Hey all, an update on lending market sentiment following the rate cut and speaking to my core lenders through the week.
I touched recently on changes coming in the lending market for 2015 and how it could impact different investing strategies (link: http://somersoft.com/forums/showthread.php?t=105167).
With the recent rate cut, this just becomes increasingly important. Whether others agree or not, rate cuts generally pump credit into the housing industry. We're already at the 'tipping point' where regulators are starting to take action, and this will only fuel further 'tightening' for those in the 'aggressive' basket.
APRA's and the Australian regulator approach at this stage (or to come) is to 'incentivise' prudent lending practices, rather than impose strict caps (LVR caps, etc). In practice, this means differences in pricing for:
a) Interest only loans.
b) Investment lending.
The two above are exactly what APRA's openly stated as being the key issues there watching out for (see attached). APRA can do this by simply requiring individual lenders to hold more capital against different types of loans. At this early stage, they'll likely do this to individual banks who exhibit certain behaviours, rather than across the board macro prudential measures. Therefore, I imagine you'll see this type of pricing for banks that exhibit more risky portfolios weighted towards investors/IO.
Macquarie, one of the more aggressive lenders in the marketplace, are one of the first to move in this space. They're about to/have announced some pretty big cuts in rates across the board, and matched this with a 15bp premium for investor lending. More details will follow as they release the details formally, but effectively have been told to hold more capital against investment loans (as their growth in investment lending has been particularly strong).
As investors, i'm not sure pricing really does too much to sway our lending structures, but its the regulators way of promoting good practice. I suspect there'll be moves from others incentivising P&I repayments in due course (probably for PPORs given the tax environment).
As mentioned, cash outs at high LVRs are going to get harder and harder, realistically they already have with some lenders (Macquarie, NAB, etc), more evidence may be required, etc. Typical moves to investment friendly lenders may require some planning/foresight. For example, you may move to Macquarie and require the flexibility to cash out. This will be difficult at higher LVRs and may just become more difficult overall in due time (e.g. verification required).
Cheers,
Redom
I touched recently on changes coming in the lending market for 2015 and how it could impact different investing strategies (link: http://somersoft.com/forums/showthread.php?t=105167).
With the recent rate cut, this just becomes increasingly important. Whether others agree or not, rate cuts generally pump credit into the housing industry. We're already at the 'tipping point' where regulators are starting to take action, and this will only fuel further 'tightening' for those in the 'aggressive' basket.
APRA's and the Australian regulator approach at this stage (or to come) is to 'incentivise' prudent lending practices, rather than impose strict caps (LVR caps, etc). In practice, this means differences in pricing for:
a) Interest only loans.
b) Investment lending.
The two above are exactly what APRA's openly stated as being the key issues there watching out for (see attached). APRA can do this by simply requiring individual lenders to hold more capital against different types of loans. At this early stage, they'll likely do this to individual banks who exhibit certain behaviours, rather than across the board macro prudential measures. Therefore, I imagine you'll see this type of pricing for banks that exhibit more risky portfolios weighted towards investors/IO.
Macquarie, one of the more aggressive lenders in the marketplace, are one of the first to move in this space. They're about to/have announced some pretty big cuts in rates across the board, and matched this with a 15bp premium for investor lending. More details will follow as they release the details formally, but effectively have been told to hold more capital against investment loans (as their growth in investment lending has been particularly strong).
As investors, i'm not sure pricing really does too much to sway our lending structures, but its the regulators way of promoting good practice. I suspect there'll be moves from others incentivising P&I repayments in due course (probably for PPORs given the tax environment).
As mentioned, cash outs at high LVRs are going to get harder and harder, realistically they already have with some lenders (Macquarie, NAB, etc), more evidence may be required, etc. Typical moves to investment friendly lenders may require some planning/foresight. For example, you may move to Macquarie and require the flexibility to cash out. This will be difficult at higher LVRs and may just become more difficult overall in due time (e.g. verification required).
Cheers,
Redom
