But it’s only a flesh wound for high risk, high leverage investors, via the AFR:
The bank is sending a single page letter to investors warning it can “no longer support our commercial relationship with you”, adding it will work with the borrower to help them find a new lender.
Victor Kumar, a director of Right Property Group, a buyers’ agency, who has seen the letter sent to property investors, said: “This is of concern because they have used the banking system to get these loans.”
The brief letter informs the borrows Westpac is a responsible lender, claims it can no longer support the relationship and volunteers to help them find another lender, he said.
Alright, let’s call it a draw.
I humbly suggest that this is all about Macroprudential 3.0 which introduces Comprehensive Credit Reporting and limits to high leverage investors. JPM discussed this a few months ago when APRA lifted the 10% investor loan speed limit:
“APRA’s press release confirm this, and now suggest that even tougher measures are being introduced, with loan/debt to income restrictions now being developed.”
This provides a simple backstop to complement the more complex and detailed serviceability calculation for individual borrowers, and takes into account the total borrowings of an applicant, rather than just the specific loan being applied for.
This creates both a stock and flow limit on leverage as it ‘takes into account the total borrowings of an applicant, rather than just the specific loan being applied for.
Specific parameters here still haven’t been pinned down — for example, the proportion of the lending portfolio allowed in the high loan-to-income (LTI) category) — but given the specific buckets listed in the loan reporting rules APRA introduced in March, we have expected loans at six-times income to be significantly restricted from here.
This will have a meaningful impact on credit growth, given that, as of the last HILDA survey, over 30% of debt is held in this bucket.
Slower credit growth, along with limited capacity for further falls in the saving rate, will be a significant headwind for consumption in coming years.”
APRA’s targeted review of the Westpac mortgage book showed 49% of loans were at DTI of 6x or above.
