Non-banks to profit from investor lending crackdown

With the government warning of investor lending pressures, one banking analyst believes further curbs will do little to stymie demand as non-banks and smaller lenders fill the gap.

More macroprudential curbs are becoming increasingly likely following recent remarks from the Reserve Bank of Australia and Treasurer Scott Morrison, who yesterday flagged a build-up of pressure in lending to property investors.

Mr Morrison said that he had discussed the issue with the Council of Financial Regulators.

“For those prudential regulators to be addressing those issues using the levers that they have – they've done it before, wisely, and it's for them to take any further action that they see as necessary,” he said.

Investor lending was a key focus of JP Morgan’s latest Australian Mortgage Industry Report. At a media conference in Sydney last week following its release, Digital Finance Analytics (DFA) principal and co-author of the report, Martin North, explained why further lending curbs may fail.

“Just moving the speed limit down from 10 per cent to 5 per cent on investor loans probably wouldn’t be that useful in terms of being able to control things,” Mr North said.

“The investor lending segment is growing way too quickly and the risks are building in that segment,” he said.

“We know that investors are more likely to vote with their feet should property appreciation reverse, and of course they are facilitated by negative gearing and capital gains, so all of those things are in play.

“If you move back to 5 per cent there are still non-banks who have capacity to lend to investors and smaller banks who are able to lend and therefore there would still be supply of investor mortgages into the marketplace.”

Mr North said regulators must take a more sophisticated approach when applying macroprudential measures. He suggested that countercyclical buffers could be an option.

“There are some capital levers here. If you could flex those capital levers a bit and make it less attractive for banks to lend, maybe that is one way to deal with it. But even there, you are not going to address the non-bank sector, which is growing quite fast at the moment,” he said.

“A lot of non-bank loans are for investors. It’s the non-bank sector in my mind that is the big question as to how you can apply macroprudential.”

[Related: RBA prepared to intensify investor lending crackdown]

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