Loan caps come off for selected ADIs, while majors miss out
The volume gains made by non-ADI lenders in the investment mortgage market could come under severe pressure in the next few months as APRA begins to loosen the prudential constraints on lending to investment borrowers.Banking Day can confirm that HSBC Australia, Macquarie and People's Choice Credit Union are among the first ADIs to secure relief from the cap on investment lending introduced by the regulator four years ago.In April, APRA signalled its intention to remove the restriction on a case-by-case basis, with licensed ADIs required to demonstrate that their serviceability tests and assessment criteria met new standards set incrementally by the regulator over the last three years.Since 2014 APRA has required all ADIs to keep monthly growth in investment lending below ten per cent.Banking Day understands that none of the four major banks have sought relief from the cap amid concerns that their lending practices were not likely to meet responsible lending requirements.Evidence presented to the Hayne royal commission in April indicates that Westpac's lending controls throughout 2017 fell short of APRA's standards.The royal commission was told that an independent audit by PWC last year found that most of the bank's lending controls were not working effectively.In March, the royal commission also heard evidence that shows ANZ "does nothing" to check the declared expenses of loan applicants referred to the bank by mortgage brokers.The removal of the cap for some ADIs is expected to trigger an intense battle for new business in the investment segment, even though demand for credit from housing investors has waned since property markets began correcting in the middle of last year.People's Choice chief executive Steve Laidlaw confirmed that the country's second largest mutual ADI was now free to grow investment lending beyond the ten per cent cap."We recently obtained approval from APRA to remove the cap on investment lending, which has given us more flexibility," he said."We're about to embark on a campaign to aggressively market our loan products to investors."People's Choice originates most of its lending business through direct channels, with only around ten per cent of its volumes sourced through third parties.The relatively low reliance on mortgage brokers and introducers potentially reduces the credit union's risk of not complying with responsible lending laws and APRA's assessment benchmarks."We've made a big effort to make sure our lending policies are prudent," Laidlaw said."This has included beefing up our processes for making serviceability assessments."People's Choice has been growing its loan book at around six per cent a year, but Laidlaw believes that is likely to increase to around eight per cent in the current financial year despite the housing market slowdown.