Banks getting nervous around risky mining towns

It’s about to become harder to get finance in mining towns as banks rein in loans in resource sector areas. 

As rental yields fall in mining towns, both the Commonwealth and ANZ banks have moved to curb lending that might be seen as risky in areas that rely on resource industries. 

As of Monday, the Commonwealth Bank capped at 8 per cent the rental yield it factors in for new property investment loans in mining towns. 

ANZ meanwhile added Gladstone, Chinchilla and Blackwater to its list of higher-risk postcodes.

The list is made up entirely of areas in Queensland and Western Australia and those places on it must meet a strict criteria of an 80 per cent cap on loan-to-valuation ratios for new loans to property investors. Also, rental yields are capped at 10 per cent when the bank is assessing eligibility for credit. 

Towns that are totally reliant on one mine or that have experienced strong housing growth are most likely to be affected by the crackdown. 

With record-low interest rates, banks are under pressure to maintain high lending standards and to limit high-risk lending, and these moves by Commonwealth and ANZ possibly reflect that. managing director Otto Dargan told The Age banks had become more conservative in mining areas after realising high rental yields received during the peak of the construction boom were not sustainable.

“During the construction phase, there’s a huge influx of workers so the yields go through the roof, but they can come back down sharply as construction spending declines,” he said.

“I think the banks have more exposure to mining towns than they would have liked.”

Commonwealth and ANZ are not alone, Westpac also has a policy of limiting low-deposit loans in single-industry towns. 

Recent figures released from the Australian Bureau of Statistics show that Ashburton in the Pilbara region of WA was the fastest-growing mortgage costs area between 2006-2011, where average monthly repayments leapt by a whopping 278 per cent to $954. 

Port Headland, also in WA, was the next biggest grower, surging 140 per cent to $2600 a month. 

However in the September quarter, figures released by the Real Estate Institute of Western Australia show rents in Port Headland falling by 10 per cent to $1300 a week and fell 35 per cent in annual terms.


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