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.