Citibank Clampdown

Pretty clear this is going to have pretty huge effects on the market once the other lenders start announcing their 'clampdowns' too.

Citi 'first' to announce sweeping clampdown on interest-only buyers

Citigroup is the first major lender to investors to announce a sweeping clampdown on overseas property borrowers following tough new regulatory guidelines targeting interest-only loans.

The global banking powerhouse is blaming "changing market conditions" and local regulatory attempts to cool over-heating Melbourne and Sydney property markets for the changes that will include a ban on interest-only loans for all non-residents.

It is believed that other major lenders are planning similar announcements over coming weeks.

The Australian Prudential Regulatory Authority, the Australian Securities and Investments Commission and the Reserve Bank of Australia are pressuring lenders to tighten lending criteria for borrowers seeking popular interest-only loans amid concerns that speculators and desperate home buyers have no strategy for repaying their loan principal and will face financial stress as rates rise.


Other lenders, such as Commonwealth Bank of Australia and Westpac, have recently increased rates in response to the regulatory measures.


But investors remain active in the major housing markets.

Despite the quiet Easter weekend, a generous 86sq m in the Altro building in Sydney's Camperdown, opposite the University fo Sydney, sold for nearly $1 million. Three bidders started bidding at $875,000.

The eventual buyers were investors who paid $990,000 for the one-bedder at level 9 at 7 Sterling Circuit with hopes of getting a weekly rent income of $700 for the property. It comes with one car space, a renovated designer kitchen and a study nook.

The property last sold for $712,000 in 2015. The previous record for a one bedroom in the building was $831,000 achieved in June 2016, public records show.


Belle Property's Maria Magrin and Paul Caradonna managed the auction.

Citi's is the first comprehensive package of measures to exclude some potential buyers, restrict the borrowing capacity of others, increase the size of deposits and remove offset accounts for some elite high net worth non-resident clients.

A spokesperson has confirmed the changes but declined to comment.

Citigroup is a small player in the overall Australian property market, with about 1 per cent of total market share, but has a high profile across Asia, particularly among investors that are active in the nation's residential hotspots.


The major changes, which were notified to mortgage brokers last Thursday, will be a ban on interest-only loans for:

• All non resident loans;
• Loans reliant on foreign income;
• Loans requiring Foreign Investment Review Board approval; and,
• Loans solely with owner-occupied security.

"That means, interest-only repayments will only be allowed for resident loans secured by an investment property," Matt Wood, head of mortgages distribution, told mortgage brokers.

It is also changing the funding for loan applications that are collateralised with a mix of owner-occupied and investment property security.


Interest-only repayments will only be permitted for the portion of the loan that exceeds the value of the owner-occupied security.

In addition, interest-only applicants must have a deposit of at least 20 per cent, which means a loan to value ratio of 80 per cent of the purchase price.

There is also a tightening of conditions for elite Citigold customers. Citigold is offered to clients with $250,000 or more deposited or invested through Citibank. It includes premium banking, wealth management, research and access.

The offset mortgage account for new Citigold non-resident and foreign income applications is no longer available.


"The offset mortgage product is no longer available in addition to interest only no longer being available," the bank has told brokers.

The popular product facility allows money in the account to offset the amount owed with interest only being charged on the difference.

Last year, Citi created a confidential blacklist of foreign currencies it will no longer accept as payment for Australian real estate from overseas borrowers because of growing concerns about fraud and possible money laundering.

It has a list of a list of 12 currencies that it accepts and warns that all others are not negotiable. Income earned in a foreign currency other than that of the applicants' nationality, with the exclusion of Australian citizens and permanent residents, is not permitted for use in the assessment of their ability to pay.

Last month it announced it was limiting overseas mortgages to Citigold clients because of concerns about capacity to handle the number of applications after the withdrawal of most other major Australian banks.



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Really nothing major there. As expected.

 

On what basis Citigroup is called a major lender ? Please explain....
..its not even in the top10 list in Australia

 

A few of the lenders such as Suncorp were loosely doing this more than 12 months ago. That is, we don't accept IO terms on owner occ properties unless there is a very good reason and converting to an investment in 6 months doesn't cut it.

The problem Citibank is facing is that they have a massive number of foreign resident lending on their books and combined with IO lending it doesn't paint a pretty picture. Their foreign resident applications were running at 45 business days for assessment before they pulled the plug.

I personally don't mind something like this - a lender controlling their IO lending rather than the constant change in rates, policies on/off buttons, etc. Create the goal posts, don't move them and lets play within those rules. It certainly beats jacking up rates for existing clients by 1% and potentially snookering them.

 

Citibank probably learning their lesson from all the fines they have been copping from regulators recently in the states and overseas.

AFAIK, local big 4 have already ceased much of their foreign investor funding since middle of last year.

 

yup, if it helps i know for a fact from someone inside - less than 20% of foreign income loans are being accepted from a pool of overseas working aus citizens at one of the big 4

 

Hi and welcome to the forums!

"sweeping clampdown on overseas property borrowers"
So, not huge effects then considering overseas property borrowers only make up a very small % of the market.

Citi 'first' to announce sweeping clampdown on interest-only buyers

"Citigroup is a small player in the overall Australian property market, with about 1 per cent of total market share, but has a high profile across Asia, particularly among investors that are active in the nation's residential hotspots."

So, not a major lender.

I agree it will be interesting to see what the fallout of all this is.