Changes / tightening on servicing for investors

Discussion in 'Property Finance' started by Marty McDonald, 8th May, 2015.

  1. Redom

    Redom Mortgage Broker

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    Interesting article, thanks for posting - i think his partly right as to possible next steps.

    IMF are in town this week/month i believe and will report within a few months, i strongly suspect they'll come out with a pretty headline worthy report stating that we're in bubble territory in Sydney and action is required. Their quite strong macro-prudential intervention and tightening to serviceability calculators is a small step compared to hard LVR caps. Given this is well and truly in their mandate/expertise, its likely to send a strong message out.

    APRAs next move, if required, is more direct intervention (LVR caps). If this doesn't cool than expect APRA to make changes here.

    Nonetheless, it's stupid to say that this round of changes hasn't worked. Its barely been in existence and has a lag time to take an effect on prices/market.

    They'll give it some time, obtain the next round of lending data from individual lenders, do their consultations (talk to all the banks), and then act if necessary. If Sydney keeps running they'll be forced to act and by the looks of this round of changes, they don't favour geographic based policy.

    I posted about APRA's possible gameplan (at least my knowledge/expectations of it) in January. The only surprising part of it to me is the speed of all these changes. They've gone so strong to start with (I thought it'd be smaller steps to start, then these current changes and then direct intervention). Also his statement about the serviceability changes is that Byres made it sound permanent improvements to our prudential framework, NOT temporary (the pricing part is temporary).

    In saying that, banks always find ways to innovate. Their strongly incentivised to. I'm sure in a downmarket where credit growth sits <5% APRA won't be as worried with people trying to leverage up. Banks (first and second tiers under APRA's purview) may find innovative ways to circle this.

    Cheers,
    Redom
     
    JohnHenry likes this.
  2. jerrybee

    jerrybee Member

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    Good question, I've never really had to think about what happens with dodgy lenders so I don't really know. I guess things like...increasing your rate from 5% to 15% after 3 years. Or an automatic lock in period after the introductory period (e.g. unless you explicitly opt out, once your term ticks over you're automatically locked into another 5 years). I can't think of many, I guess the nature of a "scam" is that they are inherently sneaky and difficult to imagine. I guess what I'm asking is whether you need to tread very carefully or that it's generally OK as long as they're reasonably large (i.e. clearly not a one man operation).
     
  3. remingbi

    remingbi Member

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    any word on cba new calculators?
    thanks
     
  4. NPB

    NPB Member

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    More changes coming at end of month, mainly around assessment rates on current debt, get apps in now
     
  5. Rolf Latham

    Rolf Latham Member

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    commercial reality will generally make such things less likely.

    reality is that a large lender can do that rate ris thing just as easily as a small one can
    .

    Really small lender may have more exposure to funding sources that may fluctuate

    ta
    rolf
     
  6. NPB

    NPB Member

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    CBA

    make that june 27th

    * higher serviceability rates
    * loaded 20% repayments on other debts
    * reduction on acceptable overtime/allowances etc
    * yield on property capped at 6%
     
  7. remingbi

    remingbi Member

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    So would that mean actual p+i rate+20% loading for ofi debt
    Any changes on assessment of cba's own debt
    Thanks
     
  8. NPB

    NPB Member

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    yep plus 20% based on P&I for both externally and internall

    for new stuff basically up 1%

    if apra and asic are trying to reduce investment lending then this shotgun approach is actually impacting First home buyer and upgraders. Cashed up investors and foreign cash buyers will get a free hit at properties between $450-$700k.

    I blame Redom!
     
  9. remingbi

    remingbi Member

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    1.Does that mean max 1% off svr for ppor. If so that is disgusting
    2.The way they treat their own debt seems similar to 7.25minus svr discount, which would mean 6.25%p+i. If they load 20% on actuals, that would equate to on a 4.5% loan, 4.5+20%=5.4% p+i
    Assuming little or no ofi debt, wouldnt u be better off in servicibility?

    Thanks


    If so that is disguisting
     
  10. Redom

    Redom Mortgage Broker

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    Yikes!!! Haha.

    This is OK - 20% loading from where they are isn't too bad (means like last 3-4 rate cuts haven't done much for serviceability, but not as big of a change as some of the others).

    Cheers,
    Redom
     
  11. Redom

    Redom Mortgage Broker

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    1. No mate - it means that they'll assess CBA debt at 7.25% P/I. The way they did it before meant that it often fell below this.
    2. OFI debt yep - not the biggest change, just add 20%.
     
  12. jerrybee

    jerrybee Member

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    I assume that this 7.5% is really a 3% buffer? So even if the rates go up by 0.5%, they will move it to 8%? Or will they just leave it at 7.5% until the actual rates hit 7.5%?
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    Unfortunately these changes take them from 'reasonable', to 'pretty average'.

    In the grand scheme of ranking lenders by serviceability, not much has actually changed, only the numbers have dropped (except for AMP who went from best to worse).
     
  14. Redom

    Redom Mortgage Broker

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    The higher of the following rates:
     7.25% p.a.
     SVR plus 2.25% less any concession* e.g. MAV Package granted to the borrower
     5 Year Fixed Rate at time of application less any concession* e.g. MAV Package granted to the borrower
     
  15. jerrybee

    jerrybee Member

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    Ah I see, so it's unlikely for it to move in lock step with future interest rate increases (unless rates increase and the market still goes crazy).
     
  16. tj22

    tj22 Member

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    i'm a tad confused as well, so it won't move from 7.5%, if interest rates move?

    also what is SVR stand for?
     
  17. jerrybee

    jerrybee Member

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    It's probably because it's not supposed to be this indefinite buffer. I suppose they've said ok 7.5% is roughly the long term average, so we'll base all our calcs against that...unless it goes over I guess.
     
  18. euro73

    euro73 Member

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    You forgot to mention that neg gearing will be removed at higher LVR's :)
     
  19. JohnHenry

    JohnHenry Mister

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    What about investing in Property using SMSF (Self Managed Super Fund),

    is that tax loophole also going to be closed soon by ATO/APRA ?
     
  20. mja

    mja Capitalist.

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    How is that a tax loophole?