Westpac has seen significant levels of customers switching from investor to owner-occupied loans in response to pricing and policy changes.
Announcing its full-year profit results yesterday, Westpac recorded a 7.0 per cent increase in mortgage lending over the 2015 financial year, with new lending volumes up 13 per cent over the period.
The major bank also experienced a 13 per cent increase in run-off due to accelerated customer repayments.
Westpac commented on recently introduced differential pricing for owner-occupied and investor loans: “In response to pricing changes, there has been a significant level of switching between investment property loans (IPLs) and owner-occupied loans as borrowers correctly classify the purpose of their loan,” the group said in a statement. “This trend is expected to continue.”
Excluding the impact of customers switching to owner-occupied lending, Westpac’s investor property lending growth was under APRA’s 10 per cent limit at 9.9 per cent.
Investment property loans now make up 44.5 per cent of Westpac’s Australian mortgage portfolio, down from 46.3 per cent.
Westpac noted that compared to owner-occupied applicants, investment property loan applicants are on average older (75 per cent over 35 years), have higher incomes and higher credit scores.
Specific credit policies now apply to investor loans to assist risk mitigation, the group said, noting that holiday apartments are subject to tighter acceptance requirements, additional LVR restrictions apply to single industry towns and minimum property size and location restrictions apply.
Restrictions on non-resident lending include lower maximum LVR and discounts to foreign income recognition.
Westpac delivered a cash profit of $7.8 billion for the 2015 financial year, up three per cent. St. George Banking Group contributed 22 per cent of cash earnings over the year.
Westpac chief executive Brian Hartzer said that the result reflected the consistent execution of the group’s service-led strategy.
“Australian retail and business banking has been the key driver of performance, with Westpac RBB increasing cash earnings by eight per cent and St. George up by seven per cent,” Mr Hartzer said.
“All divisions continued to grow their businesses and are in good shape. However, some market headwinds contributed to a softer performance in our wealth and institutional businesses.”
Commenting on the economic outlook, Mr Hartzer said Australian banks will continue to operate in a ‘lower-for-longer’ environment with modest credit growth, intense competition, and some ongoing regulatory uncertainty.
“However, housing credit growth is expected to ease, business is picking up, and we are continuing to grow in the wealth and insurance markets,’ he said.
“We are positive about the future. We’re strongly positioned with a number 1 or 2 position in all of our key markets; we have a distinct portfolio of brands, a market-leading online and mobile platform, and a high-quality management team.”