All four of Australia’s big banks have tightened lending for foreign buyers over the past months, some blaming increased regulatory requirements. Under the Basel III banking reforms, banks will face higher capital requirements on loans reliant on foreign income.
Highly elevated house prices and paltry rents in Australia means rental income is often insufficient to service the loan. Hence, banks require extra income to service the loan and obtaining this top-up income from foreign sources can pose additional risks in an increasingly challenging economic environment.
Martin North from Digital Finance Analytics adds, “In addition, if house prices were to slide, overseas investors might be more willing to cut and run, and we also know that some investors from China are finding it harder to get funds out of the country.”
A recent distressed property report from SQM Research found there are some 27,000 “distressed” properties for sale in Australia. The most concentrated area for distressed properties is the Gold Coast, Queensland, where banks are being forced to sell homes after being unable to contact the borrower.
The Commonwealth Bank of Australia (CBA) no longer provides loans to self employed applicants who use foreign income to service the loan. Temporary residents must now earn their income within Australia and be paid in Australian dollars. They can only obtain a loan with a maximum loan-value ratio (LVR) of 70 per cent, down from 80 per cent.
Westpac, including St George Bank, Bank of Melbourne and BankSA have ceased lending to non-residents, temporary visa holders and borrowers using foreign, self-employed income to service loans. It has also reduced the LVR for loans serviced with foreign income to 70 per cent, down from 80 per cent.
NAB reduced its maximum LVR from 80 per cent down to 70 per cent for foreign applicants, but continues to lend on a case by case basis.
ANZ will no longer accept loans serviced with 100 per cent foreign income and now has a maximum LVR of 70 per cent applying to these loans.
Of the big four, the ANZ has been the most transparent indicating as early last month that many foreign loans were missing critical information. Later in the month, it was reported ANZ had retracted the approval on approximately 90 loans after the parties were unable to provide supportive documentation for their sources of foreign income. It was understood at the time, some borrowers were being paid by obscure and often non-existent offshore companies. ANZ has an extensive network of retail and business banking contacts across Asia and had no record of these companies.
The truth may have finally come out yesterday, when it was disclosed ANZ and Westpac banks have approved hundreds of loans supported by fraudulent foreign income documentation.
The banks have blamed dodgy mortgage brokers for the fraud, reporting the cases to the regulators and police.
Westpac continues to say “the primary driver of our decision was the changes in capital and funding requirements.”
» ANZ, Westpac hit by hundreds of Chinese home loan frauds – The Australian Financial Review, 9th May 2016.
» ANZ Bank’s clampdown sees home loan approvals retracted – The AFR, 28th April 2016.
» Australian Lenders Are Clamping Down on Foreign Buying of Homes – Bloomberg, 27th April 2016.
» Westpac stops lending to foreign property investors – The Sydney Morning Herald, 27th April 2016.
» ANZ Banking Group cracks down on dubious offshore mortgage funding from Asia – The Australian Financial Review, 5th April 2016.
Wonder what new tricks the property market makers will try now to keep the bubble inflated
The comment about the rising debt servicing costs running away from rents is a sign that the whole thing is going to crash. Investors will panic and start off-loading properties while others will try and pull out of construction projects.
And the Ponzi scheme deepens. The truth starts to come out that the offshore investors aren’t true investors but speculators like the rest of them. Scary times for those who are loaded up with debt. Perth has been performing poorly in the past couple of years but I am confident we haven’t seen anything yet.
So much for the suitcases full of cash arriving from China. Now it turns out the suitcases were full of false income credentials. As for the banks blaming dodgy mortgage brokers; this is only a pathetic attempt to cover their backsides when these supposed cashed up buyers just walk away from the thousands of empty properties around Australia. The mass dumping of these supposed investments will magnify the crash even more.
@1. “Wonder what new tricks the property market makers will try now to keep the bubble inflated”
Well, wonder no more. Their latest trick is to band together to “declare war” on changes to neg gearing. No vested interests there, surely?
@md Yeah, if it isn’t bloody obvious now that the Liberal Government are controlled by the RE industry and that NG will affect “their income” then I don’t know what else to do to get it through to people.
Here’s a Real Estate cartoon that pretty much explains the RE cretins:
Dollar heading south. Interest heading towards negative = Tax on your cash. TPP creating one way traffic into OZ. How quickly major changes are surrounding us. The debt economy : inflation on everything deflation on wages. Constant wars (defending OZ in middle east). Dr.Richard Day revealed the plan in 1969 : “There will be unemployment and mass migration in order to uproot long established communities. Private home ownership will gradually disappear. Homes will become so expensive that people will have to share small apartments with non-family members”. Our society and culture are a fraud based on one central fraud, the monopoly over government credit in the hands of private bankers.
Smell their fear – I am disgusted by this self-serving trolls in the comments section.
Love it – ‘The economy is fragile right now’ claims the real estate agents lobbing for negative gearing to remain unchanged.
No shit, is because we have a huge housing bubble sucking the life blood out of the economy.
Yes Max, it’s all about plausible deniability. When $380 billion CLF is called upon and bank deposit holders are being bailed-in, the bankers can claim that they had no idea.
We already know that they do do risk assessment. They just don’t act on those assessments knowing that there are no laws protecting consumers and taxpayers from their moral hazard, or the laws are very weak.
Apparently banks are only restricted by law in what they do with regard to deposit taking, but lending is a free-for-all. This needs to change.
what surprises me i have been doing personal research on housing for years and i came across a great show on youtube called the cec report it talks about everything fron glass/steagall to australian housing etc..it releases a show every 2 weeks,i would reconmend people to go back 6 months and watch and enjoy…https://www.youtube.com/watch?v=lCLP4RxUyUk
You know the problem with State media is it only talks about the State you live in (or foreign car crashes). So whilst every “investor” and “my house will be my pension” types spruik “Melbourne and Sydney are okay” our banks are losing money in five other States because banks lend to the whole of Australia not just Melbourne and Sydney. How much money did they throw at Western Australia during the mining boom just for starters? How much at Queensland during the exodus from Melbourne and Sydney to Queensland? Chinese aside they’re screwed.
And Australia’s banking crisis and economic depression takes a big leap closer. This is wonderful news.
Much more of this kind of news, and who is going to be buying? No-one, that’s who. Then the whole housing market and banking sector collapses like the empty house of cards that it is.
I’m stocking up on popcorn!
Did i just read that correctly ………. “In addition, if house prices were to slide, overseas investors might be more willing to cut and run ………. how about ALL INVESTORS might be more willing to cut and run ………. which now make up approximately 50% of all new mortgages ………. I call it Australia’s Sub-Prime time bomb ……… they’re not in it for the rent returns …….. so it must be the price growth …… & if prices stop rising…….. THEY’RE OUT !!!
The Chinese export economy amounts to taking money from Anglo countries in exchange for cheap manufactured goods. The Chinese “entrepreneur” class then embezzles the money back into the Anglo countries, where it is used to elevate home prices beyond the means of the very persons who spent the money on the cheap goods. The only way to prevent such exploitation of the stupid by an international criminal class is by legislation. What we have here is the greatest failure of national leadership since, at the latest, the 1960’s.
Bubbling along nicely.
Make $350k a year by sitting on your a$$
Chinese buyers have “invested” $US110 billion in USA real estate in the last five years in preparation for an expected massive devaluation in the Yuan as their economy slows. This amount is expected to double by 2020.
Our Government has no accurate figures and does not wish to control foreign investment in the knowledge that inflation of the property bubble keeps our zombie banks alive. The Banker’s PM has obviously decided what is good for the banks is good for Australia.
@ #16 you cant blame those people for selling out, we all would if we could make that sort of gain. Just dont be one of the schmucks who is paying that much, because they are going to feel a world of hurt when it all unravels.
More bad news for first home buyers. The tightening of credit for foreign buyers by the Oz banks is causing unintended consequences. Now the Chinese buyers are diverting their large cash deposits meant for upmarket mansions to be bought on credit, to outright purchases of medium priced houses. Surely enough is enough. Place a moratorium on all foreign investments now before our economy explodes from this massive out of control takeover that will damage our markets for generations.
If all first home buyers just held off for one year, the ENTIRE housing industry would correct to a healthy, affordable level. There is no way it would be sustained by investors alone. Impatient home buyers are silly.
Sorry, but it doesn’t change sh*t.