CUA pauses loans to property investors to stay below APRA's 10 percent cap

Australia's largest mutual bank CUA has decided to pause writing new loans for property investors in the wake of increasing demand as banks put the brakes on investor lending to meet regulatory limits.

CUA said on its website that the lender will temporarily pause accepting investor lending applications until further notice, including refinancing from other financial institutions in the wake of a sharp increase in investor lending volumes in recent weeks.

The bank wanted to stay within the 10 percent investor lending growth cap set by APRA, said chief operating officer, Member Services, Andy Rigg.

“We have been closely monitoring our year-on-year investor lending balance growth to ensure that we continue to lend prudently while remaining within the 10% regulatory growth benchmark,” he said.

“We have observed an increase in new investor applications, particularly in response to some of the actions taken by other lenders to slow their investor growth.”

“In response to the continued growth in our investor lending and forward projections of this growth, we’ve taken the decision that we need to temporarily pause new investor lending,” he added.

Large numbers of borrowers are flocking to smaller lenders who are at risk of being overwhelmed, with concerns being voiced by Bendigo and Adelaide Bank managing director Mike Hirst too, who said rates needed to return to levels that "reflect the current market funding and capital costs”.

"As has been well telegraphed to all Australian authorised deposit-taking institutions, there is an expectation that as lenders, we must manage within the regulator's 10 per cent growth speed limit for investor loans,” Hirst was cited as saying by Fairfax Media.

The Australian Prudential Regulatory Authority came up with new guidelines for interest-only loans as well as other rules to cool the property market. The new rules require banks to cap future interest-only lending as a proportion of residential mortgages at 30 percent in addition to the reminder on staying below the 10 percent growth cap for investor loans set by it previously.

CUA has 440,000 customers, 900 staff and an $11 billion loan book. At the interim results in early March it revealed that it had written $1.06 billion in property loans, which was lower than the previous corresponding period, Fairfax Media reported.

Other lenders including BankWest and ING Direct responded to the new caps on Monday by lifting rates on loans to investors.

BankWest, a subsidiary of Commonwealth Bank, lifted rates the standard variable rate for investors by 25 basis points to 6.07 percent.