Banks keep shifting their lending criteria and it’s causing big problems for homebuyers. Some experts want to impose a national star rating system so buyers can stay informed of the banks’ risk assessment of each location.

There’s been a leaked list of “risky postcodes” (scroll down to see the full list), and with Macquarie Bank becoming the latest to impose stricter lending criteria for apartments, entire new developments across the country may have to be reconsidered.

Apartment buyers in areas including Sydney’s Waterloo, Melbourne’s South Yarra and Brisbane’s CBD will now have to come up with a whopping 30% deposit if they are to secure a home, thanks to worries about oversupply.

This follows news from NAB a few weeks ago that it was putting limits on the number of loans for inner-city apartments in Sydney and Melbourne – areas where more than 210,000 units are due to be built in the next two years. And last year the bank tightened lending in 67 suburbs, imposing the requirement of a 20-30% deposit.

This has all contributed to concerns about an apartment slump in Sydney and Melbourne, with Aussie Home Loans boss John Symond predicting a drop in prices of as much as 20%.

There are plenty of “rentvesters” in the market whose only chance to get onto the property ladder is an apartment. But with so much uncertainty in the current climate, they may be putting their plans on hold.

Mining towns in Queensland and Western Australia have also had stricter regulations enforced by NAB, while Westpac has brought its deposit requirement for investors back down from 20% to 10%, putting it in line with the other banks.

GREATER TRANSPARENCY NEEDED
Buyer’s advocate Gavin McPherson of Oasis Property reckons the current system doesn’t let customers make fully informed decisions. Banks need to provide buyers with more information from their risk profiling on particular suburbs and property classes.

“Banks are making the right decision, but isn’t it unfair to the guy who bought an apartment in one of those suburbs last week and didn’t have that rule?” Mr McPherson said.

“They were happy to lend on it yesterday but not today, and that’s not fair … The victims are the buyers, they’re not privy to the last six months of decisions saying ‘that suburb is getting a bit risky’.

“If you’re buying to invest then you expect capital growth, but you won’t get capital growth if banks don’t support the lending in that area.”

He suggested that banks could use a star rating system, updated each quarter, to quantify their risk profiling for each suburb and home type. The score would run from zero stars (less risky than betting on a one-horse race) to ten (we wouldn’t touch it with a barge pole).

“Then if the bank says ‘we’re going to give it another star now, because we see risk increasing — when you get to eight stars, we’re pretty much going to pull stumps’, isn’t that fair?”

As a buyer’s agent, Gavin specialises in spotting high capital growth investment strategies. He tends to avoid high-rise developments and pretty much agrees with Macquarie Bank’s high-risk list.

“We never invest in those suburbs or any areas that are prone to overdevelopment,” he said.

“I could include other suburbs, like Hurstville, all up the Canterbury line [in southwestern Sydney], all up the Pacific Highway to Hornsby, and possibly including Hornsby.”

Chatswood has long been a popular spot for Chinese investors, says Mr McPherson, but it’s now showing “some potential danger signs” as a result of the recent crackdown on foreign investors.

But the banks need to be careful about lumping together all apartment blocks, as smaller buildings are in much higher demand than high-rises. The Gold Coast and Surfers Paradise don’t deserve a place on the list quite yet, according to McPherson.

EXPERTS BACK THE STAR RATING
Property Analyst Louis Christopher, of SQM Research, has also shown support for the star rating system.

Although he couldn’t agree with Macquarie Bank’s assessment of Docklands – in his experience vacancies are actually falling in the inner-Melbourne suburb – Mr Christopher commented on the “well and truly elevated” vacancy rates in Brisbane.

We are yet to see how the new lending restrictions will impact plans for new apartments, but it’s likely that a number of developments will be cancelled or put on hold as funding disappears.

The new lending rules have caused concerns for developers, as buyers who were previously eligible for finance may now be unable to secure a loan.

“The impact of credit rationing in the sector is that we’ll see rents rise over the next few years in these areas,” Mr Christopher said.

Peter White, President of the Finance Brokers Association of Australia, said the risk list from Macquarie should be viewed alongside the bank’s diverse portfolio, as it was not necessarily representative of all lenders’ views.

So what do the other banks say?

As far as we know, the Commonwealth Bank (Australia’s biggest lender) doesn’t have any rules that apply specifically to lending for apartments in high-density suburbs.

An ANZ spokesman said the bank did not have any new rules for apartments, but its policies are under constant review “to ensure they are in line with our risk appetite, and appropriately set for the broader economic and regulatory environment”.

Westpac said almost exactly the same thing, with the addition that the bank applies “sound underwriting” to all its loans, including compulsory mortgage insurance for any loans with a deposit of less than 20%.

NAB’s spokeswoman said the bank considered home loan applications for inner-city apartments “on a case-by-case basis” and carried out “strict and rigorous checks”.

Let’s hope they haven’t got any more nasty surprises up their sleeves for borrowers.

MACQUARIE’S RISK LIST

NSW
Barangaroo 2000
Dawes Point 2000
Haymarket 2000
Millers Point 2000
Parliament House 2000
Sydney 2000
Sydney South 2000
The Rocks 2000
World Square 2002
Alexandria MC 2004
Eastern Suburbs MC 2004
The University of Sydney 2006
Ultimo 2007
Waterloo 2017
Zetland 2017
Concord West 2138
Liberty Grove 2138
Rhodes 2138

VICTORIA
Melbourne 3000, 3001, 3004
St Kilda Rd 3004
World Trade Centre 3005
South Wharf 3006
Southbank 3006
Docklands 3008
Chapel St North 3141
South Yarra 3141
South Melbourne 3205

QUEENSLAND
Brisbane 4000, 4001
Spring Hill 4000, 4004
Central Plaza 4001
Riverside Centre 4001
Waterfront Place 4001
City East (Brisbane) 4002
Wintergarden 4002
George Street 4003
Australia Fair 4215
Chirn Park 4215
Labrador 4215
Southport 4215
Benowa 4217
Bundall 4217
Chevron Island 4217
Gold Coast 4217
Isle of Capri 4217
Main Beach 4217
Surfers Paradise 4217
Broadbeach 4218
Mermaid Beach 4218
Mermaid Waters 4218
Nobby Beach 4218
Pacific Fair 4218
Aeroglen 4870
Barron Gorge 4870
Brinsmead 4870
Bungalow 4870
Cairns 4870
Cairns City 4870
Cairns North 4870
Earlville 4870
Edge Hill 4870
Freshwater 4870