ANZ's clamp down on IO loans for O/O.

Just read that ANZ are introducing a new policy to restrict the use of I/O on owner occupied loans.

Interest Only is only acceptable under 80% LVR on refinanced loans.

Interest only is only acceptable under 90% LVR on new lending (Such as purchasing a house).

Interest Only not available to anyone with reliance on foreign income.

The first one in particular is HUGE! I know many of the experts in here have been predicting something like this was to happen and I think we can assume ANZ is just the first of many to pull the trigger on this one.

Big game changer for cash flow and future investment planning.
Also I see this effecting people's ability to refinance. If your on interest only but a poor rate, refinancing even though you will get a better rate, the fact it's P&I will be worse off for people's cash flow.

Thoughts?

 

Yes I agree. First of many more restrictions on IO

 

@Terry_w do you think all Big4 will employ this?

If so do you think this will further open the door to non conforming lenders to grab a further piece of the mortgage market?

I'm personally VERY interested to see how this plays out in terms of RATE RATE RATE now versus CASHFLOW. People may need to start accepting a higher rate for the privilege of IO on their home.

 

Yes it is possible that other banks will adopt the practice. But it may come down to how many IO loans they have as a % of total loans. ANZ may be a bit more IO heavy than NAB for example because ANZ used to do 10 year IO - maybe even 15 years whereas NAB was 5 years max

 

IO, IO it will no longer work you know ...

A Snow White and the 7 brokers ditty.

 

Ah was wondering if this would be next thing under the spot light. IO loans are apparently growing year by year and everyone seems to think that the only reason one would choose this option would be because they can't afford their repayments.

Think it could cross over into the investor space too?
Taking away IO, assessing at 7%+ etc... Spruikers will be changing their "10 IP's in 10 years" catchphrase to "two IP's in 20 years"

Better get in quick before they end the offset account too.

 

I think the offset will be safe. Without IO loans will be paid off quicker and that is the aim of these measures.

 

The only reason I was paying I/O on my PPR was to increase my borrowing capacity. For the majority of lenders this is now irrelevant, so if I still owned a PPR I'd be ok with that

 

Think they're pretty reasonable percentages to have it at. Are many OO's applying for 90%+ loans these days? Extra 2% to get IO and LMI sweet spot should be easy enough.

Phew! Thought the banks would be keen for everyone to be putting the money into their mortgage and not having the option to move it around willy nilly.

 

This is actually more generous than quite a few lenders:
* If you're looking to refinance for equity release, most lenders won't practically go above 80%. Refinancing above 80% for the purpose of saving money doesn't work either as the cost of paying LMI again usually negates the savings.

* Quite a few lenders won't allow interest only for PPOR purchases above 80%. 90% is quite generous.

With most lenders paying interest only on existing and new loans decreases your borrowing capacity.

 

As Pete said. Plus ANZ is still not charging an I/o interest rate premium. This update wasn't much to read. I'm surprised it made its way to pc.

 

Just don't go above 80%. What is the problem again?

 

That's actually starting to be a good universal philosophy.

 

The change is a sign of the direction where lending policy is heading. I don't actually think practically either of these are that big of a change.

Firstly, most people aren't refinancing OO loans at 90%. There's usually a double up of LMI fees involved. Its harder to release equity here anyway (although ANZ are good here). They've also restricted it to OO only.

Secondly, restricting I.O on LVRs above 90% is pretty prudent and not too extreme. It simply makes sense for banks to ask pay down of debt at higher LVRs so as to not rely on price growth to create equity.

In my eyes, this is tightening around the edges. It makes sense to do this and isn't a real whack or change in the game IMO. For now at least.

 

The only other time (I'm not a mortgage broker so there are probably heaps of other scenarios) that I could see somebody using IO for a PPOR is if they were living in that house as a PPOR, but planned to move to another house in the future while retaining the current PPOR as an IP. They'd be putting their excess savings into an offset instead of paying down the PPOR.

As for staying below 80% it would sure save money on LMI and put you in a stronger negotiation position for rates and home loans. The downfall is that unless you have lots of equity you need to put down more cash on the table or wait longer for your equity to increase in which time house prices are rising in the meantime.

Edit- This change has no impact on me and would probably only effect a minority of people.

 

Oh I'm sorry, didn't realize it was not acceptable to post a topic for discussion in a forum......

 

As someone who has used an ANZ refinance above 80% on O/O IO so I could develop I found it a very significant change.

 

It's all good mate. In your opinion who would these changes have the most impact on?

 

We know an enormous amount of the general public don't use a broker and likely a very large percentage of those don't even know what one is. So the information they are relying on is not coming from an expert.

Of those I think a large percentage wouldn't even know their are more than 4 banks.

Of those a few more probably wouldn't know more than CBA and ANZ. And this is not me making this up I have intelligent friends who literally do not know about other banks outside the big4 and are adamant they would never bank outside of ANZ and CBA.

I also can bet a huge percentage of the population couldn't care less about the fact they already paid LMI. If they could pay another 5k capitalized into a loan if it means they would pay less NOW then they would happily do it.

So I think when a big4 bank, ecspecially someone like ANZ makes a change like this it is significant! As has been said, this is likely the beginning of the other3 following suit and when that does happen that huge percentage of people I mentioned above will be effected.

Any yes no doubt it's prudent to be P&I on O/O but with money the cheapest it has ever been and houses the most they have ever been then many dare I say Need IO which let's not forget is only going to get worse when this rates rise.

Just my 2 cents.