CBA says house prices have further to run, competition for owner-occupied loans will remain intense
CBA says house prices have further to run, competition for owner-occupied loans will remain intense; Forces of supply and demand propelling house prices in Sydney and Melbourne are likely to persist for quite some time
Tweet Topic Started: 13 Aug 2015, 03:28 PM (1,222 Views)
Commonwealth Bank of Australia chief executive Ian Narev says the forces of supply and demand that are propelling house prices in Sydney and Melbourne are likely to persist for "quite some period of time," despite recent bank moves to rein in lending to property investors.
The nation's largest lender for housing said on Wednesday its home loans balances rose 6 per cent on the year to $423 billion, from $400 billion.
Net interest income and very low levels of defaults on these loans helped propel the bank to a full-year cash profit of $9.14 billion, up 5 per cent and the largest-ever profit by an Australian bank.
With the Reserve Bank of Australia previously branding the current investor-led surge in house prices "unbalanced" and governor Glenn Stevens describing Sydney's market as "crazy", Mr Narev said actions from the Australian Prudential Regulation Authority to cap the lending growth to housing investors would in the short term have a moderating effect on immediate investor demand, but the popularity of Sydney and Melbourne as places to live combined with limited supply suggested prices have further to run over the longer term.
"On the one hand, if you look year on year, the run-up in property prices in [parts of Sydney and Melbourne] feels like it's going to have to come off. But on the other hand, when you again look back on these fundamental forces of supply of demand, some of them might be around for quite some period of time yet," Mr Narev said in an interview.
Mr Narev revealed CBA had lifted rates on investors loans by 27 basis point last month to avoid being flooded by borrowers fleeing competitors, which would have pushed CBA above APRA's 10 per cent growth limit.
"When others are taking action there is a flow effect of extra activity, you have got to be very careful that even without changing your own settings, you don't suddenly get to the point that by the virtue of others doing less, you get to the 10 per cent barrier," he said. "The pricing was a direct response to that risk and that is why we made that decision."
CBA's net interest margin decreased 5 basis points to 2.09 per cent year-on-year, which the bank said was driven by the falling cash rate, which has pushed lending rates down in an environment of increased competition.
CBA's group executive, for retail banking services, Matt Comyn, said discounting across the sector had been reduced for investor lending but competition remained intense for owner-occupier loans. "It is reasonable to anticipate there will be heightened levels of competition there," he said.
As banks put the brakes on lending to property investors, borrowers buying a house to live in are being offered some of the sharpest deals in the market.
Owner-occupiers are being targeted with lower advertised interest rates and cash-back offers, and mortgage brokers say these customers can also negotiate bigger interest rate discounts.
RateCity figures show a significant gap opening up between the interest rates charged to owner-occupier and investor customers of most banks.
More than 15 lenders, including Commonwealth Bank, Westpac and ANZ Banking Group, are offering owner-occupiers rates that are at least 0.22 percentage points lower.
"While the providers are trying to curb investor lending they are looking to rebalance their book back towards owner-occupiers," says RateCity spokeswoman Laine Lister.
"The flipside of investors paying more is that owner occupiers are getting a better deal in some cases."
For example, HSBC has variable rate of 3.99 per cent for owner-occupiers, and Loans.com.au is offering 4.02 per cent.
Larger lender Suncorp has an advertised rate of 4.15 per cent for owner-occupier customers who are borrowing more than $750,000, with a deposit of more than 20 per cent.
Beyond their advertised rates, banks are also scaling back interest rate discounts for investors and offering deeper discounts to owner-occupiers. The exact size of the discount will depend on the bank and the customer's financial circumstances.
A mortgage broker in Sydney, Andrew Woods, says investors taking out loans are generally paying interest rates about 0.27 percentage points higher than what owner-occupiers pay, but the gap is wider for the most sought-after customers.
"Even larger discounts than that are available for owner-occupiers who are strong clients with larger loans," Woods says.
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