Aussie banks change lending criteria for foreign investors

Changes made to lending criteria for foreign investors by Australia's big four banks are expected to have a large impact on the local property market.

Westpac is the latest major Australian bank to change its criteria, following in the footsteps of the Commonwealth Bank, ANZ and the National Australia Bank.

Westpac said it would no longer accept mortgage applications from non-residents, self-employed income applicants and temporary visa holders living overseas.

"We have strengthened our policies regarding non-residents lending and foreign income, which represent a very small component of our loan book," a Westpac spokesperson told Xinhua on Monday.

A Commonwealth Bank spokesperson said on Monday it had also tightened requirements for some temporary residents in the areas of self-employed applicants and temporary visas that are seeking to borrow for residential purposes.

"Applications involving these customers represent a significantly low proportion of our total home loan applications and these are verified and assessed in line with Commonwealth Bank's lending policies including requirements for income earned in Australia."

ANZ has reviewed its criteria while the National Australia bank has reduced the loan sizes they offer investors abroad.

Empower Wealth chief executive and property investment analyst Ben Kingsley told Xinhua on Monday the changes would have a real impact on the Australia property market.

"With reportedly a quarter of new properties being sold to foreigners, if they can't have easy access to lending it has to have an impact,"Kingsley said.

"Time will tell to see in other lenders might see this as an opportunity to enter this space."

He questioned whether moves by ANZ and the Commonwealth Bank to change their lending criteria spooked Westpac into also doing so.

"There is no doubt that some lenders are getting a little nervous with the strong growth in the apartment sector and then naturally their ultimate exposure to this category within the market, if there was to be a significant down turn in valuations."

Kingsley noted the move by the banks was a cautious one.

"It's in line with the tightening policies we have seen in the domestic market with bank pricing interest only and investment loans higher than what they were 12 months ago," he added.

REA Group chief economist Nerida Conisbee told Xinhua on Monday it would have been better if lending practices were adjusted earlier, rather than completely cutting lending to offshore groups.

"It is likely that once banks have their lending under control, they will look again to lend to offshore investors," Conisbee said.

"They remain a strong force in Australian property markets and a profitable market for Australian banks."

Conisbee said the Australian Prudential Regulatory Authority put a directive to the banks last year that they were to hold more capital against their mortgages as part of their efforts to bring annual growth of investor lending to under 10 percent.

"To assist with controlling lending growth, Westpac has completely put a stop to lending to offshore groups as they are generally considered more risky than local borrowers," Conisbee noted.

"Other banks have also put in greater requirements for offshore lenders such as requiring face to face meetings, greater restrictions on employment requirements and not allowing lending any greater than 70 percent LVR."

She believed the changes would have an impact on investment given how much offshore investment in housing has increased.

"There are other factors which will exacerbate these issues including a slowdown of Australian investor lending and a shift in general sentiment toward housing," Conisbee said.

"The Victorian government has also recently put in a new tax for offshore buyers, equivalent to 3 percent of the purchase price of houses."

She said foreign housing investors would also pay an extra 0.5 percent in land tax from 2016 on new and existing properties, raising 53.5 million Australian dollars (40.6 million U.S. dollars) over four years.

"There is still significant interest however in Australian property from offshore investors," Conisbee said.

"This will continue but restrictions to lending will be a limiting factor, as will any changes to the tax system."

House prices rose by 1.7 percent in April, according to the CoreLogic RP Data Home Value Index released on Monday.

Dwelling prices in Sydney were up 2.5 percent, followed by a 2.2 percent increase in Brisbane, 2 percent increase in Adelaide and 1.2 percent increase in Canberra.

Melbourne prices lifted 1.1 percent while Perth dwellings rose 0.5 percent.

"Real estate investments made up the bulk of Chinese investment plans with a total of 24 billion Australian dollars (18.26 billion U.S. dollars)," Conisbee added.

"This is twice as much as the amount approved in 2014 which was 12 billion Australian dollars (9.13 billion U.S. dollars)." Endit