Changes / tightening on servicing for investors

Banks

Hi All,

With all the changes that have mentioned are some banks staying as they were. That is they were already conservative by nature.

I am speaking about Bendigo Bank, Suncorp ect.

I would be interested in what people views on this are.

Cheers
 
What is preventing someone from taking out a non investment loan against an investment property to get the better discounted rates that are no longer offered on investment loans?

If you're in a position to support that you can live in the property this could work. If the property is in Brisbane and you live and work in Melbourne, I don't think the lender would believe you though. The loan being interest only can be a bit of a red flag that might get them to make further inquiries.

In Victoria you actually sign a stat dec that the property will become your PPOR. It gets you a small stamp duty discount (even if you're not a first home buyer). It's not a good idea to deliberately make a false statutory declaration.
 
With all the changes that have mentioned are some banks staying as they were. That is they were already conservative by nature.

I am speaking about Bendigo Bank, Suncorp ect.

Quite a few lenders haven't made any changes to their servicing criteria. ANZ, Suncorp, BankWest, CBA all immediately come to mind, but there's a lot more.

None of these lenders are what I'd call aggressive lenders. For example Suncorp is so conservative that despite having cheap rates, they're not on the radar for investment lending.

I can't comment on Bendigo Bank, but they're funded by Adelaide Bank who are currently reviewing their servicing criteria, so there will probably be some follow through coming.

Quite a few lenders have or are making changes to their policies but they're not advertising it.
 
Peter

This is misleading......if you are an investor CBA, Bankwest, and Westpac have changed their criterion for investors. This will definitely affect serviceability. The reason these changes are being made is due to APRA...they are forced to make these changes.

AS for SunCorp...they are conservative as they have used a rate based on the clients being able to service loans if interest rates go up between 2-3%.

I also disagree that CBA is not agressive...they are you are just not seeing it. Wait till repossessions come through....their reputation is to litigate everything.

Quite a few lenders haven't made any changes to their servicing criteria. ANZ, Suncorp, BankWest, CBA all immediately come to mind, but there's a lot more.

None of these lenders are what I'd call aggressive lenders. For example Suncorp is so conservative that despite having cheap rates, they're not on the radar for investment lending.

I can't comment on Bendigo Bank, but they're funded by Adelaide Bank who are currently reviewing their servicing criteria, so there will probably be some follow through coming.

Quite a few lenders have or are making changes to their policies but they're not advertising it.
 
Hi All,

With all the changes that have mentioned are some banks staying as they were. That is they were already conservative by nature.

I am speaking about Bendigo Bank, Suncorp ect.

I would be interested in what people views on this are.

Cheers

Thanks I was only referring to Investment loans
 
Peter

This is misleading......if you are an investor CBA, Bankwest, and Westpac have changed their criterion for investors. This will definitely affect serviceability. The reason these changes are being made is due to APRA...they are forced to make these changes.

AS for SunCorp...they are conservative as they have used a rate based on the clients being able to service loans if interest rates go up between 2-3%.

I also disagree that CBA is not agressive...they are you are just not seeing it. Wait till repossessions come through....their reputation is to litigate everything.

CBA haven't changed servicing criteria, only pricing.
 
Try and look at it like this. APRA is concerned about too much systemic risk being caused by too much I/O debt. Those lenders with either
A. A real imbalance of I/O debt v P&I debt or
B. Greater than 10% year on year I/O growth
have attracted APRA's attention.

Westpac and CBA are top of the list, having both grown their I/O business more than 35% in the past year, against APRA's express wishes. You have to understand that APRA has been politely asking the banks to restrain year on year I/O growth to 10% or less, for 12-18 months now. This is not something that just came out of nowhere.
RE Westpac - obviously APRA's "requests" have now become "demands" and you have seen deliberate and immediate action from them around LVR's for non residents (which generates a lot of I/O business for them - they get over 65% of all non resident lending in this land) and also around their servicing calc. Both changes are designed to immediately and significantly slow down their I/O lending.
RE CBA - Amazingly, so far CBA hasn't really done anything much. This appears to me at least, to be waving a red rag at a bull. Wont take long before APRA loses patience. They will simply not tolerate the systemic risk. Either CBA will be agree to toe the line voluntarily - and soon- or APRA will begin to cripple them with regulatory/capital requirements. CBA shareholders - do take note!

ANZ and NAB's I/O lending only grew at @ 13-15% so they havent attracted the same level of ire from APRA. That is reflected in the far more modest adjustments both lenders have introduced. NAB has removed "actuals" from its calc and reduced LVR's for investors to 90%, and ANZ didnt really need to do much at all as they were already kind of close to where APRA wanted them to be. All they have done is remove any pricing discounts for investors

Aside from that, a small number of other lenders have tightened capacity - Macquarie is probably the most notable.

Essentially, anyone who was contributing to systemic risk ( as perceived by APRA at least) by writing too much I/O debt too fast, has been asked to pull their heads in. This isn't really about property prices. This is about risk to the Australian banking sector, and in turn to the ASX and in turn the broader economy.

Some others - ING and Bwest for example- have reduced LVR's . I admit this confuses me, as neither lender could be accused of being investment lenders, per se. Their existing policies were sufficient deterrents for most investors, I would have imagined...

What you are seeing is APRA forcing lenders ( through pricing and policy structure ) to drive more people to P&I, which in turn means APRA starts to see some de-leveraging happening over time , which in turn satisfies APRA that systemic risk (from a deep recession or quick hike to rates) is reduced. That is what they are trying to engineer.

It also has the side effect of allowing the RBA to cut rates ( should they feel the need) without concern of additional borrowing capacity being created, and a housing bubble forming in Sydney - if it hasnt already.

Of course, as discussed here many times the non banks will be the exception to all of this as they aren't regulated directly by APRA so will remain free to lend to investors on whatever terms they choose for the time being. Until of course, APRA gets more direct regulatory authority over them as well and closes that off too.
 
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Jess read Euro73's excellent thread below on APRA and systemic risk. The game has changed....it is worrying ..how little information there is....

What is worrying is how is that you all as Mortgage Brokers have not got a handle on this? Are you BDM's not communicating??



CBA haven't changed servicing criteria, only pricing.
 
Kudos Euro....excellent post..:D..I would recommend every Mortgage Broker on this forum read this post. ;):p

NOTE the CBA did the same thing with STORM, financial planning debacles.....obviously...they do not understand systemic risk or business risk.....need I say more about their aggressive business at all cost stance??

Try and look at it like this. APRA is concerned about too much systemic risk being caused by too much I/O debt. Those lenders with either
A. A real imbalance of I/O debt v P&I debt or
B. Greater than 10% year on year I/O growth
have attracted APRA's attention.

Westpac and CBA are top of the list, having both grown their I/O business more than 35% in the past year, against APRA's express wishes. You have to understand that APRA has been politely asking the banks to restrain year on year I/O growth to 10% or less, for 12-18 months now. This is not something that just came out of nowhere.
RE Westpac - obviously APRA's "requests" have now become "demands" and you have seen deliberate and immediate action from them around LVR's for non residents (which generates a lot of I/O business for them - they get over 65% of all non resident lending in this land) and also around their servicing calc. Both changes are designed to immediately and significantly slow down their I/O lending.
RE CBA - Amazingly, so far CBA hasn't really done anything much. This appears to me at least, to be waving a red rag at a bull. Wont take long before APRA loses patience. They will simply not tolerate the systemic risk. Either CBA will be agree to toe the line voluntarily - and soon- or APRA will begin to cripple them with regulatory/capital requirements. CBA shareholders - do take note!

ANZ and NAB's I/O lending only grew at @ 13-15% so they havent attracted the same level of ire from APRA. That is reflected in the far more modest adjustments both lenders have introduced. NAB has removed "actuals" from its calc and reduced LVR's for investors to 90%, and ANZ didnt really need to do much at all as they were already kind of close to where APRA wanted them to be. All they have done is remove any pricing discounts for investors

Aside from that, a small number of other lenders have tightened capacity - Macquarie is probably the most notable.

Essentially, anyone who was contributing to systemic risk ( as perceived by APRA at least) by writing too much I/O debt too fast, has been asked to pull their heads in. This isn't really about property prices. This is about risk to the Australian banking sector, and in turn to the ASX and in turn the broader economy.

Some others - ING and Bwest for example- have reduced LVR's . I admit this confuses me, as neither lender could be accused of being investment lenders, per se. Their existing policies were sufficient deterrents for most investors, I would have imagined...

What you are seeing is APRA forcing lenders ( through pricing and policy structure ) to drive more people to P&I, which in turn means APRA starts to see some de-leveraging happening over time , which in turn satisfies APRA that systemic risk (from a deep recession or quick hike to rates) is reduced. That is what they are trying to engineer.

It also has the side effect of allowing the RBA to cut rates ( should they feel the need) without concern of additional borrowing capacity being created, and a housing bubble forming in Sydney - if it hasnt already.

Of course, as discussed here many times the non banks will be the exception to all of this as they aren't regulated directly by APRA so will remain free to lend to investors on whatever terms they choose for the time being. Until of course, APRA gets more direct regulatory authority over them as well and closes that off too.
 
Some others - ING and Bwest for example- have reduced LVR's . I admit this confuses me, as neither lender could be accused of being investment lenders, per se. Their existing policies were sufficient deterrents for most investors, I would have imagined...

My guess would be BASEL II & III. They played too much in the 95%+ space and as the probability of default is higher the risk rating applied means the capital that needs to be held in reserve is also at a higher percentage.

Now with talks still of banks needing to increase their capital adequacy ratio even further they probably don't want their books to be too heavy with the high risk loans as they will need to raise more cash to hold in reserves.
 
I wore a fee 10x that much on a loan of just over $250k. I was stuck, otherwise.

Doing so allowed me to purchase 2 x 2 bed apartments in Sydney's inner west (Sept 13, May 14).

It was worth it.

I have indeed been thinking about walking my business elsewhere. However as that particular security is over the so called 600K LMI brick wall, my LMI bill would be looking frightening in any case. Were talking 18K LMI for 65K increase back up to 90%. I think I need to sit on the sidelines for a little while:(
 
What is worrying is how is that you all as Mortgage Brokers have not got a handle on this? Are you BDM's not communicating??

The BDMs are letting us know the policy changes that are occurring. At this point I've got a nice looking matrix of the various changes across the banks that have made announcements. The BDMs aren't really involved in the discussions with APRA themselves, they're not the policy makers. We get plenty of communications about the policies, but pretty much zero formal information about the internal funding mechanisms. Most of this comes from informal discussions and good relationships.

Pretty much everything in Euro's post has been communicated via various sources. There's plenty of information out there about it if you go looking. Keep in mind though, that most of this is having a direct impact on the investment sector and is hardly on the radar of a broker focusing on owner occupied lending. It wouldn't surprise me if 60%-80% of brokers haven't seen a significant impact from these changes.

It's not all doom and gloom out there. I've had a couple of very productive meetings with various mortgage managers and private funders over the last few days. At this point their funding sources do appear to be continuing the more aggressive policies which others have been shutting down. This may not last, but for the time being there is still money available which is flowing to investors.
 
Great post, as always Euro. Very insightful info there.

This (tightening lending policy) was all coming and the warning signs have been around for a while. APRA have a huge stick they can swing at their pleasure and the lenders will dance to their tune. The signals were well communicated to the marketplace LONG ago (in November last year) and preparing for such changes would be prudent both as a broker and a consumer.

In terms of B/west and ING - its about targeting specific risks to individual balance sheets. B/west would get a LOT of 95er business and their book is exposed to asset valuation issues. ING would be in a similar boat i would guess as brokers often push FHB'rs to ING who often have smaller deposits.

This is the 'micro-prudential' approach of the Aussie regulator at work - get individual banks to adjust their policies to address greater systemic risk. Its been criticised, but works in Aus pretty well as the regulator has better data collection systems over a smaller range of banks than in other marketplaces. Hence it allows to directly target issues, rather than have a blanket approach that has all sorts of indirect consequences ('macro-prudential LVR controls, DSR controls, etc).

Cheers,
Redom
 
And APRA get to grow their remit after the inevitable expansion of the non-bank lenders becomes a "systemic risk" as a result of all this.

Nice work!

In the meantime, who are looking likely to become the best lenders outside of the current APRA tent?
 
If you have less than $1m then SunCorp....they will lend at pretty good rates.

Also awesome for House and Land packages.

The are already using the conservative lending parameters...which did cost them business before but now a definite look in.

And APRA get to grow their remit after the inevitable expansion of the non-bank lenders becomes a "systemic risk" as a result of all this.

Nice work!

In the meantime, who are looking likely to become the best lenders outside of the current APRA tent?
 
If you have less than $1m then SunCorp....they will lend at pretty good rates.

Also awesome for House and Land packages.

The are already using the conservative lending parameters...which did cost them business before but now a definite look in.

I'm not so sure I can really agree with Suncorp as a decent lender for investors.

Certainly they've got great rates, their house and land package is fine.

Their problem is they're so conservative that they're almost impossible to deal with as investors. If you ever want to get equity out of them, their servicing calculator is outright brutal unless you've got low debt and a significant income.

If you're just buying a single property (your own home or an IP) they're fine and cheap with a good range of features. If you're looking to build a portfolio over time and will want to eventually do an equity release, you'll probably find yourself moving lenders for that equity release. If you've already got an investment portfolio, then odds are you're already outside their affordability criteria.

There's no real problem with them as a lender, but at the end of the day their servicing calculator is so bad that they're virtually unusable. The reason they haven't come under APRA's radar is because they're just not in the investment lending space in any serious manner.

I think the lenders that are going to be most useful moving forwards are the mortgage managers, but the product, funder and insurer will need to be carefully managed.
 
What if I told you they are one of my lenders...I am now maxed out with them...but have $1.4m with 4 securities......;)

Did a couple of revals...they were very realistic on vals unlike my friends at CBA and have done 3 deals with 90% lends. I will agree once you go over a $1m with them....they scrutinise more heavily. Much better to deal with than NAB, ANZ or CBA.

I'm not so sure I can really agree with Suncorp as a decent lender for investors.

Certainly they've got great rates, their house and land package is fine.

Their problem is they're so conservative that they're almost impossible to deal with as investors. If you ever want to get equity out of them, their servicing calculator is outright brutal unless you've got low debt and a significant income.

If you're just buying a single property (your own home or an IP) they're fine and cheap with a good range of features. If you're looking to build a portfolio over time and will want to eventually do an equity release, you'll probably find yourself moving lenders for that equity release. If you've already got an investment portfolio, then odds are you're already outside their affordability criteria.

There's no real problem with them as a lender, but at the end of the day their servicing calculator is so bad that they're virtually unusable. The reason they haven't come under APRA's radar is because they're just not in the investment lending space in any serious manner.

I think the lenders that are going to be most useful moving forwards are the mortgage managers, but the product, funder and insurer will need to be carefully managed.
 
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