Westpac had slashed the maximum loan to value ratio (LVR) for residential property loans taken out by self managed super funds (SMSF) to 70 per cent.
Earlier last month, Westpac lowered the maximum LVR for all property investors to just 80 per cent. On Friday, Westpac also announced it will increase investor mortgage rates by 27 basis points to appease the banking regulator.
In May, NAB quietly exited residential mortgage lending to the SMSF market, choosing no longer to lend to this higher risk limited recourse segment.
Chris Foster-Ramsay, managing director of Capital Home Loans told the Australian Financial Review, “Doors are being shut on SMSF lending for the immediate future. Clearly, someone can foresee a problem.”
The problem the banks foresee is irrational investors who have paid too much for properties in a heated market and many who may not be able to service the loan due to plunging rents. As SMSF loans are limited recourse, there is little to no collateral for the bank.
The Australian Financial Review suggests some off the plan buyers are finding out at settlement their properties are valued at 20 per cent less than what they paid, and rents are 20 per cent less than what agents had spruiked. The paper cited one example, Scott Thornton who was forced to sell one of his apartments for a $150,000 loss after two years because he couldn’t find a tenant required to service his loan.
A surge in property investors to record levels has seen an increase in the supply of rentals, leading to falling rents and vacant investment properties. Yields are also being eroded as many investors simply paid too much for the property in the surging market.
» Westpac slashes loan ratios on SMSF investment properties – 31st July 2015.