Deloitte warns APRA is watching bank discounting

Deloitte warns APRA is watching bank discounting
Deloitte warns APRA is watching bank discounting

The level of bank discounting to borrowers will be closely scrutinised by the Australian Prudential Regulation Authority given the regulators' heightened focus on responsible lending, Deloitte partner Kevin Nixon has warned.

"If you are offering big discounts, you can expect APRA to ask why, particularly if it looks like the main goal is to increase volumes ahead of quarterly announcements. Further, under the broader culture remit there will be a focus on transparency and fairness in pricing," Mr Nixon told Fairfax Media.

Banks will continue to offer owner occupiers steep discounts on standard variable rates to protect their market share as investor lending is tightened, Deloitte's annual Australian mortgage report has suggested.

Major banks had been offering owner occupiers discounts on the standard variable rate of up to 130 basis points. 

Discounts are currently tracking at 100 basis points, it noted, where loans are for 80 per cent or less of the value of the property.

New owner occupiers or those refinancing loans should be able to access financing at around 4 per cent.

A survey of mortgage experts expect discounting for owner occupiers to continue, but perhaps at a reduced rate of between 80 and 120 basis points this year. 

Leaning towards 80 basis points, said AFG executive director Malcolm Watkins.

But for investors, loan discounts have tightened.

Deloitte said the ongoing discounts on banks' "front book" (new loans) are putting pressure on net interest margins, which is increasing the pressure to increase standard variable rates on the "back book" (existing loans).

Deloitte's report was based the report on a survey with 10 leaders of the mortgage industry.

The participants in the survey were: banks Commonwealth Bank of Australia, National Australia Bank, Bank of Queensland and Suncorp; non-bank lenders Pepper Group and Homeloans; mortgage brokers AFG and eChoice; and consultants CoreLogic and Steve Weston.

Half of the survey participants said they expect settlement volumes to fall this year compared to 2016.

But six out of 10 respondents say house prices will continue to grow, albeit at a lower level than 2015 to 2016. 

Two participants in the survey said house price growth could be higher than 2016 levels; while two said it would be flat - but no-one is forecasting that house prices in Sydney or Melbourne would fall, or that there would be a significant downturn across the country.

Meg Bonighton, general manager of home lending at NAB, said tighter lending standards and the macroprudential investor loan growth caps will see demand from investors and overseas borrowers "continuing to moderate" in 2017.

"In general, it will soften the impact on house price growth that we've seen over the past couple of years, while pockets of major cities are likely to continue with solid growth," she said.

APRA Money Lending


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