Yesterday, Westpac [ASX:WBC] announced that it would make it tougher for investors to get loans for property.

From today onwards, Westpac will need investors to have a deposit of at least 20%. They’re decreasing their LVR (loan to value ratio) cap to 80%.

Other banks have already made it harder for investors to borrow. For example, NAB [ASX:NAB] capped their LVR at 90% last month. And ANZ’s [ASX:ANZ] 90% cap comes into effect today. The Commonwealth Bank [ASX:CBA] is the only big bank that hasn’t really done much. CBA has just made their investor mortgage affordability test a bit harder. But none have gone as far as Westpac.

In the past, investors could get loans from Westpac with as little as a 5% deposit. Many commentators insist that this is what has helped drive up property prices. It makes a lot of sense; a $50,000 deposit goes a lot further when it only has to be 5% of the total purchase price.

It will be very interesting, for investors and potential owner-occupiers alike, to see how (or if) Westpac’s new rules change the housing market.

Westpac’s massive investor loan portfolio

Reducing the LVR is a bold move for Westpac, which gets a lot of business from property investors. In fact, according to APRA, it’s Australia’s biggest property investment lender.

It just takes a quick look at APRA’s latest monthly banking stats to see what’s going on.

Source: apra.gov.au

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Westpac has $150.9 billion worth of housing investment loans on its books. Commonwealth Bank has $127.9 billion, NAB has $65.8 billion, and ANZ has $60.4 billion.

In May 2014, the same time last year, Westpac had $137.2 million worth of investor loans. Without the rounding, Westpac’s investor lending growth is sitting at 10.01%. APRA wants banks to slow investor lending growth to under 10% per year.

Who is it really going to affect?

On the face of it, Westpac’s new rules sounds like a good tough measure against crazy, speculative investing. The thing is, it’s going to affect first-time investors more than others.

Investors can still get a low-deposit property investment mortgage if they have their own owner-occupied home that has a certain amount paid off. Or they can use mortgage insurance, which can potentially cost tens of thousands of dollars in premiums anyway.

In other words, rich people with plenty of assets to secure their loans will still be able to borrow with high LVRs.

It’s just people who are buying their first investment property who will have trouble. Or those who are buying an investment property before their first home, and renting where they want to live in the meantime.

It affects the people who can least afford to spend years and years saving a 20% deposit, while property prices escalate.

By the way, if you’re interested in investing in property but aren’t quite ready to take on a hefty (possibly second?) mortgage, there are alternatives. In his report ‘The Three Best Investments in Australia for 2015 and Beyond’, Kris Sayce explains how you can invest in Aussie property via the stock market. He even suggests a few stocks that he believes will perform well. Click here to find out how to download your free copy.

Eva Mellors,

Contributor, Money Morning