International banking giants operating in the Australian mortgage market are changing their mortgage policies in the face of a looming apartment glut.

Last week, ING Direct changed its underwriting guidelines to apartments and unit dwellings. The bank has decided to limit the maximum LVR on home loans to 70 per cent for those with an internal floor space of less than 60 square metres. Furthermore, those with an internal floor space between 50 and 60 square metres will have a maximum LVR of 80 per cent.

Meanwhile, Citi has also reduced its LVRs on high-density units from 80 per cent to 70 per cent. These ‘high-density units’ will apply to almost 260 suburbs all over the country.

According to a new report from BIS Shrapnel, property prices are going to deteriorate across all capital cities due to an oversupply of apartments. This has led banks to create some lending changes. 

However, developers fear that a clampdown on new buildings--coupled with additional restrictions on the number of pre-sales that developers can accept from foreigners--could eventually drive prices higher if projects fail to get off the ground.

“Foreign buyer pre-sales have gone from 30 to 35 per cent accepted to 20 per cent. There are talks of restricting it even more,” said Ilya Melnikoff, Luxcon Group managing director. “If projects can’t get the pre-sales, they can’t get started, leading to higher housing prices due to a lack of housing stock--housing demand will in fact increase.”