LVR Caps
- Thread starter hello1234
- Start date
Yes, various lenders are currently reviewing their policies around this. Most are tightening a little but some are actually opening up.
There hasn't been much movement in the owner occupied space, it's focusing more in investment purposes of the funds.
The biggest restriction is in lending over 90%, it is getting harder, but if that's where you're focusing, you've probably been playing with fire for a long time now.
There hasn't been much movement in the owner occupied space, it's focusing more in investment purposes of the funds.
The biggest restriction is in lending over 90%, it is getting harder, but if that's where you're focusing, you've probably been playing with fire for a long time now.
I am the fire
Then you're probably going to burn out soon unless you can find a source of fuel and oxygen.
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Fuel and oxygen means deposits and affordability.
Affordability is probably not so difficult - your income, rental income, etc.
Deposits are tough if you're leveraged above 90%. Better start saving.
Affordability is probably not so difficult - your income, rental income, etc.
Deposits are tough if you're leveraged above 90%. Better start saving.
Then you're probably going to burn out soon unless you can find a source of fuel and oxygen.
Generator and oxygen tank - means always being prepared and most importantly creative.
The analogy of "creative" often means pouring petrochemicals onto the fire as more fuel. Some can work well, but just as often it tends to explode and destroy everything around it.
Seriously, 95% lending is a problem right from the start. Best avoided if you can possibly help it.
Seriously, 95% lending is a problem right from the start. Best avoided if you can possibly help it.
Anything above 90% is generally more difficult to get approved. Often these deals will fall outside the lenders LMI DUA and/or are credit scored more harshly.
I find an existing relationship with a lender (providing you've demonstrate good repayment habits) can help quite a bit when going for 95% lends.
Cheers
Jamie
I find an existing relationship with a lender (providing you've demonstrate good repayment habits) can help quite a bit when going for 95% lends.
Cheers
Jamie
I met a school friend who has been with RBA for a long time and he is aware of the present issues with Govt trying to limit IP loans. He says they are keen to impose tighter capital requirements on bank loans for IP lending where a different property is used as security as well as the property itself. Idea is a 80% LVR cap for each property (max).
So equity release using other property to fund deposits etc would be VERY costly to the bank and therefore to the customer. Refinance that increases debt to be curtailed.
Problem seems to be a concern that borrowers would just accept it even at high cost (10% ?) since its a low portion of the funding cost and averages out at a low average rate (ie 5.8% Avg if 80% is at 4.5% and 20% at 10%) . APRA favouring a ban on the practice.
Its just discussion at this time. Tax incentives are also being considered.
- Deductions limited to income
- Neg gearing limits
- Cap Gains Discount
- Limitation of losses
- Limits on borrowing by joint parties to fund acquisitions that aren't joint.
Like all budget measures it will be less threatening than feared ahead of an election. But if Libs win again and hold majority ???
So equity release using other property to fund deposits etc would be VERY costly to the bank and therefore to the customer. Refinance that increases debt to be curtailed.
Problem seems to be a concern that borrowers would just accept it even at high cost (10% ?) since its a low portion of the funding cost and averages out at a low average rate (ie 5.8% Avg if 80% is at 4.5% and 20% at 10%) . APRA favouring a ban on the practice.
Its just discussion at this time. Tax incentives are also being considered.
- Deductions limited to income
- Neg gearing limits
- Cap Gains Discount
- Limitation of losses
- Limits on borrowing by joint parties to fund acquisitions that aren't joint.
Like all budget measures it will be less threatening than feared ahead of an election. But if Libs win again and hold majority ???
I do very little in the > 90% LVR space but I look at it more from a position, how on earth can they administer it?
What stops an OO loan approval at 95% LVR once settled suddenly becoming an IP, the lender has no way to verify once settled. Will the ATO need to get further administrative burden to determine that an IP loan was supposed to be a PPOR loan? Same with equity release, what is to stop an equity release or LOC for purposes of general investment or for holidays or non structural improvements or whatever from becoming the settlement funds for an IP once approved?
As long as there is ample credit available to lenders, they will want to lend. Mortgage insurers and lenders want to make money, so they will lend as much as they can and approve what they can. I think it is more a case of RBA and APRA trying rhetoric as a tool rather than anything serious at this stage.
What stops an OO loan approval at 95% LVR once settled suddenly becoming an IP, the lender has no way to verify once settled. Will the ATO need to get further administrative burden to determine that an IP loan was supposed to be a PPOR loan? Same with equity release, what is to stop an equity release or LOC for purposes of general investment or for holidays or non structural improvements or whatever from becoming the settlement funds for an IP once approved?
As long as there is ample credit available to lenders, they will want to lend. Mortgage insurers and lenders want to make money, so they will lend as much as they can and approve what they can. I think it is more a case of RBA and APRA trying rhetoric as a tool rather than anything serious at this stage.
Hmm interesting question, i haven't particularly noticed too much on higher LVR loans (although 95er investment loans are asking for trouble).
Few issues on APRA'S radar:
1. Non amortisation of loans - that is, people not paying down debt (interest only) and relying on capital growth and 'debt deflation'. This is unhealthy, as it relies on price growth. Hence I/O loans are a big issue, especially for PPORs.
2. Valuations, 'asset valuations', cash outs - Paul, i reckon your mate's spot on. Regulators would find it incredibly concerning if they see a spike in 'cash out' for investment use activity. Especially if its at higher LVRs. As a broker, over half of my loans this year have been from Sydney siders for this exact purpose. Putting my financial stability hat back on, i'd be very concerned about this and i suspect APRA would actively look at slowing it down later in the year.
3. Continued investor lending growth (up past 10%). Low interest rates just fuel this, so it seems part and parcel of the macroeconomic setting.
I'm not sure about higher loan to value ratio caps. Not sure what it'd do to any of the above 3. They introduced it in NZ (pretty sure an Senior RBA secondee from the RBA was instrumental in the design) because the risks emerging in their financial market were very different to Australia.
Pulling levers that APRA have available to them seems appropriate next steps. Given the nature of our banking system and competitive dynamics, i suspect most of this will happen 'behind the scenes' (brokers will know!), rather than ribbon worthy LVR caps that grab headlines.
APRAs got a bag of tricks that they can easily implement - lenders know this (and have been 'warned' in the December letter). They're not going to send them data that upsets them.
Cheers,
Redom
Few issues on APRA'S radar:
1. Non amortisation of loans - that is, people not paying down debt (interest only) and relying on capital growth and 'debt deflation'. This is unhealthy, as it relies on price growth. Hence I/O loans are a big issue, especially for PPORs.
2. Valuations, 'asset valuations', cash outs - Paul, i reckon your mate's spot on. Regulators would find it incredibly concerning if they see a spike in 'cash out' for investment use activity. Especially if its at higher LVRs. As a broker, over half of my loans this year have been from Sydney siders for this exact purpose. Putting my financial stability hat back on, i'd be very concerned about this and i suspect APRA would actively look at slowing it down later in the year.
3. Continued investor lending growth (up past 10%). Low interest rates just fuel this, so it seems part and parcel of the macroeconomic setting.
I'm not sure about higher loan to value ratio caps. Not sure what it'd do to any of the above 3. They introduced it in NZ (pretty sure an Senior RBA secondee from the RBA was instrumental in the design) because the risks emerging in their financial market were very different to Australia.
Pulling levers that APRA have available to them seems appropriate next steps. Given the nature of our banking system and competitive dynamics, i suspect most of this will happen 'behind the scenes' (brokers will know!), rather than ribbon worthy LVR caps that grab headlines.
APRAs got a bag of tricks that they can easily implement - lenders know this (and have been 'warned' in the December letter). They're not going to send them data that upsets them.
Cheers,
Redom
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