened lending for suburban dwellings on the outer fringes of the nation’s capitals.
Teachers Mutual Bank has suspended investment borrowing because high demand has breached the regulatory 10 per cent annual speed limit.
But other lenders, such as Westpac, is attempting to grab market share by lowering the size of the deposits it will require from property investors.
Article originally published at www.afr.com by Duncan Hughes 27/5/2016