ANZ Floor rate

Changed to 5.5%

 

Wow - floor rates been set so low! It will require another rate cut or two before it gets to 5.5%.

Effective next week.

- OO assessment rate: ~5.80-5.90%. This is nuts. It is literally a 14% BOOST to borrowing power.
- INV P&I assessment rate: ~6.25-6.35%. A 9% BOOST to borrowing power.
- INV IO assessment rate: 6.69-6.79% assessment rate. A 5% BOOST to borrowing power.

If assessment rates do hit 5.5%, then there's been a ~16.5% boost to borrowing power.

 

It hit them hard and they started understanding
the mess they caused.

Only the start

 

"Effective 15 July 2019, ANZ will amend the Floor Rate and Sensitivity Margin used for retail lending.

The current ANZ Floor Rate of 7.25% will be amended to 5.50% and the Sensitivity Margin that is currently 2.25% will be changed to 2.50%."

 

What’s a sensitivity margin?

 

Wait. How do these two interact with eachother?

 

OMG that is quite the drop.

 

In most cases, they can't apply a 5.5% rate. They will be using a higher floating assessment rate that varies based on the loan type sought. This means, everyones borrowing power will vary depending on how a purchase is structured.

At the moment, the best assessment rate that they can apply will be somewhere around the 5.8% mark (3.3% OO P&I rate + 2.5%). This itself is a very substantial borrowing change, a 14% improvement.

I.e. if you have an existing ANZ preapproval for $1million seeking a home to buy, it has just risen to around $1.14mill.

 

Interesting... would be concern if you started to see bait & switch rates allowing lower assessment rates > high servicing capacity.

 

They've got a safeguard - the 5.5% min floor here. If rate predictions come true, this will apply to OO loans soon.

 

see

 

So if I understand correctly, 5.5% is the absolute lowest it can be even if the interest rate you pay + 2.5% is lower than 5.5%?

How does a 5.5-6% floor rate compare to the good ol days? Using a pseudo apples to apples comparison, was it a lot more than $1.14m?

 

Depends who you are @Lacrim, its a new set of 'good old days' for a different segment. I.e. the homebuyer and first home buyer has a new threshold of whats good for them. Not so much for investors, given the change from actuals to sensitised rates is a relatively substantial one that isn't outweighed by this. Will provide more detailed analysis on this soon.

 

Sorry didn't just mean ANZ. Interesting to see that ANZ has gone so hard, being a major.
Makes me wonder if any 2nd tier want to ramp up that they could increase servicing potential by decreasing rates.

 

Any news from La Trobe? Would they even bother reducing?

 

Overall I don’t think the smaller guys will have much lower assessment rates. Even if they do not have a floor (or a lower one), they’ll still likely have the 2.5% buffer. I.e. they’d need a big further rate change to extrapolate additional compared to others. They may also have adjustments to their OFI section that keeps them a bit more favourable (but relatively, this bridges the gap a lot).

 

Doesn't really surprised me that ANZ moved so quickly on this. They flagged months ago that their policies have been too conservative, but probably haven't been able to see a way to back off without raising eyebrows. Their lending volumes and market share have also suffered significantly more than the other 3.

APRA basically gave them a green light to do something about it. Within APRAs parameters they can go as hard as they like without any repercussions. The general public doesn't really understand the implications of this so there's not really going to be any downsides to this move.

As other's have said though, it's only a 5% - 15% increase in borrowing capacity. It's really not going to change much for them, but being first to move will attract attention and probably drive some business to their doors.


As for the second tier lenders, it could be a good opportunity for them, but I doubt they'll take it as far as they could. They're already differentiating on cost and service. They've had strong growth in market share. I think they'll make their adjustments to keep up but won't want to push much beyond that.