Jul 16 2018Add to Favorites
Westpac withdraws from SMSF lending
The Australian Financial Review today announced that Westpac and its subsidiaries Bank of Melbourne, St George Bank and BankSA, will withdraw from lending to small super funds at the end of July.
Westpac's move could also herald a change in strategy away from risky investors to low-risk premium investor and owner-occupier fixed-rate borrowers by offering discounts of up to 50 basis points and free international trips.
It recently introduced tougher scrutiny of borrowers' capacity to service a loan across the proposed term by a deeper analysis of their income and expenditure.
Their recent discussions with mortgage brokers indicate continued confidence in the property sector despite conceding greater borrower nervousness.
For example, it is offering borrowers limited-term discounts of between 30 basis points and 50 basis points on principal and interest and interest-only loans of at least $150,000.
Other major lenders are also tightening their SMSF lending policies in addition to increasing rates on loans and other property-related credit.
SMSF Association policy head Jordan George said his understanding was that while NAB and ANZ did not lend to SMSFs, Commonwealth Bank and Macquarie did, but had very stringent lending criteria.
Mr George said rather than being related to any systemic risk, the trend for major banks to exit the space was driven by capital adequacy requirements.
"We think increased capital adequacy requirements by APRA are driving the trend by the majors to scale back.
"The margins banks can make are being diminished because of the capital they have to be able to hold to offset these loans."
The greater complexity associated with SMSF loans and relatively small size of the market were also disincentives, Mr George said.
"As banks are looking to streamline and reduce costs, these are the types of products that get reduced," he said to the Australian Financial Review.
Regulators fear systemic problems being caused by SMSF investors encouraged to leverage their superannuation and invest in a single residential property because of the lack of diversification and increasing dangers of loss in a falling property market where it is difficult to find tenants.
One key finding of the David Murray-led financial system inquiry in 2014 was that leverage should be banned in superannuation funds to mitigate the risk of financial instability. The government rejected his advice and Mr Murray said that was a mistake.
Mr Murray, who was recently appointed chairman of AMP, the nation's largest financial conglomerate, is expected to launch an internal review of its SMSF lending practices.
Increased NTA requirements
Australia's banks will be forced to find an additional $70 billion of funding as superannuation funds shift out of cash into international assets while indebted households draw down on their savings.
The widening of the so-called "funding gap", which measures the difference between bank loans and deposits, comes amid a crisis-like blowout in short-term funding that is increasing bank funding costs and has already prompted the non-major banks to enact "out-of-cycle" mortgage rate rises.
The gap between loan and deposit growth has increased from $390 billion in the second quarter of 2017 to $457 billion in the first quarter of 2018, resulting in an additional funding bank requirement of $60 billion to $70 billion, according to analysis by National Australia Bank economists.
The sharp rise in the bank bill swap rate has already forced the non-major banks such and Macquarie, AMP and Bendigo Bank to hit borrowers with mortgage rate hikes and prompted speculation that the major banks will be forced to follow. That could have consequences for the economy as more households are hit with higher borrowing costs.
Official data compiled by National Australia Bank shows that Australian-based managed funds are increasingly drawing down their cash balances as they divert funds from bank deposits and towards international assets.
Discounts of upto 55 basis points
Three of the top five mortgage lenders are flexing their balance sheet muscle to offer discounts of up to 55 basis points for investors and home buyers on introductory rates.
Commonwealth Bank, Westpac Group and Suncorp are slashing honeymoon rates on home loan products, in a bid to stimulate growth as real estate markets slow.
The new offers enable the banks to beat competition for lucrative new business but will increase repricing pressure for existing medium and long-term borrowers.
"As the nation's largest lender, we are always looking to deliver value to our home loan customers," CBA executive Daniel Huggins, said to the Australian Financial Review.
"We are committed to providing our customers with a better home lending experience by offering competitive home loan solutions that meet their financial needs."
The new discounts cut lender honeymoon headline rates for two-year fixed products for investors and homebuyers below the benchmark 4 percent, despite increased funding pressure.
SOURCE: Australian Financial Review
As Australia’s banking sector continues its recovery from the perfect storm of APRA restraints, the Royal Commission and resulting Hayne Report - pre-sale criteria continues to constrict residential development, lenders are looking to size up loan books and scramble to develop new products for the changing market and many anticipate an interest rate decrease, according to Stamford Capital’s Real Estate Debt Capital Markets Survey 2019.
Bendigo Bank has announced it is decreasing its Bendigo Express Home Loan and Basic Home Loan variable interest rates.
CapitaLand Limited (“CapitaLand”) announced today the first closing of CREDO I China – the Group’s first discretionary real estate debt fund. The fund, with a target capital raise of US$750 million (about S$1 billion), will invest in offshore US dollar-denominated subordinated instruments for real estate in China’s first- and second-tier cities1. It will focus on loans and securities of high-quality real estate covering commercial, retail, residential, logistics and industrial properties.
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