Duncan Hughes puts together an article for the website AFR Weekend wherein he talks about Westpac’s move to curb loan-to-value ratio (LVR) for SMSF-enabled borrowing on residential real estate. There are concerns that a good number of buyers have already paid too much and may find it difficult to keep abreast with the mortgage liability if rental rates fall further.
LVR brought down by Westpac
The bank has brought down LVR from 80% to 70%. They had once opened their houses to a beeline of investors. Now they are winding back. Banks are just being cautious. They also have a lot at stake. They feel wary when news reaches them that the buyers are getting 20% lesser rents than what was quoted by the sales agents. When one examines that these same rents are used to pay mortgage liabilities, it is not difficult to comprehend why banks are aiming to be more cautious in their deals.
You can read the original article here.
AMP bank made an early move
Lately, it was in news that the AMP bank had followed the corporate regulator and increased borrowing rates for SMSF-enabled borrowing. This move was said to be aimed at restoring the amount of such borrowing. It is believed that such borrowings have shot past the radar.
NAB bank has already stopped residential lending through SMSF
A big bank like NAB has stopped lending for SMSF-enabled residential homes, suddenly made wary by an unofficial flyer that came to its notice. The flyer was generated by a spruiker who talked about doubling money in 4-5 years through property. NAB feels that for an unregulated financial product, the involvement of such fly-by-night operators can result in great many cases of investor woes.
Westpac’s move to bring down the LVR is aimed at leashing SMSF-enabled borrowing for residential real estate, too. At this moment, there will be a ready line of volunteers shouting for the motion as well as against it. It is difficult to hold peace and some long-term decision full of foresight is our humble anticipation.
Wishing away another sub-prime crisis
Yes, it is certainly crucial to review the kind of mortgage burden the investors are under because we don’t want another sub-prime (albeit of a smaller order) scenario developing.