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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

The property party is over as our biggest bank curbs lending

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The property party is over as our biggest bank curbs lending

Australia’s housing-market extravaganza is over. That’s the call the nation’s biggest mortgage-lender is making when it comes to its own money.

In the past year, the Commonwealth Bank has reduced its exposure to apartment developers by more than $1 billion, or 23 per cent, according to data included in its first-half earnings report, released on Wednesday.

When the nation's biggest lender starts reining back it's a good sign the party is over.

When the nation’s biggest lender starts reining back it’s a good sign the party is over.

What’s more, the bank included a chart in its results highlighting its overall home-loan portfolio is growing notably slower than its competitors.

It’s also pulling back on loans to property investors, which rose just 0.5 per cent compared to 7.5 per cent growth for owner-occupier loans.

Sydney house prices, which surged 75 per cent between February 2012 and July, have now dropped 3.1 per cent from their peak, data released last week showed. But Sydney prices are still up 70 per cent on their cyclical low hit in February 2012.

Melbourne fared somewhat better, thanks in part to rapid population growth, with prices easing 0.2 per cent in January to be 8.0 per cent higher for the year.

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

Housing loans have been the driver of Australian banks’ recent run of bumper profits. So when the nation’s biggest lender starts reining back it’s a good sign the party is over.

Originally Published: www.brisbanetimes.com.au

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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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on

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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