Westpac Banking Corp (ASX: WBC) has just sent a letter to heavily-indebted property investors telling them they have month to find a new lender, according to the Australian Financial Review.
Westpac is one of Australia’s largest lenders along with Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB).
Letter?
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The letter that Westpac supposedly sent to borrowers says that the bank “no longer support our commercial relationship with you”. The targeted borrowers seemingly are investors with many properties, a loan to value ratio of 80% plus and the loans are interest-only.
Rask Media couldn’t find evidence of the story and Westpac refutes the claims made in the AFR article, saying: “We don’t support the claims made regarding the Westpac customer communications.”
However, if the story is true then borrowers may find it difficult to refinance due to tighter lending requirements, such as those being borne out of the Royal Commission. The big banks were accused of using the House Expenditure Measure (HEM) too readily when in reality people spend far more money than what the HEM suggests.
However, global investment bank UBS also thinks some blame for the predicament belongs to homeowners themselves. According to ABC, UBS has estimated that up to a third of loans, around $500 billion, could be “liar loans“. That is, loans based on factually incorrect information provided to the banks.
UBS surveyed 900 people who took out a loan in 2017, only 67% of them said their mortgage was “completely factual and accurate”. Indeed, UBS believes its survey would understate the prevalence of mortgage misrepresentations as some people would be nervous about admitting it, even anonymously.
The cohort of Westpac letter-receiving borrowers could find themselves needing to either move to a “shadow lender”, which will come with higher interest rates and repayments, or dispose their property in a ‘fire sale’.
Commonwealth Bank recently reported in its result that home loan arrears were ticking upwards and 90+ day arrears now represented 0.7% of loans, up from 0.52% in the 2015 financial year.
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