Heritage, CUA stop landlord loans to avoid APRA breach

Heritage Bank, the nation's second largest mutual, will stop offering property investment loans amid fears it is close to the regulatory speed limit on lending growth set by APRA.

after recent attractive offers attracted a deluge of borrowers.

It follows the decision of CUA, the nation's largest mutual, to stop writing new loans for property investors because demand is so strong.

The combined lenders have about $17.5 billion of assets and account for about 1.5 per cent of the total property lending market.

Their withdrawal from the market highlights continued strength of buyer demand in Melbourne and Sydney at the beginning of peak Spring sales and the inherent disadvantage on smaller lenders of a blanket 10 per cent cap.

Major banks, which because of their size can write much more loans and comfortably remain within limits, are cutting rates, waiving fees and offering lucrative promotional packages.

It also means that other lenders offering investment loans will come under greater pressure to remain within the caps from borrowers chasing the best deals.

Heritage Bank said it will "temporarily stop" accepting new applications for investment loans to ensure it remains "comfortably" within Australian Prudential Regulation Authority limits.

Under the restraints, which are intended to cool demand and direct buyers away from riskier interest-only loans, investor lending growth must remain under 10 per cent and interest-only loans can only total 30 per cent of all loans in a quarter.

"Heritage has experienced a sharp increase in the proportion of investment lending in our new approvals," the bank said.

"That's the result both of our attractive pricing structure and the actions of competitors in the market place," it said.

In July, Heritage chief executive Peter Lock said investment lending was only 2 per cent of mortgage growth, well below the 10 per cent regulatory cap.

Mr Lock warned he did not want the bank to become "an open harbour" to borrowers declined by other lenders as it launched highly competitive one and three-year fixed rate investment mortgages.

In recent weeks it has attempted to correct the lending imbalance and increase principal and interest lending by increasing interest-only investment lending rates and imposing an 80 per cent loan-to-value cap on interest-only loans for investment lending.

"We need to manage our investment lending carefully, to ensure we stay within the caps APRA has placed on growth in investor and interest only lending," the bank said.

In addition, its Family Guarantee packages will from today only be on offer to owner-occupier borrowers.

The bank is also introducing loan-to-value pricing tiers for two of its home loan products.

It means borrowers with smaller deposits will pay higher interest rates to "account for the higher risk".

It will calculate the new rate on the total amount funded, which will include fees and charges.

Heritage is offering a discount variable rate of 3.97 per cent for owner occupiers with a deposit of at least 20 per cent.

A spokesman for CUA said it continues to monitor investment lending but has no immediate plans for their reintroduction.

It is offering investment loans to some established customers that meet borrowing criteria.