Demand driving investment lending flurry

An air of reconsideration must soon take the wind out of the mortgage market's sails, as the banking sector ponders the implications of the APRA and ASIC crack down on more adventurous home loan practices.

Five of the sector's seven leaders have residential home loan growth rates near, or beyond, APRA's ten per cent growth flag for investment lending.

The fastest growing small ADIs are also well beyond this limit.

APRA's monthly banking data shows National Australia Bank and Westpac are only a few basis points short of testing the ten per cent level for growth in residential investment lending over the year to October 2014.

ANZ and CBA hover either side of nine per cent on this metric.

Macquarie Bank is the one bank well in excess of APRA's "indicator", with growth of 46 per cent in this category over one year.

Defence Bank reported growth of 26 per cent over the last year, and Teachers Mutual reported growth of 23 per cent.

Jon Linehan, CEO of Melbourne-based Defence, said: "We are well under all the APRA caps.

"Major banks have 35 per cent of their portfolio in investment loans. We have eight per cent and we are now writing 12 per cent.

"But, in terms of the overall portfolio, we will still be under an aggregate at ten per cent compared with the majors at 35 per cent.

Linehan said the "number is just a fundamental increase in demand.

"I don't think it will really have any effect on the business. We run a very tight prudential business."

Changes in business model lie behind the surge in investment loans at Sydney-based Teachers.

Brad Hedgman, deputy CEO, said: "Look where we come from. We had a significantly lower base in investment loans than banks to start with.

"Our entry to the third party channel through the broker network meant growth in investment loans as well as growth in normal home loans."

Hedgman said Teachers would measure the APRA edict against the board's risk appetite.

"We will look to do a gap analysis and see what it means."

"We've been in the broker channel for only 12 months now and there's no change to our underwriting standard whatsoever."