Other lenders fill the gap as big four clamp down on foreign borrowers

From The Real Estate Conversation.

Though the big four banks have clamped down on lending to foreign nationals, other lenders have moved to fill the gap, and the share of properties bought by foreign nationals in the Australian market ticked higher at the end of 2016

Other lenders have moved to fill the gap, including developers themselves, but lending hurdles are higher across the board. Foreign nationals looking to obtain finance in Australia are often left disappointed in the current environment.

While the big four are not writing new loans for non-residents, some do still consider loans for temporary visa holders.

Lending criteria for foreign nationals varies across the big four.

Westpac is not writing new loans for non-residents.

The Commonwealth Bank doesn’t provide loans to non-residents. CBA has a maximum LVR of 70 per cent for selected temporary visa holders earning Australian income.

ANZ no longer lends to foreign nationals. Applicants must be permanent residents of Australia, NZ citizens, or 457 visa holders. Applicants are allowed to have a maximum of 30 per cent foreign income, with specific documentation required to verify it.

For National Australia Bank, a maximum LVR of 60 per cent applies for temporary visa holders living in Australia, and 70 per cent for Australia and New Zealand citizens and permanent residents living overseas. All foreign income is ‘shaded’ by 40 per cent when assessing serviceability.

HSBC and Citigroup are said to be filling the gap when finance isn’t available from the big four, according to some reports, but both banks did not reply to requests for information.

John Kolenda, Managing Director of 1300HomeLoan, told SCHWARTZWILLIAMS it is more challenging for foreigners to obtain housing finance in Australia than in the past, but it’s not impossible.

He said, “Some, mainly second-tier lenders, are still lending to foreign nationals. However, these applicants must meet strict credit criteria and maximum LVRs have been significantly reduced over the last 18 months, making obtaining a non-resident loan quite challenging.”

Kolenda said demand from foreign nationals for Aussie loans is as “strong as ever”, but doesn’t always get the borrower over the line.

“The problem is some applicants are simply unable to meet the lender’s credit criteria leaving many foreign nationals without the ability to obtain funds in Australia to purchase a property,” he said.

Though tighter lending restrictions at the big four banks has, to a certain degree, simply shifted demand to other lenders, Kolenda says those “other lenders” are also constrained in their lending.

“These lenders in many cases have increased interest rates, tightened credit criteria and reduced maximum LVRs on non-resident loans,” he said, adding, “many non-resident borrowers may find difficulty obtaining a loan from all lenders at the moment.”

According to NAB’s Residential Property Survey, foreign buyers increased their share of both new and established property markets in the final quarter of 2016, the first increase since late 2015.

The share of new property sales made by foreign nationals increased to 10.9 per cent during the December 2016 quarter. The rise follows four quarters of declining rates – no doubt an impact of the tighter lending rules. The recovery at the end of the year could indicate foreign nationals are finding finance elsewhere as alternatives to the major banks spring up.

In new property markets, foreign buyers were noticeably more prevalent in Victoria, where their market share of sales rose to 19.3 per cent, up from 15.0 per cent in the previous quarter.

The same trend was observed in the share of foreign buyers purchasing existing dwellings, which rose to 7.6 per cent in the fourth quarter of 2016, up from 6.4 per cent the previous quarter, and the highest result since the final quarter of 2015.

Fintechs Eye The Mortgage Market

From Fintech Business.

Speaking at a media roundtable in Sydney this week, SocietyOne co-founder Greg Symons said there is a class of mortgages that could suit “exactly what we do”.

“We will look at that in time, probably through a partnership of some kind,” Mr Symons said.

“The fact is it’s very cheap debt and very low capital that goes into it. The problem is the margins of play are very tight, whereas there is a second tier of mortgage lending with a lower LVR, a different form of mortgage lending that actually would fit well,” he explained.

“It is more like a syndicated loan style opportunity, which essentially is just low-volume peer-to-peer. The thing is, you’ve got to change your thinking. You’ve got to move away from this pooled investment style to something that is more individual based.”

Mr Symons said he built SocietyOne and the technology underpinning it to ensure that the company doesn’t exclude itself from certain asset classes that are a natural fit.

However, SocietyOne’s newly appointed chief investment officer John Cummins, who was also present at Wednesday’s discussion, said there is little “juice” in mortgages, echoing Mr Symons comment about tight margins.

The group has over 280 funders including Australian banks, credit unions, high net worth individuals and SMSFs.

Mr Cummins said mortgages are a difficult market to get high net worth investors into.

“The structures are really set up for institutional. To go in and nakedly invest in mortgages… I know it has been done overseas. It’s just a bit more challenging here because you have established an investment structure now that looks like an amortising structure with a whole lot of variable rate mortgages in it,” he said.

US-based online lender SoFi, which is planning an Australian mortgage market play, has successfully managed to move from a peer-to-peer lending offering student loans to a balance-sheet lender offering home loans.

The company has made clear its ambitions to grow beyond lending to provide a fuller, more holistic banking-like offering to customers including deposits, credit cards and payment solutions. It is currently preparing to launch its first mortgage securitisation deal.

SoFi this week announced the acquisition of Delaware-based mobile banking group Zenbanx, which has been pioneering ‘conversational banking’.

Bankwest refunds $4.9 million for overcharging interest on home loans

ASIC says Bankwest, a division of the Commonwealth Bank of Australia, has refunded approximately 10,800 customers more than $4.9 million after it failed to link offset accounts to home loan accounts for some customers who had open accounts between 2007 and June 2016, resulting in customers being overcharged interest.

Following media coverage of ASIC’s work in relation to similar breaches by another bank, Bankwest undertook an internal investigation into the operation of its offset accounts. Bankwest identified issues in the linking of offset accounts with home loans and reported the matter to ASIC as a significant breach of its licence obligations.

ASIC Deputy Chairman Peter Kell said, ‘It is critical that licensees ensure that their systems work properly so that promises made to customers about their bank accounts are kept.

‘When a problem is identified, licensees not only have an obligation to report the breach, but impacted customers must be returned to the position they would have been in, had the breach not occurred.’

Bankwest has since updated its systems and processes, including the automatic linking of new offset accounts.

Bankwest has contacted those customers it has identified as being affected to explain the impact and has arranged refunds.

Customers with queries or concerns about this matter should contact Bankwest Customer Help Centre on 1300 334 805 (for retail customers), or the Bankwest Business Support Centre 13 7000 (for business customers). Alternatively, customers can complete an online form here.

Background

An offset account is a savings or transaction account that, when linked to a home loan, offsets the balance of the loan account, reducing the interest payable.

For example, a customer with a home loan of $500,000 and a balance of $20,000 in their offset account, would only pay interest on $480,000. If accounts are not properly linked, the customer would be charged interest on the full loan amount of $500,000.

US fintech eyes Australian mortgage space

From Australian Broker.

US financial technology company SoFi has hinted at its plans to launch an Australian branch that offers mortgages and changes the banking world.

The firm, which is based in San Francisco, has recently put out a LinkedIn job advertisement for a manager of mortgage operations in Sydney. It is also looking to hire a marketing manager and an operations manager.

This would be the fintech’s first office outside of the US where it has funded more than US$7 billion in student loan refinancing, personal loans and mortgages, reported the Australian Financial Review.

The job ad says the new hire would preferably have non-bank lending experience and would “be responsible for building out an in-house mortgage customer service and underwriting operation to serve SoFi’s new mortgage business line”.

This will include developing the operations, processing and underwriting functions as well as supervising mortgage originations at or ahead of target.

SoFi recently raised US$1 billion of funding and has grown its staff from 150 to more than 600 over the past year. It offers a range of its own mortgage products which can be applied for directly via smartphone, reported The Economist in an article last year.

Borrowers – or ‘members’ as the fintech refers to them – are also showered with a range of other services. This includes being invited to parties to network, using SoFi’s offices for investor meetings and even tapping into the firm’s network to find employment.

When contacted by Australian Broker, a SoFi spokesperson declined to comment about the company’s future plans for Australia and its expansion into the local mortgage market.

Investment Mortgages, a 10-Year View

Continuing our series on the 10-year data from our household surveys, today we look at the investment mortgage portfolio. We find some interesting variations compared with the owner occupied borrowing segments, which we discussed recently.

In value terms, 28% of the portfolio is held by exclusive professionals, 15% to suburban mainstream, 14% mature stable families, 10% to young affluent, 9% to rural and 5% to young growing families.  19% of the portfolio was written in 2016.

In 2016, 23% of the loans were to the exclusive professional segment, 14% to young affluent, 11% to rural, 17% to mature stable families, 12% to suburban mainstream, and 5% to young growing families.  Young affluent households were more active last year, than across the entire portfolio.

In 2016, the average value of the mortgage to exclusive professionals for investment purposes was $982,360 compared with $536,193 for young affluent, $652,812 for mature stable families and $412,924 for young growing families.

The analysis shows the penetration of investment properties touches most segments, but is also shows a skew towards more affluent groups.

QBE Lifts LMI Fees

From Australian Broker.

QBE has announced an increase in the cost of lenders’ mortgage insurance (LMI) for property investors with the surcharge (or pricing loader) rising from 7% to 12%, reports the Australian Financial Review.

LMI for owner-occupiers will remain as is with the 8% first home buyer discount being extended to mortgages up to $1.2 million.

This is the first increase in three years, a QBE spokesperson said.

“Our experience shows first home buyers perform better than our average portfolio and we are pleased to continue to provide an 8% discount. The premium loading for investors has been increased to 12%, reflecting increased risk compared to lending to owner-occupiers.”

The minimum fee for QBE’s new and existing LMI products will also increase to $950.

Despite these changes, the firm will remain competitive, the spokesperson said.

A spokesperson from Genworth told AFR the firm had increased rates by 5% in the first half of 2016. The firm provides LMI for National Australia Bank, Commonwealth Bank of Australia and over 100 smaller lenders.

A 10-Year Segmented View Of The Mortgage Book

Within our household surveys, we record the date when a mortgage was drawn down. This provides a useful perspective of how long the mortgage was been on book. Applying a segmented view of this data offers an interesting perspective on the market.

In this view we have taken data from the past 10 years, and applied our master household segmentation to reveal the distribution of gross balances across the 10-year period.

Well over 20% of all loans in the entire portfolio, by value were written last year. In 2016, 29% of loans were written by young affluent households, 18% by exclusive professionals, 11% by suburban mainstream and 9% by young growing families.

Interestingly, the average loan written in 2016 for our exclusive professional segment was $1,163,950, compared with $691,843 from the young affluent segment, $428,156 for young growing families, and $163,764 in the battling urban segment. This illustrates the greater leverage in the more affluent sectors, which is why they are more exposed to potential rate rises, as we discussed yesterday.

It also again highlights the power of effective segmentation!

A Deep Dive On Household Rate Sensitivity

Today we look at a Interest Rate Sensitivity – a specific slice of data from our household surveys which we use to drive the mortgage stress data series, as we discussed recently.

Using data from our surveys we are able to estimate the amount of headroom households would have if mortgage interest rates were to rise. We are expecting rises through 2017.

We look at a range of scenarios, and as rates rise estimate the “pain point” for specific households, taking into account their other commitments, income, type of loan and mortgage repayments. Today we look at owner occupied loans.

Looking at sensitivity by age of household, more than 65% of those under 40 years with a mortgage would have difficulty if rates rose just 0.5% (50 basis points).  Households who are older, on average have more headroom. In the “more than 7%” category, 60% of households are over 40 years.

Another interesting cut is the penetration of Lenders Mortgage Insurance (LMI). Around half of households with an LMI protected loan (remember the LMI Insurance protects the BANK, not the Household) would have difficulty if rates rose bu 50 basis points. Households with no need for LMI (normally because they have a lower loan-to-value ratio) have more headroom.

We see from our property segmentation that a greater proportion of first time buyers would be caught if rates rose 50 basis points, but property holders are the largest segment at the high end of the risk profile.

A look at our master segments shows that young growing families and young affluent households are relatively the most exposed if rates rise. Interestingly our battling urban, and disadvantaged fringe groups (who would generally be regarded as the worst credit risk) have more headroom. This is because they have smaller mortgages, so are less leveraged.

By state, NSW have the highest proportion of households which would be exposed by a 50 basis point rise – again because of large mortgages and high home prices.  By comparison, households in QLD AND VIC have more headroom.  Some households in WA are also exposed at 50 basis points.

Finally, we also see that the majority of households we identified as in severe mortgage stress appear in the band who would be under pressure if rates rose just 50 basis points. This is a validation of our modelling, and shows the alignment between mortgage stress and rate movements.

A further illustration of the power of effective segmentation!

 

Bankwest Reveals New Mortgage Product

From Australian Broker.

Today Bankwest has launched a new home loan product which offers a discount against the combined average standard variable rates offered by three of the major banks.

The new Bankwest Equaliser Home Loan, which is available to both owner occupiers and investors, offers a fixed discount off the combined average standard variable rate of three major banks (ANZ, NAB and Westpac).

With a discount for three years of 1.35% p.a. for owner occupiers and 1.00% p.a. for investors and a floor rate of 2.5% p.a., Bankwest general manager of broker sales Stewart Saunders said the new product demonstrated Bankwest’s ability to innovate in a challenging market.

“The banking sector needs to continually innovate and adapt to customers’ needs in our fast changing world. Our new Equaliser Home Loan is designed to give brokers and customers a competitive home loan option they have been asking for,” said Saunders.

“With so much uncertainty in the markets – on a state, national and international level – this new home loan gives people peace of mind they’ll be getting a competitive rate.

“We’ve listened to what our brokers and our customers are telling us and we know there’s a demand for a simple, no frills home loan which offers competitive rates that align consistently with the major banks.

“This product isn’t meant to be a ‘hero product’ but addresses a growing segment of customers who are looking for certainty in competitive rates.

“The Bankwest Complete package remains a very competitive offer which gives a competitive life of loan discount.”

The new Bankwest Equaliser Home Loan offers a discount against the average standard variable rate of three major banks for three years and then reverts to a competitive life of loan discount off the Bankwest standard variable rate and is available for new loans over $200,000 borrowing up to 80% of the property value, with principal and interest repayments only.

Bank of Queensland Lifts Rates

BOQ today announced it will increase interest rates to most variable home loan products by 0.15% per annum.

The increase will see the Bank’s Clear Path variable rate home loan lift to 4.47% per annum for owner-occupiers and 4.94% per annum for investors. The Standard Variable rate home loan will move to 5.61% per annum for owner-occupiers and 6.08% per annum for investors.

BOQ’s Economy Home Loan rates for owner-occupiers and investors remain unchanged.

BOQ CEO Jon Sutton said the carefully considered rate changes will balance the needs of all stakeholders, including borrowers, savers and investors.

“We will continue to monitor our portfolio and pricing to ensure we get the balance right between growth and profitability,” Mr Sutton said.

“The current low rate environment brings its challenges for all lenders, particularly those with a high proportion of funding through term deposits, which remain at expensive levels.”
The new rates will be effective from 6 January 2017.