Westpac jacks up mortgage rates on foreign borrowers

From The AFR:

The change, which comes into effect next month, will classify the loans under a “non-resident reference rate” category, leading to a 0.5 per cent higher standard variable rate. It will hit offshore-based customers not Australian residents or citizens…

Lenders are quietly reviewing loan and other pricing levers as they prepare for the Basel Committee’s next reforms, Basel IV, and navigate challenging credit growth and continued margin pressures. This was made clear during bank profit reporting season in the past two weeks.

In many cases the big banks have virtually closed the door on lending based purely on offshore income.

ANZ in March said it would no longer accept loan applications based solely on foreign income. For borrowers seeking loans based on more than 50 per cent of foreign income, there are limits on the size and source of funding.Other measures introduced included insisting on original copies of un-translated supporting documents required for a loan application and tightened passport scrutiny…

Local applications to Westpac that include foreign income will require a lower maximum LVR of 70 per cent, down from 80 per cent.

Back in June it was revealed that some foreign borrowers had turned to informal lenders to fill the funding gap as the banks shy away from lending to foreign apartment investors.

It also represents another headwind following the state governments’ implementation of new taxes on foreign buyers, as well as China’s crack-down on capital flight.

Leith van Onselen

Comments

  1. So Westpac is going to charge non-resident borrowers a bit extra on their speculations in Australian property

    The very idea that our local banks would be extending credit to non-residents to speculate on Australian property is as insane as it sounds.

    Why on earth do we want non-residents being extended credit by our banking system to acquire existing property?

    Even if the non-resident is interested in buying a brand new off the plan property it does not make sense to be extending them ADI credit.

    This is especially the case when our local ADIs are running offshore to borrow to support the “low rates” of their mortgage operations.

    Only a nation of complete nutters would allow their taxpayer guaranteed TBTF banking system to expand their external liabilities (foreign debt) for the purposes of allowing foreigners to have a punt on residential house prices.

    If they want to “invest” in expanding the productive capacity of the Australia economy by building new housing stock that is fine but they should be doing so with foreign funds (outright purchase) or with loans from from foreign banks.

    Capital inflows that support the expansion of the productive capacity of the Australian economy are generally fine.

    But what is going on at the moment is nothing of the sort.

      • It probably wouldn’t collapse but if this increase is part of a deliberate program by APRA to wind down local ADI lending to non-residents altogether then it is probably sensible that they are taking it slowly. Having created a bomb they probably should take some care when defusing it.

        Unfortunately, having watched APRA and the RBA turn the taps on full blast in 2013 and allow ADIs to extend credit to all and sundry to have a massive punt on house prices I am not inclined to give them the benefit of the doubt.

        We still have not had the headland speech from Governor Lowe where he admits that house prices are largely a function of the credit regulation and credit access policies of APRA and the government and if we want more affordable housing we need to start by looking very closely at the way APRA supervises the lending activities of the ADI for residential housing with regard to who gets access to credit and how much.

        The whole idea that the ‘invisible hand’ of the market can self regulate the credit creation activities of ADI is ready for the dust-bin of history.

        If the banks want to be free of close credit creation regulation they can simply decide to give up their ADI status and operate purely as intermediaries.

        In fact there is a very good argument that all home lending should be conducted by non-ADI financial institutions. That would end the era of residential house prices as the subject of economic mismanagement.

      • Send Pauline an email and ask her what she thinks and what she would do about such nonsense. This is the future.

        I will send this question to both my local dude Gillespie and the Honourable Senator Hanson

      • Effectively it is doing so because the banks cost of funds is influenced by their TBTF status. Foreign lenders are extending credit to our banking sector because they know they will always be made good.

        Foreign lenders are perfectly free to set up RMBS operations in Australia and lend direct and take the risk of default directly but they don’t because such operations cannot compete with the tax payer guaranteed ADIs.

      • The TBTF banks were bailed out in the GFC St J because they didn’t have the cash to meet their foreign loans on call. They used the money to pay themselves big bonuses while the ALP government was squabbling over leadership nonsense. So the Australian government has already done it and have no doubt they will do it again when the next pop happens irrespective of the party in power …… unless it’s One Nation . barf!.

      • Any purchase of any Australian dwelling (new or existing) by a foreign national, is ILLEGAL unless it has the prior approval of the FIRB.

      • TP is wrong Torchwood.

        I cut & paste from the “exemptions to FIRB approval required” pages on their website.

        “Residential Real Estate

        Persons that meet certain criteria do not need foreign investment approval before purchasing residential real estate in Australia. This includes:

        an Australian citizen (regardless of whether they are ordinarily resident in Australia or not);
        a New Zealand citizen;
        the holder of an Australian permanent visa; or
        foreign persons purchasing property as joint tenants with their Australian citizen spouse, New Zealand citizen spouse, or Australian permanent resident spouse.
        This exemption does not include purchasing property as tenants in common.

        Foreign persons, regardless of citizenship or residency, do not require foreign investment approval to acquire an interest in residential real estate that is:

        a new dwelling purchased from a developer that holds a new dwelling exemption certificate that allows the developer to sell dwellings in the specified development to foreign persons.
        a time share scheme where the foreign person’s total entitlement (including any associates) to access the land is no more than four weeks in any year;
        acquired by will or devolution of law;
        acquired directly from the Commonwealth, a State, a Territory, or local governing body, or an entity wholly owned by the Commonwealth, a State, a Territory or a local governing body; and
        an interest in certain residential real estate in designated Integrated Tourism Resorts.

        Further exemptions may apply. For more information, see Guidance Note 4 or contact us.”

        It is important that our discussion is conducted around about facts and not around the half truths and misunderstandings that fill the heads of some contributors.

    • its only illegal if not approved by FIRB. But rest assured they police this whole issue by using a large stamp with the words APPROVED on every application they get. Strangely they dont seem to have a stamp, labeled REJECTED for some reason.

  2. How many of these “non-resident” mortgages are on Westpac’s books?
    Do Westpac require FIRB approval documents for these mortgages?

    • Didn’t they stop loans to non-residents back in April or so? Not for long I guess, why miss out on money…

    • The Penske FileMEMBER

      Westpac is by far the biggest lender to non residents even having a team of bilingual BDM’s to look after their Asian mortgage broker clients. Vast fraud has been discovered in the origination of these loans however my informants assure me that the delinquency is very low (basically zip) and one of the issues that Westpac has is that these loans are being paid back to quickly. This in itself says too much about the clients. Word is that Westpac is trying to sue Australia’s largest mortgage aggregator Connective as well as another aggregator over dodgy applications. YBR owned Vow reports a $300M reduction in settlement volumes per month after the crackdown mid year. Westpac and ANZ fund most of this. You do the math on Westpac’s book….

      • And I get a call from westpac local branch today on messagebank.
        Seeing if everything is ok. I do virtually nothing with them.

      • “informants assure me that the delinquency is very low (basically zip) and one of the issues that Westpac has is that these loans are being paid back to quickly. ”
        Because it is bridging finance to cover the period it takes for Chinese FX mule tourists to bring cash in.

    • Yes. Westpac are criminally complicit if this is true. Loan officers and senior management have a lot to answer for (in court) if so!

    • I want to give you an opportunity to respond TP so I have copied my comment from above here.

      Your comments in this thread are based on falsehoods.

      I cut & paste from the “exemptions to FIRB approval required” pages on their website.

      “Residential Real Estate

      Persons that meet certain criteria do not need foreign investment approval before purchasing residential real estate in Australia. This includes:

      an Australian citizen (regardless of whether they are ordinarily resident in Australia or not);
      a New Zealand citizen;
      the holder of an Australian permanent visa; or
      foreign persons purchasing property as joint tenants with their Australian citizen spouse, New Zealand citizen spouse, or Australian permanent resident spouse.
      This exemption does not include purchasing property as tenants in common.

      Foreign persons, regardless of citizenship or residency, do not require foreign investment approval to acquire an interest in residential real estate that is:

      a new dwelling purchased from a developer that holds a new dwelling exemption certificate that allows the developer to sell dwellings in the specified development to foreign persons.
      a time share scheme where the foreign person’s total entitlement (including any associates) to access the land is no more than four weeks in any year;
      acquired by will or devolution of law;
      acquired directly from the Commonwealth, a State, a Territory, or local governing body, or an entity wholly owned by the Commonwealth, a State, a Territory or a local governing body; and
      an interest in certain residential real estate in designated Integrated Tourism Resorts.

      Further exemptions may apply. For more information, see Guidance Note 4 or contact us.”

      It is important that our discussion is conducted around about facts and not around the half truths and misunderstandings that fill the heads of some contributors.

    • UrbanWastelandMEMBER

      Dude, that’s a bit distasteful and over the top (hey Buddy, I’m talking to you too). There are foreigners here under various temporary resident schemes who contribute far more than they take and who have the freedom of choice to live in countries that offer much better opportunities, freedom, quality of life, etc. Australia might be utopia for much of the world, but that doesn’t mean it’s actually all that great in absolute terms.

      There is nothing wrong with policy that encourages such temporary residents to prefer temporary (i.e. rental) accommodation. There is also nothing wrong with banks charging higher rates to offset the risk of transactions to foreigners. But to suggest that people should pay some sort of premium to live here?? Get over yourself!!

  3. I am surprised that there has no been a flock of high interest schemes financing foreign investors in property. Just wait and they will be on the TV soonish.

    • The Penske FileMEMBER

      Trying to slug them but the purchaser is covered by the NCCP in personal names so sheltered from being bent over at the moment.

  4. I don’t think this will make too much of a difference, especially as they are already willing to get loans in China to buy property here and apply for multiple loans in Australia without declaring other loans they have. The will is already there.

  5. Might remember a few months back I said that a billion dollar fraud was found at one of the big four. Found out more, guess it depends on your definition, but it was referral partners sending through basically completed applications for Chinese and Middle Eastern buyers. The process was meant to be “here’s a name and a phone number, you do the work”. Instead, those at the bank just approved based on what they were given. $2.5 billion worth. A bunch of bankers got the arse, those referral partners no longer welcome. NSW + VIC.

    • Just threw up a little reading that… Wonder if it applies to US investors too?

      Speaking of which, would we see the same outrage for US property investors?

      • Under the following conditions yes:
        If there was a billion Americans.
        If they had been a poor country for so long, and suddenly got rich and tacky and desperate to buy shiny things
        If they had been buying up at the rate at which the Chinese have here.