CBA Suspends Investor Refinances
The Commonwealth Bank of Australia (CBA) has recently made headlines by announcing a freeze in new lending to property investors wishing to refinance their loans. Just like with most other news related to the property market lately, the media has neglected a lot of the background that led to this decision.
To clarify, this change does not affect applications to fund new purchases; only investors who want to refinance existing properties.
Since Late 2014, banks have been subjected to a 10 percent growth cap on their residential investment lending business. This is the primary reason investment loans tend to be priced higher than loans for owner-occupied properties. Another reason is the requirement that banks hold more capital in reserve against investment loans, making them less profitable.
Much of the market commentary on this move by CBA has been around the bank’s strong position in the investment market, second only to Westpac. However, CBA has reported growth in its investment home loan book below the max threshold, so it still has room to grow.
The bank did sight regulatory commitments when explaining its decision, but it does not seem that they were particularly close to breaching any of these. More likely, regulators have applied new pressure behind the scenes to the entire industry, in hopes of taking some heat out of the property market by providing disincentives to investors. This has been a constant theme over the last few years.
If this is the case, the move by the CBA is somewhat cynical. It does nothing at all to change the total amount of money available to investors, as the bank remains open to funding new purchases. All it does is reduce competition in the refinance market.
CBA executives may have also determined that they have an over-representation of refinanced loans in their loan portfolio. As recently as last year, the CBA was offering a cash incentive of $1,250 per loan for mortgage holders to refinance either owner-occupier or investment loans, and such offers have been a staple sales tactic of the bank for some time.
We will have a far better idea of CBA’s motives for this move if we see other lenders make similar decisions. My feeling is that it will turn out to be more of an internal issue and will only remain in place temporarily.
The good news for investors is that a plethora of options is still available for saving money through a refinance, most prominent of those being the Smart Finance Loan. It has a headline interest rate of 3.59% if secured against an owner-occupied property and 3.99% against an investment property. If you’d like to find out more, please submit your contact details here, or feel free to email me directly.