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Finance

APRA ‘dials up’ scrutiny of bank lending for commercial real estate

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APRA executive Charles Littrell says the banking regulator is increasing scrutiny of commercial real estate lending.

APRA executive Charles Littrell says the banking regulator is increasing scrutiny of commercial real estate lending. Nic Walker

The prudential regulator is “dialling up” its scrutiny of bank lending to commercial real estate projects, an area that regulators have pinpointed as being the most exposed to a deterioration in economic conditions.

Banking regulators are concerned that commercial property loans are typically the first ones to go bad in a downturn, said the Australian Prudential Regulation Authority’s executive general manager of supervision and support Charles Littrell.

“There is a lot of conventional work at our end focusing on sound lending – and in fact, we are now dialling up our systemic supervisory focus on commercial real estate,” Mr Littrell told a lunch time event in Sydney on Thursday.

Australian banks have tightened lending standards to non-residents, while some banks have stopped lending to foreign buyers of commercial developments such as inner-city apartments.

Inner-city apartment prices could be affected by new properties coming on to the market as off-the-plan buyers struggle to settle on their purchases, ratings agency Standard & Poor’s said earlier in June, highlighting fears of an oversupply of apartments in Melbourne and Brisbane and “settlement risk” caused by tougher bank lending rules.

Banks apply loan to value (LVR) ratios to commercial property loans and typically require more equity for commercial real estate than residential real estate. However, banks or regulators do not report data on commercial LVRs, which are granular and depend on the level of risk in a project.

Growing bank exposure to commercial real estate was identified as a risk for the stability of the financial system last year by the Reserve Bank of Australia.

On Thursday, Luci Ellis, the head of stability at the RBA, said commercial real estate lending can become a “vector of stress” during a crisis.

“While it is true that we tend to see housing booms and booms in housing prices ahead of banking crises, it is usually not the mortgage book that is the issue that actually brings the banks down,” she told the same panel, at an event hosted by the Centre for International Finance and Regulation.

“The thing that has tended to be the casual agent in banking crises…[has been] the property developers [and] commercial real estate – these are the vectors of stress that actually cause a problem for the banking system historically.”

In its financial stability review last October, the RBA warned banks to monitor growing risks in commercial real estate lending books. “Given the current risks of oversupply in some inner-city markets…banks will need to remain vigilant in assessing the risks surrounding property development loans to ensure that this lending is prudent and appropriately covered by both capital and provisions,” the RBA said.

APRA included commercial real estate exposures in its stress tests of the banking sector conducted last year.

Credit Suisse analyst Jarrod Martin said on Thursday that sharp rates of growth in bank lending to commercial rate estate (CRE) was one of the key risks for the Australian banking system.

“Notwithstanding relatively low impairment rates currently we see CRE as an inherently risky credit category,” Mr Martin said.

However, Credit Suisse said the growth in CRE lending appears to be driven by the branches of foreign banks in Australia. During the first half of 2016, major bank commercial real estate asset quality actually improved.

The RBA said last October the major banks had “steadily grown their commercial property exposures by more than 5 per cent a year” since 2012. It also pointed to growth in undrawn construction loans suggesting “further increases in exposures in the near term”.

The RBA said commercial property exposures constitute around one-quarter of the stock of business credit outstanding – but have accounted for around two-fifths of the growth in business credit over the past two years.

Of the major Australian banks, National Australia Bank has the highest exposure to commercial real estate, which represents 11.6 per cent of its total group exposures, according to Credit Suisse.

An estimated 44,784 apartments are due for completion and settlement this calendar year across Sydney, Melbourne and Brisbane, up almost a quarter on last year’s 36,486, consultancy MacroPlan Dimasi said earlier this month. Next year, that is expected to jump to 52,920.

Original article published at www.afr.com by James Eyers 23/6/2016

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Finance

New postcode restrictions for home loans

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New postcode restrictions for home loans

In a notice issued to mortgage brokers today the CBA announced it will roll out a range of changes including restrictions on lending in some postcodes.

This includes forcing customers to stump up fatter deposits in order to get a home loan.

It will impact all types of properties including homes and apartments and also borrowers regardless of whether they are owner occupiers or investors.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

In the notice it said from Monday, December 4 the key changes will include:

– Reducing the maximum loan-to-value ratio from 80 to 70 per cent for customers without Lenders Mortgage Insurance (an insurance the customer pays and protects the lender not the borrower.) This means borrowers with a deposit less than 30 per cent must pay expensive LMI costs.

– Reducing the amount of rental income and negative gearing eligible for servicing which will impact investors.

– Change eligibility for Lenders Mortgage Insurance waivers and LMI offers for customers in some postcodes.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

CBA said the new Postcode Lookup tool which will start from Monday will allow the bank and brokers to determine whether a borrower can successfully borrow in a particularly region or postcode and it will reduce customers wasting time applying where they are likely to get knocked back on a loan.

CBA has not released the postcodes and regions these changes will impact.

The move is a result of the responsible lending restrictions put on lenders by regulators to cool the red-hot lending market.

Home Loan Experts’ managing director Otto Dargan said these changes are significant and will impact many borrowers.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“Lenders keep an eye on the economy and their exposure to different property markets and adjust their lending policies to manage their risks,” he said.

“We strongly recommend that home buyers don’t commit to buy a property until they have an unconditional approval from a bank.

“You could win an auction and then find out that your pre-approval is worthless, and then what are you going to do?”

Unconditional approval is when your loan application has been fully approved and is not subject to any terms or conditions.

Originally Published: www.ipswichadvertiser.com.au

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Finance

New postcode restrictions for home loans

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brisbane

brisbane

THE nation’s largest lender is tightening its belt and making it even tougher for potential borrowers to successfully get a loan.

In a notice issued to mortgage brokers today, the CBA announced it will roll out a range of changes including restrictions on lending in some postcodes.

This includes forcing customers to stump up fatter deposits in order to get a home loan.

It will impact all types of properties including homes and apartments and also borrowers regardless of whether they are owner occupiers or investors.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

In the notice it said on Monday, December 4 the key changes will include:

– Reducing the maximum loan-to-value ratio from 80 to 70 percent for customers without Lenders Mortgage Insurance (an insurance the customer pays and protects the lender, not the borrower.) This means borrowers with a deposit less than 30 percent must pay expensive LMI costs.

– Reducing the amount of rental income and negative gearing eligible for servicing which will impact investors.

– Change eligibility for Lenders Mortgage Insurance waivers and LMI offers for customers in some postcodes.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

CBA said the new Postcode Lookup tool which will start from Monday will allow the bank and brokers to determine whether a borrower can successfully borrow in a particular region or postcode and it will reduce customers wasting time applying where they are likely to get knocked back on a loan.

CBA has not released the postcodes and regions these changes will impact.

The move is a result of the responsible lending restrictions put on lenders by regulators to cool the red-hot lending market.

Home Loan Experts’ managing director Otto Dargan said these changes are significant and will impact many borrowers.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“Lenders keep an eye on the economy and their exposure to different property markets and adjust their lending policies to manage their risks,” he said.

“We strongly recommend that home buyers don’t commit to buying a property until they have an unconditional approval from a bank.

“You could win an auction and then find out that your pre-approval is worthless, and then what are you going to do?”

Unconditional approval is when your loan application has been fully approved and is not subject to any terms or conditions.

Originally Published: www.ipswichadvertiser.com.au

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Finance

Suncorp blacklists your Suburb

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suncorp blacklisted suburbs

Big banks are set to announce tougher measures to crack down on high rise apartment purchases including blacklisting more than 100 Brisbane suburbs, doubling the minimum apartment size to qualify for funding, evidence of rental cash flows and tough new valuation criteria.

Lenders such as Adelaide Bank are introducing “minimum funding requirements” requiring apartments to have their own bathrooms, kitchens, laundries and windows in key rooms, such as bedrooms and lounge rooms.

Others, such as Suncorp Bank, the nation’s fifth largest mortgage lender, are circulating a list of 39 Brisbane postcodes covering more than 100 city and metropolitan suburbs where the new lending restrictions will apply from next Monday.

“Our settings have been adjusted for postcodes based on recent weakness in the investment unit market in Brisbane, with evidence of a reduction in prices,” a Suncorp Bank spokesman said.

suncorp restricts lending to local suburbs

McDowall and Everton Parks No 1 rated real estate agent Madeleine Hicks said “suburbs like McDowall, Stafford and Everton Park, are really a victim of what has been happening in neighbouring suburbs Chermside and Nundah.  A lot of units have been built in those suburbs and we are paying the price”

“Whilst there has been some unit development in our main suburbs it has been nothing compared to our neighbours.” said Hicks.

Nervous lenders are turning the screws on apartment buyers amid growing concerns about over-supply, falling prices, restrictions on foreign buyers and potential risk from combustible cladding widely used on high rise apartment exteriors.

For example, new apartment sales in the Queensland capital have reportedly collapsed by more than 70 per cent in a year, prompting desperate developers to offer lucrative incentives to attract buyers.

Developers, such as Consolidate Properties, claim Brisbane has been cruelled by restrictions on financing set up to ease speculative buying in Melbourne and Sydney.

Other developers, such as ForceOne Development, have been using incentives like a free Toyota Yaris to encourage apartment sales.

AdelaideBank, a division of Bendigo and Adelaide Bank, will today (Wed) announce stricter controls on apartment lending that include bigger sizes, better design, identifiable cash flows for investor/lands and more stringent calculations of a borrowers’ capacity to repay.

 On the Plus side

“Now presents a great opportunity for cashed up investors to get into the growing Brisbane market and take advantage of bargains that exist.  We know that the population in Brisbane will continue to increase and that will mean there will always be strong demand for homes in the inner suburbs,” said Madeleine Hicks

In fact Ms Hicks called for “greater investment in infrastructure in the Stafford, McDowall and Everton Park suburbs to better reflect the increase in population that is moving into these suburbs.  This only seems fair as the Council is collecting greater revenues but not spending the money here.”

The Minimum requirements for high density apartments to obtain funding include windows in bedrooms and living rooms, separate bathrooms and their own laundries and kitchens. High density apartments are complexes of more than 50 units or five storeys.

Minimum sizes for two bedroom apartments have been doubled to 60 square metres and timeframes for off-the-plan valuations have been reduced from six to three months to “better the risk” and “align acceptance of applications and valuers’ professional indemnity cover”.

Last month Australia and New Zealand Bank also issued a blacklist imposing tougher terms requiring borrowers to have a 20 per cent deposit.

The value of apartments has fallen by about 1 per cent in Brisbane during the past 12 months, according to SQM Research, which monitors property prices.

Several recent reports by independent consultants have warned demand will be exceeded by the estimated supply of new apartments in Brisbane, which will add to downward pressure on prices.

There is also growing investor concern about the outcome of current investigations into the widespread use of inflammable cladding on apartments, particularly who will be liable for its replacement.

 Under Suncorp’s new rules, it will no longer accept investment loan applications for apartments that do not have a minimum deposit of at least 20 per cent.
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