Westpac’s New Lending Policy: A Boost for Property Investors
WESTPAC’S NEW LENDING POLICY:
A BOOST FOR PROPERTY INVESTORS.
Westpac has made a significant shift in its investment property lending policies, standing out as the last of the big four banks to do so. This move could have a profound impact on property investors, opening up new opportunities in the market.
The Role of Debt Servicing Calculations:
The primary tool banks use to control the flow of new business is the debt servicing calculation. Analysis of bank reports and data indicates that significant increases in settlement volumes are rarely due to special rates or cash backs. Instead, improvements in how banks assess people’s income versus expenses, known as Uncommitted Monthly Income (UMI), drive these increases. When more people qualify for credit, more loans are written which in turn leads to more property purchases taking place – simple right?
Westpac's Latest Update
Westpac has announced a key update to its lending policy:
Rental Income Shading: Rental income will continue to be shaded at 25%, unchanged from previous policy.
Fixed Commitments: Westpac will no longer require the inclusion (for servicing) or verification of the following fixed commitments related to investment properties: Rates, Property Insurance, and Body Corporate Fees.
Previously, both Westpac and ANZ had servicing calculations that were disadvantageous for investors, especially those with larger portfolios. For instance, an investor with one owner-occupied property and three investment properties would have seen rates and insurance costs added into the calculation as follows:
- $4,800 per year (own home)
- $12,000 per year (investment properties)
This calculation amounted to a $1,000 per month direct hit to the investor’s UMI with Westpac.
Based on a 30-year Principal and Interest (P&I) loan at an 8.90% stress rate, this translates to approximately $125,000 of lending that Westpac or ANZ would fall short on when compared to ASB, BNZ and other lenders who would approved this extra lending, all other factors being equal.
The Implications for Property Investors
This policy change signals that Westpac is back in business for the investor market. Clients who were previously turned away might now find it worthwhile to try again. It’s highly recommended that they consult with a top mortgage adviser who understands these nuances.
However, it’s important to note that this policy change only applies when the borrowing purpose is purely for investment property. If a client is refinancing an existing portfolio that includes an owner-occupied property, or if the borrowing purpose is related to the owner-occupied property even where there are investment properties in the portfolio, the old rules still apply.
While the policy change will be beneficial for some investors, it would be truly game-changing if the policy were all-encompassing.
The new policy is applicable for:
Investment property only portfolio refinancing
New investment property purchases
Investment property renovations
Westpac’s updated stance is a promising development for property investors, making it a prime time to reassess your investment strategies and consult with your mortgage adviser.
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