It appears APRA is turning to the banks and warning them that they have fallen well short of expectations regarding portfolio controls for commercial property. APRA has said – “Justifying lending decisions on the basis of ‘long-standing relationship’ or ‘good track record’ are insufficient, by themselves, to mitigate higher risk characteristics such as higher leverage or weaker pre-sale cover, especially if these are outside approved underwriting standards”. Regulation has been an ongoing theme this year.
In March, APRA introduced new restrictions on interest-only lending to reinforce “sound residential mortgage lending practices in an environment of heightened risks”. In the same month, ASIC released its report on broker remuneration, stating that the standard model of upfront and trail commissions could create a “conflict of interest”.
In June, ASIC also found a potential conflict of interest within the peer-to-peer lending sector, as loan origination fees made up 83 per cent of marketplace lenders’ revenue. You would have to wonder if that is a conflict of interest. Peter Vala from Thinktank – a commercial lender – said “on the nose” development and construction finance has been identified as an ongoing trend but highlighted that even standard loans are becoming increasingly difficult to fund for some borrowers.
He said “Serviceability threshold requirements are increasing noticeably and some of the banks are aggressively re-pricing and re-framing existing borrowers’ facilities.” The industry is seeing a lot more selectivity from major finance providers when it comes to what types of lending they will take on. Still on APRA – it appears the regulatory measures to curb investor lending appear to be working, with the latest housing finance figures showing a further fall in April.
ABS Housing Finance Data shows a 2.3 per cent drop in investor lending in April. Rate City is tipping we will see a further reduction in investor activity in the coming months but they question if it will stick – the reductions that is! Last time this happened there was an immediate drop in the figures but the numbers started climbing back up within six months. The other key statistic to come out of the ABS data was a sharp reduction in refinancing activity. Mortgage holders made five point eight billion dollars of refinancing commitments in April – down four point four per cent over the month and seventeen point eight per cent over the year.