Take the money and RUN!!!

As someone just starting their accumulation phase...damn :/ I was going to put off switching my PPOR to I/O for around 6 months (after reno's complete and some time for the market to move). Does this mean I should get it out of the way now?

What LVR are you at?
 

IMO definitely do it now. Do it before it bites. Ask your broker, but i think having some foresight of potential changes and being decisive can save you. Personally, i dont like the 'wait and react' to changes approach.

Pretty sure this was directly stated in APRAs public letter. Also, shouldnt be any cost, just put additional repayments in offset.

Cheers,
Redom
 
I don't think too much of this will play out Rendom. Banks have too much sway to let the regulators get between them and a pile of money and the market seems to be cooling anyway. I think the lenders will tweak a few things at the margin to make the reg's happy but wholesale changes to current status quo is unlikely in my opinion.

Interesting reading the thoughts of one of the industry's biggest writers the other day saying he thinks credit policies will loosen this year not tighten. He only wrote $220 mil last year.
 
I don't think too much of this will play out Rendom. Banks have too much sway to let the regulators get between them and a pile of money and the market seems to be cooling anyway. I think the lenders will tweak a few things at the margin to make the reg's happy but wholesale changes to current status quo is unlikely in my opinion.

Interesting reading the thoughts of one of the industry's biggest writers the other day saying he thinks credit policies will loosen this year not tighten. He only wrote $220 mil last year.

Agreed. The lending growth does certainly appear to be hitting it's peak, regulation right now would make any correction to trend exacerbated. I would say the lenders are well aware of this and would drag their feet with implementing any recommendations.

As always, unnecessary fiddling from government/regulatory authorities is just asking for greater ineffeciencies in the marketplace.
 
I don't think too much of this will play out Rendom. Banks have too much sway to let the regulators get between them and a pile of money and the market seems to be cooling anyway. I think the lenders will tweak a few things at the margin to make the reg's happy but wholesale changes to current status quo is unlikely in my opinion.

Interesting reading the thoughts of one of the industry's biggest writers the other day saying he thinks credit policies will loosen this year not tighten. He only wrote $220 mil last year.

I think all the points mentioned are marginal and around the edges. Tightening on PPOR I/O and slowing high LVR cashouts?

It all depends what happens to lending standards and credit growth. If investor credit growth rises to 15%+ this year, the points ive made will be the least of it. The response will be much stronger (and in good news, prices will rise fast).

Also the regulators have incredible power here. They can impose all sorts of costs on individual banks and have publicly said they will if need be. Just look over to NZ last year to see what they can do (LVR caps).

Will be keen to see link to the article if youve got it Marty!

Cheers,
Redom
 
Agreed. The lending growth does certainly appear to be hitting it's peak, regulation right now would make any correction to trend exacerbated. I would say the lenders are well aware of this and would drag their feet with implementing any recommendations.

As always, unnecessary fiddling from government/regulatory authorities is just asking for greater ineffeciencies in the marketplace.

The authorities are pretty worried about overstepping, keen for market to sort itself out. If its peaked, then there wont be much done. If those growth figures push on, then i dont think theyll sit around watching idly.

Cheers,
Redom
 
If investment lending increases by + 15% this year then yes I would agree steps will be taken but this growth is not likely IMO.

The article was in "the adviser" magazine I think.
 
From what I have read some markets are already starting to slow down, and most experts are stating that markets will continue to grow but not to the same degree as was seen in 2014.

MTR:)
 
Anyone want to research the effect lending curbs had on the NZ market? They have had them for a while now, so there should be some evidence on any effect they have had.
 
Anyone want to research the effect lending curbs had on the NZ market? They have had them for a while now, so there should be some evidence on any effect they have had.

In NZ's case, its hard to untangle - RBNZ had four rate rises last year with LTV caps.

The market has cooled significantly since then, but its hard to pinpoint with any real accuracy what effect its ha.d

Also NZ had very different stability problems to Australia. They had a significant rise in high LTV loans and therefore imposed caps. Our lending data doesn't show any alarming increase here, but an increase in Interest Only loans (brokers write more loans and will set up many PPOR holders this way), and investment lending. Hence the tweaks Australian authorities are closely examining at a more subtle in nature and targets investors stretching themselves.

Plus most of the international authorities who do this analysis (IMF/FSB) view success through the prism of 'effect on lending growth'. The tools will obviously curb credit growth, that is obvious. The not so obvious is the unintended consequences of taking such action. E.g. different segments of the markets left out, misallocating capital away, etc etc etc.

Cheers,
Redom
 
Anyone want to research the effect lending curbs had on the NZ market? They have had them for a while now, so there should be some evidence on any effect they have had.

It reduced the percentage of loans to first home buyers from 30% to 10%. I'm not sure that was the desired effect...

Although first home buyers are responsible for pushing up prices at the lower end of the market so it may be helping keep things cool in the market.

But when I go there for work, all I hear is complaints from fairly high earning people that they can't buy a home and they're still renting because saving 25% for deposit + costs is such a huge obstacle. I don't think it would be that politically popular... although this was in Auckland the most expensive place in the country.

However they can still lend > 80%, it's just that those loans have to remain under the 10% of total lending restriction.. I'm sure they are then much harder to get in order to aportion them out.
 
The authorities are pretty worried about overstepping, keen for market to sort itself out. If its peaked, then there wont be much done. If those growth figures push on, then i dont think theyll sit around watching idly.

Cheers,
Redom

Agree. In many ways I think the regulators are still finding their feet in this type of space, and quite rightly don't want to overstep.

However I think it could be something we see more and more of. It's not a bad way to try limit the transmission of interest rate changes to credit growth. I think that's a broader problem Australia is facing at the moment. If interest rates are going to be the main policy leaver to support the broader economy, there needs to be better measures in place to manage its impact in sectors (like credit) where the effects might be undesirable.
 
Not a nice thought for anyone that's purchased a PPOR long-term OTP and was hoping to go high LVR and I/O! Surely that combination isn't too uncommon for first home owners?
 
Not a nice thought for anyone that's purchased a PPOR long-term OTP and was hoping to go high LVR and I/O! Surely that combination isn't too uncommon for first home owners?

I'd say the vast majority of FHBer houses I finance are P&I, unless the intention is to use the property as an investment/invest in the future.

Certainly high LVR's are the most common for FHBers.
 
Not a nice thought for anyone that's purchased a PPOR long-term OTP and was hoping to go high LVR and I/O! Surely that combination isn't too uncommon for first home owners?

Agree with Corey, most first home owners I have prefer P&I even after explaining the flexibility benefits of I/O. Mindset tends to be pay down the own home first - whereas the young investor mindset is more 'how can I get in and continue purchasing'.

Also it is still possible, just may become more difficult over the year ahead.

Cheers,
Redom
 
Latest APRA data out folks, can say with reasonable certainty that APRA won't like whats going on in the lending market.

A 12.2% increase in investor lending. As a guide, APRA came out in December with a strong warning to the lenders that if certain benchmarks aren't being met by the end of Q1 2015, action will be taken.

One key pillar of those benchmarks was a 10% 'soft cap' on investor lending growth.

Since then, we've had a rate cut and a continued surge in the Sydney market. A second rate cut seems on the horizon. With that rate cut, continued investor demand hotting up seems increasingly plausible.

I think action, in some form (posted above), is a matter of months away now.

We could probably rule out hard LVR caps (used in NZ and Asia) based on this data - it would simply target a problem that does not exist. For example, to address their valuation risk issue, pretty sure the RBNZ inserted a 10% cap on 90%+ lending. This weeded out too much high LVR lending and tackled a specific problem. Currently in Australia, this only makes up 10.4% of over lending - an is falling. It wasn't an issue addressed by APRA in their December letter either.

Some more info for those that are interested:
http://blog.corelogic.com.au/2015/0...g-continued-increase-end-2014-according-apra/

While all of this is great for all the brokers out there - continued surge in demand and loans for investors certainly isn't a recipe for APRA's/RBA's goal of financial stability.

Cheers,
Redom
 
There is now a real sense of urgency in much of this discussion.

The penny has dropped and i'd say that there's less than 1 month (less than 2 weeks perhaps) before we may start seeing Macquarie and NAB have a real wind back of their servicing assessment calculators. Once this is applied, it will mean the majority major banks will have all moved towards a very conservative servicing model.

Excluding some of the non-banks from the equation, this could mean that investors have only two weeks to 'take your money' out. The following circumstances are most urgent:

1. Equity releases: Borrowing power calculators are tightening up and there may be a scenario where there will be no actual repayment lenders. If you've got multiple properties, your borrowing wall has now come from 'a long way into the distance' to something you passed a couple properties ago. Releasing equity to be used as a buffer for any further tightening/moving to P&I repayments is also a good idea. Having cash AVAILABLE to you is a premium.

2. OTP settling within 3 months: this is a scary one as it could theoretically leave people high and dry (lost deposits :eek:). If you're settling within 3 months, best to get a pre-approval. I believe AMP did 6 months pre-approvals but they've already tightened.

3. I/O extensions (with banks other than CBA/Westpac): If you're about to roll over to a P&I period with plenty of actual repayment lenders, you may not be able to roll this over under a new full assessment of your scenario. This could be a serious drain on your cash flow. More info here: http://somersoft.com/forums/showpost.php?p=1308099&postcount=1

4. Property purchases in the next few months: For those investors looking to purchase and have marginal servicing - it may be best to go and obtain a pre-approval. There's no guarantee that the banks will honour them - but i've had some initial conversations with NAB and Macquarie saying they will. Usually some brokers don't like doing pre-approvals, but during uncertain financing conditions they are very valuable tool to extract that last property out/drag the period out further.

I suspect the investment brokers here are having one of their busiest periods yet (or are about to), followed by potentially a long holiday! The Sydney brokers i've spoken to here have had pretty similar stories!

Cheers,
Redom
 
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