Australia’s Commonwealth Bank puts leash on foreign mortgages

Bloomberg

Commonwealth Bank of Australia, the country’s largest mortgage lender, has tightened criteria for home loans to foreigners just as the central bank warned buying by Chinese posed an ‘indirect risk’.
Commonwealth Bank, which accounts for one in every four mortgages in the country, will no longer approve applications that cite self-employed foreign income, it said in a note to mortgage brokers. The lender will also not accept the foreign-currency income of temporary Australian residents, who can now only borrow up to 70 percent of the value of a property compared with 80 percent earlier, it said.
Such applications represent a “significantly low proportion of our total home loan applications,” Commonwealth Bank said in an e-mailed statement. “We constantly review and monitor our home loan portfolio to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs.”
The bank’s action follows a similar move by Australia & New Zealand Banking Group Ltd. and comes as Chinese buying of Australian homes doubled for the second consecutive year, according to government data. The Reserve Bank of Australia last week warned of risks to property prices and banks’ loan losses should demand from the second-largest economy decline.
Chinese Investors
“The Australian banking system’s direct exposure to Chinese property investors and developers appears to be small,” the central bank said in its semi-annual assessment of the financial system. “However, if Chinese demand were to decline significantly, that could weigh on domestic property prices and so lead to losses on the banks’ broader property-related
exposures.”
ANZ, the nation’s most Asia-focused lender, last month changed the foreign-income threshold it applies when assessing mortgage applications. The lender will no longer accept requests where a borrower has only income from overseas. It fixed the maximum loan ratio at 70 percent of the value of a home and increased the number of documents required to approve a loan.
The nation’s two other large lenders have also tightened loan requirements for foreigners. National Australia Bank Ltd., in a note to brokers this month, cut the maximum loan-to-value ratio for foreigners to 70 percent. Westpac Banking Corp. said in an e-mail it hasn’t changed its foreign-investor rules, though it reviews its policies.
Purchases by foreigners, many with a connection to China, helped drive an almost 55 percent jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The rising demand has triggered community concern that locals are being priced out of the property market, prompting the government to tighten scrutiny of foreign investment.
Spending on Australian residential and commercial real estate rose to A$24.3 billion ($18.9 billion) in the 12 months through June 2015, up from A$12.4 billion a year earlier and A$5.9 billion in 2013, according to the Foreign Investment Review Board’s
annual report.