Westpac Banking Corp (ASX:WBC) just took another pillar out of the Jenga housing market

Credit: perry carbonell

Westpac Banking Corp (ASX: WBC) has just announced that it will no longer offer new loans to self-managed superannuation funds (SMSFs) that want to invest in property.

The AFR is reporting that Westpac will stop lending to SMSFs on 31 July 2018.

Although SMSFs are only a small part of the overall market, they have been credited with playing a part in today’s highly-elevated property prices.

Westpac owns several lenders including RAMS, St. George Bank, Bank of Melbourne and BankSA. Together, the Westpac group of banks is the second largest lender in the country.

I have written many times over the years how an investment property is not a good idea in terms of risk. It means having an enormous amount of capital (and debt) tied up in one location and usually relying on just one tenant/family to keep the rental money coming in.

Some people saw value in owning their own commercial premises in their SMSF. That may have some benefits, but what will happen to the value of that property when its key tenant (the owner) leaves?

Many of the pillars that supported the housing market are now acting as drags:

  • Falling interest rates are now rising again due to increasing rates in the US
  • Foreign property buyers are a lot thinner on the ground with capital controls in China and several new rules & taxes implemented in Australia
  • Lending standards were easier and now they have toughened up considerably
  • Supply of dwellings was not adequate for demand in the last several years, but now there’s heaps of apartments being finished and coming onto the market (at substantial discounts)

If the other big banks of Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) follow Westpac with this move then there could be even more negativity for the housing market to come.

Foolish takeaway

It could be seen as an odd move to stop lending to a sizeable segment of the market, but Westpac will probably be thinking that it is removing some risk and also perhaps winning a few political brownie points.

It’s currently trading with a grossed-up dividend yield of 9.1%. This is large but I think there is a danger of capital losses for investors at this stage in the cycle.

If you’re looking for income and capital growth then this top stock could offer the right combination for impressive total returns over the next two years.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool’s dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.