Lender tightening effect on the Australian Property Market

[unloadmymind]

ANZ now offering only Advertised rates on investor-only loans.

http://m.heraldsun.com.au/business/...n-investor-loans/story-fnn9c0hb-1227362969104

 

[Jamie M]

Hiya

It just means that your broker/banker can't request "discretionary discounting" which is a further discount on top of what you normally get under their breakfree (professional) package.

For instance - the current rate on a $500k IP loan with ANZ on an 80% lend is 4.48% which is a 0.9% discount off the SVR.

You won't get more than 0.9% off now.

Last week - you may have received a further "discretionary discount" of 0.2%

Cheers

Jamie

 

[Peter_Tersteeg]

ANZ now offering only SVR on investor-only loans.

http://m.heraldsun.com.au/business/...n-investor-loans/story-fnn9c0hb-1227362969104

Just to be clear, ANZ are only offering their published rates. The standard discounts under their Breakfree package or other loans are still available, just don't expect to negotiate a 1.1% discount.

 

[Beanie Girl]

Anybody knows what this means and what kind of forthcoming announcement on carrying 'more capital against their mortgage books' or 'increasing capital requirements' might entail?

APRA has indicated it will soon require the big banks to carry more capital against their mortgage books, in response to a recommendation from the financial system inquiry.

http://www.smh.com.au/business/bank...akes-on-investor-lending-20150521-gh6imi.html

Mr Bloxham noted that APRA has recently outlined it has further measures it could implement, including increasing capital requirements, applying limits to certain types of lending, as well as additional oversight.

"Higher capital requirements were a recommendation from last year's financial system review and any official announcement on them is still forthcoming," Mr Bloxham said.

http://www.smh.com.au/business/the-...tackle-house-prices-says-hsbc-20150520-gh69jt

 

[Peter_Tersteeg]

Anybody knows what this means and what kind of forthcoming announcement on carrying 'more capital against their mortgage books' or 'increasing capital requirements' might entail?

At the moment the amount of money lenders can access for loans is somewhat determined by how much money they hold in deposits. For every $1 they hold in deposits, they might be able to get $100 from the RBA to lend to consumers.

Increasing capital requirements suggests them may need to increase the ratio to $2 in deposits in order to lend out $100.

* The figures are almost certainly wildly inaccurate and very much in the most basic terms. If you've got a few days, Google balance sheet lending.

 

[Beanie Girl]

Cool! Thanks Peter!

 

[unloadmymind]

Peter is wrong.

It means they need to keep more equity capital in their books.
In other words they would likely require more capital raising by selling more shares / offering more dividend reinvestment plans instead of distributing cash dividends.

In general this leads to higher cost of funds / lower ROE / lower future dividends. That's why bank share prices have been dropping recently.


N.B. The banks don't "borrow" from the RBA for their funding. They issue bonds / debt / capital to supplement their deposits. RBA is just there to facilitate overnight cash movements and short term cash overruns. The banks' cost of funding can be very different from the RBA official cash rate of 2%. In most cases the cost of funds is based on actual market rates.

 

[DavidMc]

At first glance, you would think this would cause a drop in property prices.

The more I think through it however the more I believe this will only really impact a very small % of the market, which are (new-ish?) investors requiring high LVR loans (i.e. little equity), and moreso those buying multiple properties.

For more experienced, lower LVR investors with equity who are after 80% loans the main impact to them will be they'll lose their 0.2% 'extra' discounts.

It'll probably be a good thing in that it's going to stop people to many super high LVR'ers in Sydney and Melb (which is most likely it's intention).

Hopefully they'll be quick enough to adjust as required if works 'too well'.

 

[spludgey]

Are tighter lending regulations a positive or negative for you?

I know that the answer is probably "it depends", but what do you think?

I think that for the stability of the property market, it's a good thing. Similarly, there's the potential of it being good for cashed up buyers, established investors and investors with good serviceability. There will probably be less competition in the market for investors.

Personally, I just got a raise recently and my fianc?e doesn't have an IP in her name yet and our IP mortgage interest is nearly $50k less than our rental income. So it might be good for us.
And if it causes the rents to go up, that's a bonus.

 

[albanga]

I have made my comments in previous posts but my crystal ball given this lending stays right for 2 years is as follows (note I only know the Melbourne market well):

- The Melbourne and perhaps Sydney inner city property bubble will burst. There is already to much stock with A LOT of new stock coming available in the next 2 years. This is usually owned mostly by investors both foreign and australian who now are severely tied to purchase these types of properties. Also just MY opinion but inner city OTP buyers are what I would describe as unsophisticated investors who are more emotional driven than business and help inflate prices by lack of smarts, the same investors with 1 property and 95% loans. The end result is developers holding a lot of new stock that must be discounted and then ofcourse what is someone going to pay for, brand new and cheap or old and cheap? The older apartments will see a big fall in value.

- Perhaps slightly less stock on the market as investors may have less chance of rebalancing thier portfolio and instead hold and ride it out. This COULD result in slightly higher rents to increase yields as it will be harder to sell off and chase better ones.

- The interesting one for me though is how it may effect other capital city markets. If sydney and Melbourne are unaffordable now as people cannot leverage so high then they will need to look to other markets. More investor competition in these cheaper markets will drive property prices.

 

[unloadmymind]

Well then would it be a good time to convert my PPOR to IP when the new stock comes in and then get a PPOR loan for new purchase? My current PPOR is IO full offset and when cheaper OTP units come on line would it be easier to get that loan, being owner occupied?

 

[albanga]

Well then would it be a good time to convert my PPOR to IP when the new stock comes in and then get a PPOR loan for new purchase? My current PPOR is IO full offset and when cheaper OTP units come on line would it be easier to get that loan, being owner occupied?

I would just question if that is the right puechase to make. Again take Melbourne, there is I believe over 10 towers just in docklands and southbank in development and I know of one area that has not even begun that will hold 3 new towers. These developers are not going to stop! So yeah if I'm right and the bubble burst say in 12 months and you buy 100k cheaper then now then what happens when the next 3 towers get released?
The endless new stock is continually going to suppress capital growth IMO.
You may be able to get higher yields but again with so much stock and options for renters then rents will only discount to be inline.

 

[BayView]

This govt has created a credit squeeze because they don't want the average Joe to make easy money.

How do you arrive at this conclusion?

The Gubb do not create credit squeezes.

The Gubb - as far as I know - can't ring up the Banks and say; "G'day boys/girls; Tony and Joe here...listen; things are getting pretty scary out there; put the skids on all these idiot spendthrifts, will ya's? Ta...see you next year at Election time."

Where do these sorts of anti-Gubb thoughts come from in this Country?

 

[WattleIdo]

At first glance, you would think this would cause a drop in property prices.

The more I think through it however the more I believe this will only really impact a very small % of the market, which are (new-ish?) investors requiring high LVR loans (i.e. little equity), and moreso those buying multiple properties.

For more experienced, lower LVR investors with equity who are after 80% loans the main impact to them will be they'll lose their 0.2% 'extra' discounts.

It'll probably be a good thing in that it's going to stop people to many super high LVR'ers in Sydney and Melb (which is most likely it's intention).

Hopefully they'll be quick enough to adjust as required if works 'too well'.

Agreed. I think this will put more investors on an equal footing. And it will also give back some of the power to the smaller banks and credit unions by putting them on a more equal footing.
That is, a lot of investors and a lot of credit unions work with 80% LVR and no discounts already. But then the interest rates are competitive and they are more flexible.
As credit unions and smaller banks get more traction, I wonder how this will affect brokers?