WBC reduces LVRs to 87 for new clients

If ever you needed a clear sign that the lenders have limited funds, this is good proof.

Effective Wed20th, no change to max lvrs for existing clients, so clearly looking to limit growth in higher "risk" lending

ta
rolf
 
If ever you needed a clear sign that the lenders have limited funds, this is good proof.
Could you elaborate, please, Rolf? Is it that the lenders don't have enough money to lend, or that they're choosing to limit lending? If the former, what are the reasons behind that, please?

I just would have thought in a fractional reserve banking system that it was pretty hard to run out of money, but hey, economics is admittedly not my strength. :eek:
 
My mug punters view is that we have limited funds to lend at reasonable rates, thus limit the funds to known risks

there is more money around but you cant get it at decent rates to make a dollar

if the lenders arent running an ROI of 20 % plus its almost a sum zero experience, which is why I believe deep discounters like NAB et al wont be able to continue this run unless they have some magic fairy dust.

ta
rolf
 
Could it be WBC is now happy with the increased residential mortgage market share they've snatched over the last 12 months (even compared to ANZ & NAB) and want to see it level off for a number of reasons, ie. spread new business, decrease reliance on mortgage book etc?
 
My mug punters view is that we have limited funds to lend at reasonable rates, thus limit the funds to known risks

there is more money around but you cant get it at decent rates to make a dollar

if the lenders arent running an ROI of 20 % plus its almost a sum zero experience, which is why I believe deep discounters like NAB et al wont be able to continue this run unless they have some magic fairy dust.

ta
rolf

Hi Rolf
I think things are going to get tougher for little investors like us.

I went to Steve McKnight's seminar a couple of months ago and he believes that we will not see a property boom in Australia as lending is tightening but watch out when this happens. Sorry to digress, but I think he may a good point here.

Cheers, MTR
 
Hi Rolf
I think things are going to get tougher for little investors like us.

I went to Steve McKnight's seminar a couple of months ago and he believes that we will not see a property boom in Australia as lending is tightening but watch out when this happens. Sorry to digress, but I think he may a good point here.

Cheers, MTR

Hi, what do you mean by "watch out when this happens" ?

Do you mean the prices will crash when this happens?
 
SM has always been on the edge with his ideas, and usually brings home some reasonable bacon, unlike some highly qualified economist who has learnt to "live and learn"

I dont believe we will see a price crash driven by lack of funding. What we may see is a maturing of our overall economy, where rental yields run into the high singles due to lack of supply, very similar to places like Germany for eg where cap gain has been limited to inflation pretty much for a looooooooooooong time

I reckon we will see moderate to ok sustainable growth if we can get reasonable money supply.

ta
rolf
 
Hi, what do you mean by "watch out when this happens" ?

Do you mean the prices will crash when this happens?

Sorry, left out a word, " once lending regulations start to ease off and money is easier to access, watch out, we will then see a massive property boom", his words not mine, but I think he is correct.

Cheers, MTR
 
Views are always food for thought and I like them.

I've just had a thought that steering clear of investor dominated areas has never been more important than now.

The 600-800k part of the market is looking good when you consider that the most appealing client to the bank could be your average mum and dad with a view for upsizing their property. Stable income, stable job and proof of regular savings.

While the yield may not be great for most areas, I think the Capital Growth will.

Regards JO
 
You could be right.

For me though, it works wonders for my psyche when I am competing with investors and developers watching demand outstripping supply, bingo, capital growth is pretty much a given.

Cheers, MTR
 
Sorry, left out a word, " once lending regulations start to ease off and money is easier to access, watch out, we will then see a massive property boom", his words not mine, but I think he is correct.

Cheers, MTR

That makes sense, thanks for the clarification.
 
Regarding the limiting of funds, the increase in market share, and future strategy for Westpac, see this article from Business Spectator.


Thanks for highlighting that article. Interesting reading and the points highlighted are valid. However i dont think its a concern for Westpac.
Who cares if they now reduce market share on new loans, they already have a decent share and are in a potentially win win situation.

If customers dont churn, then they just adjust variable interest rates accordingly. Make no mistake funding is available, the issue if the cost (which effects the spread).
If customers churn then they still have the balance of the customers on higher rates and funding pressure will reduce.

I am more concerned with NAB trying to regain market share now, they are behind the eight ball with the risk that their margin spread will be lower and the risk of writing will be higher due to higher property prices now.

By the way Steve good posting above.
I talked about the importance of game strategy last year when analysing the banks during the financial crisis, and this is playing out again now.
It also highlights in my opinion the importance of a switched on CEO and board of directors because they are the primary setters of strategic direction.
 
That's a nice post Intrinsic and great link Steve.

It's another take on the credit crisis and adds fuel to the few bears on this forum.

I for one am in two minds as to how the CC will play out. Investor confidence seems strong but if lending has become so strict, this will slow down the rise in the cycle. With a squeeze on finance for investors, it will take longer for Mum's and Dad's to realise it is happening. I attended a seminar by Bill Zheng last year. Even back then his thoughts are now ringing true.

I can't believe that Gail has bitten off more than she can chew though and feel there is truth to your comment, Intrinsic, re risk and market share. Why take the bad loans when you have so many avenues to pick and choose?

RAMS closing their broker channel has suprised me. I would have thought Brokers sourced a high percentage of their client base.
 
My mug punters view is that we have limited funds to lend at reasonable rates, thus limit the funds to known risks

ta
rolf

The banks have been limiting funds to developers since GFC.
So it isn't necessarily lack of funds.

Rates are still below long term average.
So it is unreasonable to conclude there's insufficient funds to lend at 'reasonable' rates.... (unless one believes the long term average rate isn't reasonable anymore.)

IMHO, the banks realize the price of property can't keep doing what it did in Melbourne last year, without the risk of mortgage default with further rate rises, rising uncomfortably high.
So I think their actions are motivated by risk adjusted reward calculus.

And it is not surprising, to some, that WBC have chosen to do this at the same time China is cooling their lending. Does anyone want to elaborate the connection?

China tells banks to halt lending

Wall St dives on China lending concerns

edit:

and if one wants to be even more cynical, they could easily conclude WBC is culling the dill end of the FHB market, the ones who can't raise a reasonable deposit......and that move might even be retrospective, considering FHB applications crashed down to 13% of new loan apps in December.
 
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i dont mind a move like this that means people who cant raise a reasonable deposit dont get to buy. we've already had quite a few FHB purchases brought forward over the last year, many of whom may not survive the rate hikes over the next year, and especially to start with, many who didnt have genuine savings (and i assume most people are tired of TT/ACA stories on 'struggling families' whenever there is a rate rise...aka families with no foresight or comprehension that rates go both up and down).
 
The banks have been limiting funds to developers since GFC.
So it isn't necessarily lack of funds.
*snip*
.

It kind of is.

Have a look at what's been happening with term deposit rates and ask yourself why banks would be paying that sort of money for domestic funding if supply of same wasn't tight.

The Westpac story of:

Gail reminding everyone we don't save enough to fund our debt "needs"
RMBS issue at probably close to 150bp over all up
Reduced LVRs for new customers
No more broker deals through RAMs

..could be explained a number of ways.

Plentiful, predictable and sustainable funding might not be one of them.
 
It kind of is.

Have a look at what's been happening with term deposit rates and ask yourself why banks would be paying that sort of money for domestic funding if supply of same wasn't tight.

Yes, domestic savings, even though they picked up with the GFC, still get channelled into discretionary expenditure, shares (either via super or funds or directly), or servicing higher debt on less property....and a significant portion of that debt is foreign, the interest leaving our shores.

Tighter domestic savings hasn't stopped the banks offering FHBs the loosest terms in history.

And, it would be interesting to compare the rate of domestic savings growth to the rate of new dwelling supply.....and explain why they diverge.

Aussie lenders have been happy to fund the property party by ramping up foreign credit exposure.....ergo net foreign debt.......(until this week maybe.....)



Offshore funding now constitutes 53% of wholesale bank funding. that's a hell of a lot of exposure to 'external shock'. and I think Gail realizes to continue fueling Australian property growth with foreign credit, as China begins to cool its growth, is foolhardy.
 
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Interesting point concerning the increase in reserve requirements by China.

There is some institutional chatter at the moment which is quite insightful.
It goes something like this:
When central banks increase interest rates its like a father at the restaurant dinner table quietly telling his son off for being to roudy.
When central banks increase reserve ratios its like using a hammer to whack a recalcitrant mule (or in the terms of the mafia: you dont listen to me i'm going to f*** you up).

When such statements are made public they are couched in softer sounding 'fed speak' but make no mistake to the professionals they are reading this loud and clear.

The interesting part from here is what happens afterwards. If markets temporarily go down but then recover and the party continues look for the second increase in reserve requirements. Once this happens get ready for a nice shock in the near term.
And for those thinking that exposure to commodities and gold will protect you, think again. Look at the downwards movement of both when the announcement was made.
Gold could go up in the future if there is instability in currencies/cash liquidity, however the fact that gold falls on such announcements is an indication that it is also caught up in the carry trade. This will have to be worked through first.
 
When central banks increase reserve ratios its like using a hammer to whack a recalcitrant mule (or in the terms of the mafia: you dont listen to me i'm going to f*** you up).

Some say it is a smart strategy for China, running a trade surplus, to match US and Euro currency devaluation......as long as asset bubbles don't get too out of hand at home. I tend to agree. Why did China keep buying US bonds after announcing in Feb last year its serious concerns about Obama's printing presses?

When such statements are made public they are couched in softer sounding 'fed speak' but make no mistake to the professionals they are reading this loud and clear.

The interesting part from here is what happens afterwards. If markets temporarily go down but then recover and the party continues look for the second increase in reserve requirements. Once this happens get ready for a nice shock in the near term.
And for those thinking that exposure to commodities and gold will protect you, think again. Look at the downwards movement of both when the announcement was made.
Gold could go up in the future if there is instability in currencies/cash liquidity, however the fact that gold falls on such announcements is an indication that it is also caught up in the carry trade. This will have to be worked through first.

Understand 'real' Chinese economic growth and you will have the most profound insight into nominal and real Australian property growth.


the (USD) gold price will get bashed around around for a while......but that's only half its value, to an Aussie. watch the AUD, like Gail.
 
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