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Price differentiation has repeatedly been tipped as a possibility after the RBA and APRA flagged macroprudential tools as a potential means of reining in the investment segment of the mortgage market last year.
This could soon become commonplace with Australian borrowers set to pay different rates on their mortgage based on its purpose, according to Brett Halliwell, general manager of NAB-backed funder Advantedge.
“Something we are likely to see play out in the market is price differentiation based on different factors,” Mr Halliwell told Mortgage Business.
“One that comes to mind specifically for me is that the RBA and APRA collectively have been very mindful of housing prices within the market.
“Particularly in Sydney – which has been at the top of their mind in public statements.
“APRA is keen to ensure the market doesn’t grow too quickly within the investor space, which has resulted in them applying a 10 per cent cap on growth in the investment books of all bank lenders. To meet this requirement, I think it’s quite likely that we will see lenders applying price differentiation and credit policy adjustments based on the dynamic between owner-occupier versus investors,” he said.
Mr Halliwell believes price differentiation is a “sensible mechanism” from a perspective of banks shaping their lending flow to achieve a balance between owner-occupiers and investors. To put this into practice, Advantedge announced last week the introduction of a special offer with a 15bps discount applicable to owner-occupied full-doc loans at 80 per cent LVR or less.
The policy could see an increase in the cost to property investors, as flagged by RP Data research director Tim Lawless late last year.
Speaking at the Australian Securitisation 2014 annual conference in Sydney in November, Mr Lawless said emerging risks are becoming increasingly apparent in
Australian housing, with one of the key dangers being the level of investment in the marketplace.
“There was a level of exuberance that existed in the US market prior to the GFC,” he said.
“We are starting to see that exuberance here in Australia via the amount of investment we are seeing in the marketplace. Excluding refinancing, investors are now 50 per cent of the overall mortgage market, and getting close to 60 per cent in Sydney.”
ANZ senior economist Felicity Emmett said APRA and the RBA have discounted putting caps on LVRs.
“For a long time they have thought that they are not the best tool because they tend to affect first home buyers the most and owner-occupiers and investors are less affected, so that is not going to be a good tool to use when it is investors who are driving the strength in the market,” Ms Emmett said.
While interest rate buffers could double from 200 basis points to 400 basis points, the most targeted curbs would be to increase the risk weighting on investor loans, she said.
“What that essentially would mean is that you would see a higher interest rate for investor loans.”