Recently we have become very aware of the lack of competition in regional Australia for loans.
(Disclosure: we own property in regional Australia.)
If one looks at a regional town like Burra, a charming town of about 1,000 north of Adelaide, many lenders will not grant any security values to properties there. So, in a town like Burra, most of the loans come from CBA, BankSA (which has the only ATM in town and is a Westpac subsidiary) and a handful of other lenders.
Many of the most competitive lenders in the Australians market will give a value of ‘zero’ to a regional security property in a town like Burra. Some lenders have a list of postcodes that they will only lend to (this list appears to echo Mortgage Insurers), or they have arbitrary rules like they will only use security value over properties within 30 kms of a town population of 10,000 or more (ruling our most of our own State of South Australia).
This means that regional borrowers are probably paying more for their loans than folk in our capital cities and large towns.
Our Proposal
We propose that the Federal government mandate that APRA, our banking regulator, publish a list of Loan to Valuation ratios for all town postcodes in Australia. All lenders will be required to accept this list as a minimum security value for those properties.
This will improve competition for loans and thus lower borrowing costs for regional Australian property. It could even lead to a resurgence in regional town properties and perhaps even stop the closure of some towns, as investors and local residents alike choose to invest there.