Huge fall revealed by full-year results, bringing the bank under APRA limit but with consequences for growth
Huge fall revealed by full-year results, bringing the bank under APRA limit but with consequences for growth
Westpac has reduced interest-only lending from 50% of new mortgages to 26%, within the space of six months.
The stark fall was revealed by Westpac’s full-year results, announced yesterday, which saw the bank’s profits rise 3% to $8.062 billion, slightly below analyst forecasts of $8.162 billion.
Westpac was keen to highlight its limits on interest-only and investor lending. CEO Brian Hartzer commented that: “our primary goal in 2017 was to carefully balance growth and returns while meeting all of our new macro-prudential regulatory requirements. We achieved the required macro-prudential targets for home lending.”
However, despite the recent reduction, interest-only lending accounts for a staggering 46% of Westpac’s mortgage portfolio. With 26% of new mortgages still being IO, Westpac has limited room to maneuver, given APRA’s 30% limit on new flows.
How Westpac crushed interest-only
Westpac’s results explained the ways the bank has sought to reduce IO lending, many of which brokers will have experienced.
Rate hikes have been one – investors looking for IO loans now pay 5.50% and owner-occupiers 5.03%, compared to 4.44% for owner occupiers paying principal and interest.
IO borrowers are limited to an LVR of 80% with “limited exceptions”, whilst the bank is “no longer accepting external refinances (from other financial institutions) for owner-occupied interest only/”
Existing IO borrowers have been encouraged to switch with the removal of the switching fee in June, with 7,913 voluntarily doing so in the final quarter of 2017.
Long-term consequences
The drastic fall in interest-only lending has a wider effect on Westpac’s performance.
Both owner-occupier and investor lending grew at below system growth: total mortgages at Westpac grew 5.7% compared to system growth of 6.6%.
Westpac was voted no.1 by brokers in MPA’s Brokers on Banks report for 2017; it’s unclear whether the cuts to IO lending will affect 2018’s results.
