120 Billion coming the P&I way

Would that be Logan, Elizabeth and Mt Druitt?

 

Think so...but i don't really track any of those markets very well.

They're also probably not 'forced' if the yield is very high - Mt Druitt might be at more risk though given the yield isn't as amazing as the others. In my first post here i did note that rates have fallen a LOT since those loans have originated. Combine that with income rises from rentals, it may be enough to pull through.

But some investors took it too far and bought x5-10...i think those portfolios will need deleveraging either way. Those investors & others who've had a change in situation (babies, lost jobs, moved to self employment, etc) are the two groups who i could see being 'forced' in 2019.

 

Great post Illusivedreams.

I get comfort from knowing that the overall LVR of the market is around 24%, which I know doesn't reflect household debt, but it is interesting.

You are also right about the general correlation between optimism and wealth creation.

 

Its not the banks are not issuing fresh IO loans just that renewals are subject to new credit assessments. The problem with IO2PI rollover (current and future) is the inability of an investor to auto renew under old conditions and has to go thru new credit assessment and failure to do so. APRAs recent announcement of removing the percentage cap will not change an iota of this. An important(I think) part of failure in new credit assessment along with obvious factors is the consideration of real as against imaginary expense by banks.
The disparity in 'what one thinks/declare as their expense' and "what real expense is' was highly underrated and just coming to front, I am shocked that banks/regulators are shocked.

Would be curious to see investor arrear figures, as there is no reason for that to rise given that economy is firing on all cylinders, rentals are tight and majority (95% ?) of IO holders can easily switch to PI at will without stress (if one goes by general consensus on PC)

 

Yes thats true.

But go a few levels above and try and unpack how that impacts the housing market as a whole. A much bigger picture look is to examine the total stock of IO debt.

If the total stock of IO loans is 25% today in Dec 18.
And the total stock of IO loans is 25% in 1 years time in Dec 19.
Then...there's not really much of a macro impact of IO2P&I rollover in 2019.
This is the credit impact on the market in 2019.

But if IO loans was 40% in mid 2017
And the stock of IO loans today is closer to 25%
Then there's been a massive rollover of IO2P&I already. This re-adjustment has been part of this years housing story.

Hence my point - this real macro impact of this change on the housing market has already played out. Sydney prices have fallen the most in 30 years! This is a part of that. But it isn't an ongoing drag. It is more of a past thing than a future thing.

Whats left to remain in the future isn't a very big deal (most have options, rates have fallen, origination was fine, etc).

 

Just had a look at my own finances recently, a lot of the time it's put on the back burners as focus on clients...

- 1 loan/property has already switched to P&I, didn't even notice
- another will switch to P&I in March, probably wouldn't have even noticed

In the end likely to refinance both loans back over 30 years, setup P&I fixed 2 years @ 3.99%
Total impact is ~$400p/m hit to cash flow due to P&I, but ~$250p/m increase on serviceability

Other still have bit less than 2 years Fixed IO @ 3.99% so will leave them


Found most of my clients have been in similar situations. The IO > P&I hasn't really impacted them.
Some have even opted to switch earlier to improve servicing.

 

Will drop in valuation affect loan renewals going forward this year? So if u can service the increased PI loan would the bank get u to top up the 10 or 20% drop in property price? Could this make it harder to rollover loans in 2019?

 

Every property I own has increased in value last year, I expect the same in 2019. I don't own in Sydney or Melbourne.


A drop in value might affect some if they're wanting to re-write loans back over 30years like I'm doing. As the 're-writing' of the loan could require a valuation.
But if one was simply rolling from IO > P&I without 're-writing' the loans / extending loan terms then there wouldn't be any valuation by the bank. Just another day but now higher repayments.

 

Would anyone in reality just accept that if they didn't have to, though? Surely one would be evaluating the "default" offer the bank would be switching the loan to, and look for a better deal...? Banks tend not to offer the best deal without asking.

Cheers,
Inertia.

 

I don't understand your question. When an IO term expires it reverts to P&I.

As a separate note, yes always ask for best deal, review. Suggest once a year.

 

Yes, that is pretty much what I am saying. Do people just let their loans run rudderless, and accept what the bank tells/offers them? My expectation would be that "simply rolling from IO > P&I" would not result in the best possible deal for the consumer. I guess the question revolves around how much negotiation can happen without triggering a valuation or full loan assessment.

Cheers,
Inertia.

 

Most general people have NFI on what's going on, some don't even want to read documents before they sign. Suggest most on this forum don't fall into this category.
I get what you're saying, but you're missing the point that they have already negotiated the original 'deal' being the IO to begin with.... which at the end reverts to P&I.
Everything is pretty much full assessment now... unless you let it roll into P&I.... you want extend loan term - reassessment; want to go IO again - reassessment....