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Another blow for the Aussie property market

AMP Bank has followed in the Commonwealth Bank’s footsteps, announcing it too will no longer lend to self-managed super funds (SMSFs) to buy property.

The announcement is a further sign that all the major lenders are quickly retreating from risky lending in a falling property market.

Citing “market trends,” an AMP Bank spokesperson told Yahoo Finance the bank will no longer offer its SMSF property loan product, AMP SuperEdge, to new business from 20 October.

Also read: CBA delivers fresh blow to property market

“We’re always looking at our portfolio in the context of market trends, customer needs and our approach to risk. The market offering has moved significantly in this space and we are responding to these changes,” the spokesperson said.

“We only ever withdraw solutions for customers after careful consideration and in this case we believe it’s prudent to close AMP SuperEdge to new business.”

Current customers will not be affected, although will no longer be able to switch from principal and interest loans to interest only loans from 10 November.

“We’ll continue to keep the market situation under review,” the spokesperson said.

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It comes just weeks after AMP Bank announced it would withdraw its interest-only loan package for SMSFs and increase rates on its other SMSF loan products.

The last major bank to exit the space, the Commonwealth Bank, cited a need to “streamline its offering” earlier this month. The Commonwealth Bank’s departure will come into effect of as of 13 October this year.

Westpac left the space in July.

Principal of Digital Finance Analytics, Martin North told Yahoo Finance that AMP’s exit is “yet another sign” of the tighter lending landscape.

“There are hundreds and hundreds of different indicators all pointing in the same direction; that lending is getting tighter, you have to jump higher hoops, you have to be able to demonstrate much higher levels of expense management,” he said.

Also read: Australian housing downturn could be the longest in decades

He noted that AMP chairman David Murray previously led the Financial Systems Inquiry, which recommended an end to SMSF lending.

“It doesn’t surprise me that more lenders are prioritising other types of mortgage lending other than to the SMSFs,” he said, referring to the “very little recourse” lenders have to recoup money from SMSFs other than through the property coupled with the difficult housing market.”

While only 6 per cent of SMSFs hold property, that figure reflects a rapid growth in the asset type.

“This [AMP decision] probably marks a considerable reversal,” North said, “But in my view, it’s a good policy not to allow super funds to borrow for property.”

What does it mean for me?

The banks’ departure from SMSF lending is indicative of a wider trend which could see some buyers’ borrowing power fall by 40 per cent less due to a stronger focus on expenses and loan-to-income ratios.

“There’s a huge tightening going on in terms of mortgage availability which is why I am of the view that we will continue to see house prices slide further,” North said.

Also read: Westpac is ditching risky property investors, giving them a month to find a new lender

“It’s a credit driven change this time and … this is not a temporary change. This is moving the industry back to a much more level playing field, a much more sensible position in terms of mortgage underwriting.

“We’ve had at least a decade of too loose lending in Australia and now we’ve got to put it back towards a much more sensible long-term, less risky perspective but the net effect is that people are going to find it much harder to get those mortgages.”

Speaking to Yahoo Finance on the Commonwealth Bank’s departure, Market Economics’ Stephen Koukoulas said lenders’ exodus from the space was always inevitable to some extent.

He described the Commonwealth Bank’s exit as an “interesting corporate decision” but one that has a “macro effect of hitting the housing market when it’s down.”