There’s no denying that the big banks are enjoying some significant returns on their mortgage books in the wake of a recent ramp up in investor activity across our property markets. But is their payday party about to be gate crashed by sector regulators?
According to research from the Macquarie Group, Westpac has taken the biggest bite out of the latest investor charge into residential real estate (particularly in the strong Sydney market), with 44% of its mortgage book consisting of investor lending.
The CBA’s books look a little more balanced, with around 34% of investor lending, as does the ANZ and NAB, with their investor lending accounting for about 29% and 28% respectively of overall approved mortgages.
However, with increasing talk in financial circles of impending macroprudential policies being introduced to put the brakes on some sectors of the housing market and in particular, the current investor commotion that everyone’s talking about, it appears as though this lucrative lending spree could soon be over.
The Macquarie Group claims that if such action is taken, in lieu of traditional monetary policy interest rate rises, the finance sector could experience a decline in credit growth by as much as 7%, with the potential to put a 1% dent in big bank earnings.
While these numbers may not appear too significant on the surface, when you consider that Westpac is expected to report a net increase in profits from $6.8 billion to $7.5 billion for its 2013/14 financial report, and ANZ looks set to announce earnings of $6.9 billion (up from $6.3 billion), you can see that even small percentage losses would greatly impact the big boys’ bottom lines.
So what does this mean in the big scheme of things? Well, as always, the banks would not take any losses lightly and they certainly don’t want to upset shareholders with the prospect of falling profit margins.
As such, Macquarie analyst Mike Wiblin predicts that the banks will pass on the costs of higher capital to customers, reducing the interest paid on their deposits.
Only time will tell if macroprudential reforms pose any immediate threat to lenders’ profit margins. But given how things are going with interest rates right now, what is currently ‘all talk’ could quickly become a reality in order to mitigate the risk of lenders exposing themselves to investor driven debt that regulators may feel is all a bit ‘too much too soon’.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).