subscribe to our newsletter

CBA investor pull back 'nothing to do with property prices'

The CEO of Commonwealth Bank has said that the bank’s decision to change its rates on interest-only mortgage for investors and suspend the acceptance of new refinance applications for investment home loans has “nothing to do with property prices”.

Speaking at the media briefing for the bank’s half year results, CBA chief executive Ian Narev said that the recent changes to investor lending were made “primarily, with the importance of staying within regulatory benchmarks”. 

The bank’s new financial results show that for the calendar year 2016, the proportion of new investor home loans being written in Australia grew by 6 per cent, nearing APRA’s 10 per cent speed limit on investment lending growth. 

The bank has since suspended the acceptance of new refinance applications for investment home loans and announced that it will be increasing rates on its interest-only mortgages for investors by 12 basis points – bringing the standard variable rate for these loans to 5.68 per cent per annum. 

When asked whether the move on interest rates and restrictions on new refinances was a move to mitigate a potential fall in house prices – especially in apartment prices on the east coast of Australia – Mr Narev was quick to assure that they were not. 


The CEO commented: “A critical part of how we originate loans is to not assume either that interest rates or property prices today will necessarily be the same in a couple of years, because these are commitments that people make for the long term. So, we are conservative with the loan-to-value ratios, we add buffers to servicing standards. We, at the Commonwealth Bank, actually insure pretty much all loans with a loan-to-value ratio of over 80 per cent with Genworth. But underlying that as a business, and as a management team, and as a board, we spend a lot of time modelling how the bank will perform in times of greater stress.” 

Stress test scenario represents “plausible commodities-led recession”

Mr Narev highlighted that one of these items of “greater stress” is “a rapid and significant fall in property prices”. For example, the bank has a three-year scenario of cumulative 31 per cent house price decline, a peak 11 per cent unemployment level, and a reduction in the cash rate to 0.5 per cent. In this test, total net losses after LMI recoveries over the three years would be $2.29 billion. 

The investor report for the half year results reads: “[The] stress test scenario represents a sever but plausible commodities-led recession.” 

Speaking at the media briefing, the CBA CEO commented: “I can’t pretend it [the stress test scenario] would be great for the bank. It certainly wouldn’t be good for a lot of customers, but people can take comfort in the fact that we have remained strong in downturns before and we make sure we manage our credit risk to ensure we can do that again, if that occurs.”


Despite these comments, the bank's chief financial officer, David Craig said that the bank's outlook at the moment was "very benign". 

He expanded: "Certainly arrears are down across the board on consumer areas and while we pointed out a couple of areas that people are concerned about (mining towns in Western Australia, New Zealand dairy, apartment development - little hotspots that people are watching), overall, we're very comfortable."

[Related: RBA says property investors could trigger housing downturn]


CBA investor pull back 'nothing to do with property prices'

Are you a new-to-industry broker in the process of growing your business? Then there’s some great news: The Adviser’s New Broker Academy is back in 2021 and will provide you with essential insights into cutting-edge tools, strategies and processes to fast-track to success. Don’t miss your chance to attend. To secure your FREE place, visit newbroker.com.au now!

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Contact Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

A high rate of loan repayments through the pandemic has somewhat slowed the growth of Heritage Bank’s book, despite a surge in approvals. ...

Small and medium-sized enterprises were the most commonly targeted victims of cyber attacks in the last financial year, according to new rep...

An overwhelming majority of Pulse Credit Union members have supported the proposed deal with Teachers Mutual Bank Ltd, with the two companie...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.