Capital requirements to be felt by more than just mortgage holders

Property investor and home owners won’t be the only ones impacted by requirements for Australian banks to hold more capital against their mortgage books, with it predicted the changes will also be felt in the construction sector.  

Earlier this week, John Kolenda, head of mortgage broking network 1300HomeLoan, said the capital requirements would likely mean that borrowers will face further interest rate rise in the near future.

“Mortgage holders can expect to be hit again by lenders because of their additional current funding, compliance and provisioning costs,” Kolenda said.

“We saw variable rates last year increased by up to 0.29% and investor loans by up to 0.49%. There is likely to be similar increases across the board for owner occupier and investor loans in the months ahead,” he said.

While the capital requirements may mean borrowers face higher repayments for the mortgages, Daniel Holden, director of specialist construction finance group HoldenCAPITAL, believes they will have a bigger impact for those looking to finance construction projects.

“Additional capital requirements recently imposed on the big four banks in order to ensure their compliance with the ongoing global banking standards is having a significant effect on the construction finance sector,” Holden said.

“We believe it’s the beginning of a permanent change in not only how funding will be obtained but also who provides it,” he said.

According to Holden, banks are likely to limit their lending to those in the construction sector as they take a more prudent approach to risk which will result in the sector undergoing a transformation similar to what happened in the residential mortgage space.

“With the banks now limiting their exposure to the construction sector and pricing risk far more keenly than in the past, a wide range of alternative providers of debt and equity is entering the market or broadening their existing reach,” he said.

“Just as the housing mortgage market was completely restructured with the coming of the wholesale funds and brokerage structures, so we expect to see the construction finance industry undergo a similar metamorphosis.

“Brokers now provide Australians with the best way to source cheap and competitive housing loans, so your construction finance broker also holds the key to successfully securing competitive construction funding.”