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Banks closing the door on property investors

As we warned yesterday, it was only a matter of time before Australia’s largest property lenders began making life more difficult for investors.

Australia’s largest mortgage provider, the Commonwealth Bank of Australia (ASX: CBA) and subsidiary Bankwest yesterday announced a raft of changes to loans to investors. Bankwest is reported to be raising rates for investor property loans by 40 basis points – or 0.4%. CBA will require some investors to have a minimum deposit of 10% of the loan amount – double its previous requirement of a 5% deposit.

The changes don’t apply to owner-occupiers say CBA.

Bankwest had previously moved to exclude negative gearing tax breaks from loan applications and both banks have increased interest rates – including CBA doing it twice in two weeks in February 2017. CBA also reintroduced establishment fees and monthly loan service fees, and the bank is expected to announce maximum loan to valuation ratios (LVR) will be cut, forcing investors to fork out bigger deposits.

They aren’t alone of course. National Australia Bank (ASX: NAB) and AMP Limited (ASX: AMP) have also raised the bar for property investor mortgages, as have two smaller lenders, MyState Limited (ASX: MYS) and HomeLoans Limited (ASX: HOM).

The problem for investors is that if they are unable to get loans through these banks, other lenders may see a surge in demand, and they too will be forced to raise their loan requirements, leaving investors with nowhere to turn.

Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are likely to follow suit, as are other lenders.

Foolish takeaway

It doesn’t need the Reserve Bank to raise rates to force property prices to stop climbing and even fall from here. The lenders are being forced into action by the regulators, who are deeply concerned about Australia’s housing market and the double-digit rise in median house prices over the past few years.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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