Bankwest the latest to tighten underwriting for investor mortgages

Commonwealth Bank subsidiary Bankwest has imposed a loan-to-valuation ratio cap of 80 per cent on investor mortgages, as it tightens its lending standards to meet regulatory pressure to limit the growth of investment property lending.

Bankwest said in a statement that the change would not affect existing investment mortgage customers or customers with an application already formally submitted.

The bank said: "As a responsible lender, Bankwest has reviewed the acceptable loan-to-valuation ratios for investment purposes to ensure sustainable growth in the home loan investment sector and to protect both investors and the home loan market."

Bankwest's move follows a decision this week by National Australia Bank's white label mortgage business, Advantedge, to charge investors higher interest rates (in practice, owner-occupiers will qualify for bigger discounts to the standard variable rate).

Earlier this month Westpac reported that it had raised its loan serviceability hurdle, increasing the minimum assessment rate 30 basis points from 6.8 per cent to 7.1 per cent, as part of a move to tighten its mortgage underwriting.

Westpac's minimum assessment rate is now at least 210 bps higher than the mortgage interest rate, which means that a loan applicant will have to demonstrate that they can continue to service the loan if rates rise by 210 bps or more.

The new minimum assessment, or floor rate, applies to owner-occupiers and investors. It applies to all the applicant's mortgage debt, not just the loan being applied for.

Westpac chief financial officer Peter King said the bank was also setting ten per cent growth as a "hard limit" for investor property lending.

In December the Australian Prudential Regulation Authority wrote to authorised deposit-taking institutions, saying that prudential risks in the housing finance market appeared to be increasing and that it would increase its "level of supervisory intensity".

APRA said: "Fast or accelerating credit growth can be a key indicator of a build-up in risk. Given the currently very strong growth in investor lending, supervisors will be particularly alert to plans for rapid growth in this part of the portfolio."

It said investor loan portfolio growth "materially above a threshold of ten per cent" would be an important risk indicator. It also said loan serviceability tests should incorporate an interest rate buffer of at least two per cent above the loan product rate and a floor lending rate of at least seven per cent.