Banks come with stricter rules for investor housing loans

Due to the pressure coming from the public and private regulators, banks these days are busy making strategies to earn more profits. To make this possible, the lenders have framed some plans to make the growing investor home loans slower.

Brian Johnson, a banking analyst from CLSA , said that formulating such strategies will lead to ‘‘no increase’’ in home prices. “It probably means that we just have what you've seen in past cycles, which is that Australian prices tend to rocket, and then do nothing for quite an extended period of time," he was by the Sydney Morning Herald as saying.

AMP Bank said on Wednesday that it will not accept new applications from those who need investor home loans with immediate effect. In addition, it also made it clear that for the existing investor housing loans, the variable rate of interest will increase by 47 basis points right from Sep. 7, 2015.

On Tuesday, ANZ Bank economists David Cannington and Felicity Emmett said in a report, “The changes to investor housing lending practices are likely to have a marginal softening impact on housing sales and price growth, and as such will give the Reserve Bank some breathing space to keep rates low to support a broadening of the non-mining recovery beyond housing.” They also said that judging the effectiveness of the step is quite difficult for now, but this would provide a new definition to the housing market in the coming years.

Saul Eslake, economist at Bank of America Merill Lynch, said that the strict step taken by the banks would definitely lead to deteriorated demand from investors, but at the same time it would have least effect on the rigid rules imposed on the borrowers in New Zealand. Eslake adds, “It’s clearly not as bold as the kind of action that’s being taken on the other side of the Tasman.”

However, APRA has made it clear to the banks not to enhance investor loans by 10 percent in a year. It also advised the banks to have a hold on more capital against their mortgage books beginning July 2016.

Contact the writer at feedback@ibtimes.com.au, or let us know what you think below.