Changes / tightening on servicing for investors

I was speaking to a NAB banker the other day and the feeling was that they are losing market share unsurprisingly and are concerned about the recent policy changes.
 
Nab changes...

http://comms.nabbroker.com.au/rv/ff001fade9b9256437ca96a8cc42908500dabdfd/p=0


Maintaining prudent lending standards

NAB is committed to maintaining prudent lending standards and fulfilling its regulatory obligations. The current low rate environment has helped drive significant growth in the investor housing market and it?s important for us and the industry to ensure any growth is sustainable.

We are making changes to the following home lending pricing and policies to ensure we maintain sustainable growth into the future:

New variable rates for investment loans
Effective Friday 5 June 2015, new variable rates will apply for investment loans? (read more)

New variable rates for Low Doc loans
Effective Friday 5 June 2015, new variable rates will apply for Homeplus Low Doc loans? (read more)

Maximum LVR for investment loans
Effective Saturday 13 June 2015, the maximum LVR (including LMI capitalisation) for investment loans will be reduced to 90%... (read more)

Serviceability loading on existing mortgage repayments
Effective Saturday 13 June 2015, a loading will be applied on existing mortgage repayments as part of the serviceability assessment? (read more)

New affordability rate
Effective Saturday 13 June 2015, the affordability rate used in the serviceability assessment will be amended to be the higher of 7.40% or 2.25% above the effective borrower rate? (read more)

Verification of external existing mortgage repayments
Effective Saturday 13 June 2015, customers will need to provide evidence of non-NAB loan repayments... (read more).
 
So the lay of the land now ...

Everyone is , or soon will be assessing debt at 7% - 7.5%. This will have a material impact on a majority of investors. Not all, but certainly most. If you have $2million in debt at 4.2% for example, some banks assessed that as a 84K liability last week, and will assess it as a 140-150K liability this week. There are a small number of exceptions to this, namely non bank lenders.

Everyone is pretty much capping investors at LVR's at 90% , inclusive of LMI. This will have almost no material impact on most investors, as only a very small minority would ordinarily gear above 90% anyway. There are a small number of exceptions to this who offer 90% + LMI or even 95% , but as of this week you will also find that the mortgage insurers are looking for quite substantial surplus capacity on anything above 90% or where aggregated LMI coverage exceeds $2million.

Everyone is re-pricing INV debt.
 
On a side note but related to the topic. What is this going to do to the Mortgage Insurers? Surely a drop in max LVR means lost business. They would have to come up with this shortfall through increased costs elsewhere.
 
On a side note but related to the topic. What is this going to do to the Mortgage Insurers? Surely a drop in max LVR means lost business. They would have to come up with this shortfall through increased costs elsewhere.

Ditching DUA's really would have been the easy solution. If lenders must follow the mortgage insurers guidelines, you'd have two basic sets of rules for anything above 80% and lenders could compete for the lower risk LVR business.

Restricting most investment lending to 90% has a fairly negligible impact. My basic observation is about 50% of enquiries we service are below 80%, 50% are above. Less than 1% would borrow more than 90% LVR.
 
Restricting most investment lending to 90% has a fairly negligible impact. My basic observation is about 50% of enquiries we service are below 80%, 50% are above. Less than 1% would borrow more than 90% LVR.

Agree that it's very negligible impact on my majority of my business, but for the mortgage insurer >80% is 100% of their business. Even if the >90% is only 5-10% of the business it's still a big chunk at once.
 
With Westpac group now using the new player it makes for a perfect storm for them. Jacking up premiums by 100% since 2008 was plain old profiteering and collusion so maybe they are getting what they deserve.
 
With Westpac group now using the new player it makes for a perfect storm for them. Jacking up premiums by 100% since 2008 was plain old profiteering and collusion so maybe they are getting what they deserve.

Hey Marty,
just trying to understand: would this mean Westpac is now one of the preferred early IP loan aims then rather than later in the strategy?
I've been quoted as between Adelaide and Westpac for first IP at 90+LMI, <500,000 loan.
I'm not sure whether there is still a set of first-up loaning institutions and later-on players!
 
Hey Marty,
just trying to understand: would this mean Westpac is now one of the preferred early IP loan aims then rather than later in the strategy?
I've been quoted as between Adelaide and Westpac for first IP at 90+LMI, <500,000 loan.
I'm not sure whether there is still a set of first-up loaning institutions and later-on players!

the when how and where and when will change a little more over the next few weeks, with APRAs apparent idealogy of servicing "equialisation"

Certainly from an approval Success basis, ABL and WBC cant be compared at > 80 % since WBC has a DUA for their LMI, and ABL does not.

WBC was always an earlier for the IP builder and an ABL approach much later ( assuming 80 % lends)

ta
rolf
 
Hey Marty,
just trying to understand: would this mean Westpac is now one of the preferred early IP loan aims then rather than later in the strategy?
I've been quoted as between Adelaide and Westpac for first IP at 90+LMI, <500,000 loan.
I'm not sure whether there is still a set of first-up loaning institutions and later-on players!

Adelaide are still one of the few lenders that take OFI debt at actual rather than an inflated assessment rate. On that basis I wouldn't use them first up - WBC would be a better option.

However- that could change tomorrow given the current environment.

Cheers

Jamie
 
Just a quick question from what I saw from a previous post NAB will bring in changes to their lending policies in the middle of June. I recently applied for a loan in late April only to have it refused due to servacibility. The banker stated that it was due to the APRA recommendations to tighten lending and thus has changed their servacibility calculator. Seeing as their new policies don't commence until mid June and I applied in late April do you consider his reasoning for denying the loan reasonable? I have 7 home loans with NAB 2 LOC, and 2 credit cards. The property in question is cost neutral ( price $225000 rent $275 pw). My LVR is 76%. The cost of my loans per week isn't extending us.
Cheers
 
I have 7 home loans with NAB 2 LOC, and 2 credit cards.

There's your problem.

Spread the love among banks with some structured lending and you won't hit a servicing wall so quickly.

Even with tighter servicing calcs - you should be able to squeeze some more out by using different lenders.

Cheers

Jamie
 
Hi Jamie,
Going to have to definitely look at spreading my loans around which I will do once they come off fixed rate. My point was the NAB are introducing their new lending criteria in mid June. The reason I got for my recent refusal of an investment loan was due to servacibility based on the APRA recommendations, which it appears they haven't introduced yet. My question is do I have grounds to have them look at it again.
 
Hi Jamie,
Going to have to definitely look at spreading my loans around which I will do once they come off fixed rate. My point was the NAB are introducing their new lending criteria in mid June. The reason I got for my recent refusal of an investment loan was due to servacibility based on the APRA recommendations, which it appears they haven't introduced yet. My question is do I have grounds to have them look at it again.

Your banker could be wrong re APRA but used them as a excuse - or just didn't know what he was talking about :)

NAB treat their own debt quite harshly, so it's quite possibly more the fact that you've hit the wall there regardless of APRA - 7 loans is a lot, and when their all assessed with a loaded rate it hits serviceability hard.
 
Hi Jamie,
Going to have to definitely look at spreading my loans around which I will do once they come off fixed rate. My point was the NAB are introducing their new lending criteria in mid June. The reason I got for my recent refusal of an investment loan was due to servacibility based on the APRA recommendations, which it appears they haven't introduced yet. My question is do I have grounds to have them look at it again.

Your loans would have been assessed on the lending criteria at the time you applied. The changes that were announced yesterday wouldn't have been considered in your previous application.

It's quite possible that there were some more subtle changes in various lenders risk analysis and credit scoring that may have effected the outcome you got, but I'm confident that the criteria being applied today aren't going to be more favourable than what they were a few weeks ago.

It's quite possible the loans were declined because you've been deemed 'high risk', not necessarily due to poor serviceability. Servicing is simply an easier reason to explain.
 
I just spoke to my West Pac Manager about refinancing, he said the new APRA regulation haven't had any effect yet, but it is a good idea to get your financing done now because it may get tougher. He seemed to think I can get more than what BOM knocked me back on 9 months ago. He said just sald you have been able to meet your commitements in the past so it wont be a problem.
 
I just spoke to my West Pac Manager about refinancing, he said the new APRA regulation haven't had any effect yet, but it is a good idea to get your financing done now because it may get tougher. He seemed to think I can get more than what BOM knocked me back on 9 months ago. He said just sald you have been able to meet your commitements in the past so it wont be a problem.

Westpac's changes were announced and implemented weeks ago. You're being misled. They have definitely had an effect on people's borrowing capacity. Westpac were actually one of the first lenders to make changes.
 
Hi Peter and Jess,
Thanks for your input. I now realise future servicing from NAB will be very difficult. As with others on this forum I will now have to look at those lenders that are more flexible with there servicing calculators and LVR. I guess that's we're Mortgage Brokers will come in handy. Who are the new bank lenders that will be beneficial to borrowers like myself?
 
only 3 banks has stopped lending over 80%....there's still like 55+ banks still doing lending in the 90-95% IP space...

With Private banking, that is true to a point...as private bankers and business bankers can do the deal under their Commerial books at resi rates.

APRA rules is targeting the resi books only.

Cool, so in this case we can go with the smaller Credit Unions to get better LVR rates ;-)
 
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