subscribe to our newsletter

Serviceability buffers tipped to rise in fresh APRA crackdown

Morningstar has outlined the likely action APRA will take to curb investor lending after the impact of its initial efforts to cool the market appear to be fading.

In a research report on Commonwealth Bank of Australia (CBA) late last week, Morningstar analyst David Ellis explored the potential impact of further regulatory action on Australia’s largest mortgage provider.

“Increasing concerns of an overheating housing market are likely to prompt the Australian Prudential Regulation Authority, or APRA, to act to slow the rate of growth of residential investor home loans,” Mr Ellis warned.

“Likely action, known as macroprudential controls, include the reduction in the current 10 per cent annual growth limit on residential lending to something around 5 to 7 per cent,” he said.

Morningstar also warned that APRA could raise the minimum serviceability buffer “to 3 per cent from 2 per cent” and lift the risk-weighted capital floor for new residential investor borrowers holding multiple properties to 75-100 per cent.


The report noted that CBA applied the “higher rate” of 2.25 per cent above the current customer rate (or 7.25 per cent) for new mortgage applications to determine serviceability.

While APRA does not publicly disclose individual bank capital requirements, Mr Ellis said the regulator could impose tougher measures on individual banks if investor lending grows at levels considered “too risky”.

“Solid population growth, particularly in Sydney and Melbourne, good demand from foreign buyers, strong economic conditions in NSW and Victoria, historically low interest rates and attractive taxation rules continue to impact the overheated capital city housing market with demand exceeding supply,” he said.

“The strong appreciation in house and apartment prices, particularly in Sydney and Melbourne, has increased risks across the financial system with most focus on the major banks.”

Morningstar noted that a number of banks have steadily been increasing their variable home loan rates over the past six months, focusing on investor and interest-only loans.


“We expect further increases in investor home loan interest rates irrespective of any changes in the cash rate by the RBA,” Mr Ellis said.

On Friday ANZ became the latest of the big four banks to hike its home loan rates after NAB and Westpac a week earlier. Investors copped the biggest rate increases.

“We were surprised with the recent home loan interest rate increases announced by National Australia Bank and Westpac following shortly after the latest hearing of the Parliamentary Standing Committee,” Mr Ellis said.

“We expect tighter residential criteria for investor lending despite Commonwealth Bank recently reducing the maximum LVR for investor loans to 90 from 95 per cent,” he said.

[Related: 'Disgraceful': ASIC boss slams mortgage market]

Serviceability buffers tipped to rise in fresh APRA crackdown

Latest News

Citi is to exit its consumer business, including mortgages, loans, retail banking and credit card operations, in Australia and 12 other ...

The major bank’s CEO has reiterated that responsible lending changes could simplify the lender’s processes and improve mortgage approv...

The non-major has reported growth in housing lending as well as a rise in home loan settlements via the broker channel. ...


Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.


LATEST PODCAST: Tackling the home deposit challenge

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

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