More home loan borrowers turn from major banks as lending standards bite

Home loan growth at the major banks tumbled to its slowest annual rate in more than 10 years in November.

Tighter home loan lending standards are putting the major banks at a disadvantage, Mortan Stanley says.

Home loan growth at the major banks tumbled to its slowest annual rate in more than 10 years in November, as banks clamped down on serviceability criteria and more borrowers sat on their hands.

Investment bank Morgan Stanley’s analysis of the latest data from the prudential regulator APRA found the big four banks’ growth in home loans fell to 3.6 per cent in November compared to the same month in 2017, after a marked tempering in the latter half of that period.

The decline wasn’t as stark for the broader industry with so-called “system” housing loan growth falling to about 5 per cent in November, from 7 per cent in 2017.

“While smaller banks and non-banks grew about 8 per cent and about 16 per cent, respectively, the major banks’ growth fell further this month to a new record low of just 3.6 per cent,” Morgan Stanley analysts led by Richard Wiles said in a research note for clients.

“In our view, tighter lending standards are creating a competitive disadvantage for the banks.”

Expenditure measures used by the big banks to assess a loan application have come under fire at the royal commission for being too crude and not including enough information. The big banks are in the process of changing these, or lessening their reliance on them, and are also treading more cautiously on approving mortgages. That is seeing a greater flow of customers flocking to smaller banks and non-bank lenders.

Morgan Stanley said the major banks were starting to head backwards on investor loans.

“Investor property growth has slowed to about 1 per cent year-on-year at a system level vs about 10 per cent in 2015.”

The analysts don’t expect the removal of lending caps on investor and interest-only loans will lead to a rebound in mortgage volumes.

Banks have heavily focused on their responsible lending obligations, including a customer’s ability to repay a loan, in light of the Hayne royal commission.

The Australian reported this week that the big banks had all but turned off the tap on investor loans in the year ended November 30.

The combined investor loan books of the big four amounted to $471.4 billion, compared to $471.1bn in the same month in 2017.

The APRA statistics showed the Commonwealth Bank’s investor loan book contracted to $132.8bn in November, from $133.3bn a year earlier, while ANZ saw a sharper reduction from $82.9bn to $80.2bn.

Westpac’s investor loan book edged up to $152.3bn as at November 30, from $149.9bn a year earlier, while National Australia Bank saw its portfolio rise to $106.1bn, from $104.9bn.

Some lenders are, however, using their challenger brands to dip back into the investor loan market.

Analysis by comparison site Finder shows that in the past two months Commonwealth Bank has reduced the rate on at least one investor loan product at subsidiary Bankwest, while Westpac has cut a raft of investor interest rates across its St George, Bank of Melbourne and BankSA loans.