All aboard the rate rise train - Macquarie Bank 0.27%

I personally think this will somewhat dampen confidence and its only a matter of time before it feeds through to prices - but i'm just guesstimating here.

The aim of some of these policies in the textbooks is often defined as 'taking the tops of the booms'. Most commentators would say Sydney is there or near there. This has the potential to really slow down the projected path of Sydney over the next 12 months and effectively take the last 10% of this growth cycle.

Is it enough to cause 'the panic button' - definitely not.

Overall terms the changes are quite minor and effect a segment of the market. That segment of the market broadly still has access to funds, albeit at a higher rate and generally fewer funding option than before. That's very much 'tweaking' the overall property market, not putting a sledgehammer through it.

Cheers,
Redom

 

Not unless it's used for investment purposes.

Our guy from Macquarie says top ups are going to get much tougher we have been waiting four weeks for the bank to approve ours.

 

According to rumours, Maccas will stop IP lending too, for growing way above the APRA guideline of 10%.

 

According to the session I sat through about 90 minutes ago, Macquarie do have a decent pool of funds available but they're not going to make it available to everyone, or every broker for that matter.

 

Latest Macquarie changes have come through - the interesting ones in my opinion:

• rental reliance policy, rental income will be capped at a maximum of 50% of the total servicing income required to meet the minimum NSR threshold.
• increased serviceability rate to 7.4%
• LVR adjustments for apartments in high density areas and owner occ interest only debt.

 

In other words, they won't recognise renal income exceeds peoples personal incomes. So much for building a large portfolio with Macquarie.

Whilst I understand the rational behind this policy (it's heavily risk oriented), it's an outstandingly dumb policy dreamt up by people who have no understanding of property investment.

 

Oops, wrote something similar in the other thread.

Their assessment buffer put on OFI debt put a big stop to building a large portfolio with them, the rent reliance just goes on step further!

 

Yep - not an investor friendly lender these days. There aren't too many instances where I'd consider using them now. All these new rigid policies and their poor servicing calc certainly don't place them front of mind when I'm structuring deals for investors.

Cheers

Jamie

 

Couldn't agree more.

What's more likely - losing your job once during the period of your mortgage, or somehow by act of God losing all of your tenants at the exact same time..

Never understood the rental reliance concern.. Unless it's all from a single asset

 

Quite possibly also the majority of property investors I'd wager that most ss/pc members are more cluey than your average mum/dad "my friend said property is a good choice" investors. Hence the dumb policy becomes a smart policy designed to cover the dumb majority

 

Here's the risk related thinking for rental reliance polices...

It's a simple market fact that most property is negatively geared. The rent simply doesn't cover the interest on the purchase price and costs, nor the ongoing holding costs such as maintenance. As a result of this, every property you purchase puts additional strain on the owners cash flow.

The second market fact is that there are always vacancy rates. 2% might be considered low, 5% above average. Despite that vacancy rates fluctuate with market cycles, they do exist and it means that on average, a property will be vacant for a percentage of the time over which the measurement was taken.

Like cash flow, vacancy rate is cumulative as the portfolio grows. 20 properties with a 5% vacancy rate means that at any given time you can expect 1 property to be vacant.

Now combine negative cash flow and vacancy rates together. The larger the portfolio, the more likely your cash flow is to be under stress. Combine that with vacancy rates and the more likely your cash flow is going to be under further stress because one or more of your properties isn't going to be earning any income.

Hence the more properties you own, the more precarious your ability to service the debt is.


Of course, there's many holes in this argument. It's reliant on assumptions that simply aren't a market reality, nor does it give consideration to peoples ability to mitigate these risks. Kind of like economists predicting the housing market is going to drop 40% and cry 'Government intervention' when it doesn't happen.

I'll let others point out the flaws in these arguments, but that's what happens when the bean counters run the business.

 

Well we can't change their minds, but we can change our banks

 

Little birdie tells me Macquarie are in a far worse position than AMP with growth of their I/O book... and even more changes will follow

 

Some stats for your viewing pleasure

 

@DaveM they're some nice graphs but they really only tell us one thing. AMP and Macquarie are small, they're taking on the big end of town and they're gaining market share. They've have massive growth as a result, but they're nowhere near as exposed as the majors. 81.6% growth is huge, but it needs to be compared to their growth in other lending and their overall balance sheets and compared with the market to determine if this is a concern or not.