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

Yes. But if people are going IO on OO now at these low rates above 90% LVR. . . .#thestruggleisreal.

But not everyone is an investor nor privy to the masses of helpful information available on PC.

I think it will hammer FHB in the 90%+ bracket. But by the same token they should not be able to go IO anyway. Forgive my snobbery, but this is just waaaay to risky a practice to let continue.

Either way if people are stretched that thin and rates go up. Sad but true, it's time to go shopping.

 

I wasn't having a go at you. Just how the topics work on here.

For example last year the westpac group was the last of the big four to reduce lvr to 95%. To me that was a huge change, but there wasn't any discussions on here about it, I guess because it didn't affect investors.


It looks like ANZ is the first to move in this space, but in practice the others are already there, using price and credit score instead of policy.

Nb now a very few credit unions, bankwest and ANZ existing customers are the only places for 97% loans, and as their books fill up they will exit the market too.

 

I don't see this as a big deal.

They're still ok for IO up to 90% against an owner occ which is better than most other lenders.

Very rare a client would need to refi at 90% LVR so that shouldn't pose an issue either.

Cheers

Jamie

 

Only if there was a sudden downturn like in Perth or Darwin, just pulling out random numbers but homes worth $600k now worth $400k will result in negative equity/above 90% loans. Then you are in the poo. Ok that's a bit extreme and they probably couldn't refinance anyway. Ditto an OTP property that the bank has revalued at $100k less than purchase price.

However, there could be some borderline loans that previously would have been ok to refinance. With this policy change, should the borrower need to refinance with ANZ then these loans would be problematic.

 

Anz generally aren't a lender of first choice to externally refi to due to their servicing calc being quite dismal.

Cheers

Jamie

 

Whilst this is not a surprise....I have been waiting for this.......this is going ot hit Sydney people in particular....as this will have more on a impact on people with large borrowings.

In my view watch for the following next year:

1. Banks will clamp down on I/O loans on both OO and IP loans. Very few people will be able to get past 5 years I/O in the future....10 years at as a maximum I/O period will be the norm. Some banks did 15 years before.

2. More interest rate rises on both OO and IO loans to claw back margins...if you have not fixed....it will hurt if you have a large amount of borrowings.

Part and parcel of the environment...I am still qualifying for loans but a lot harder now.

 

What's the brokers thoughts on this change in regards to ANZ's strength policy in self employed and one years financials?

I understand you still need to provide details of cash-out when self employed but with a genuine strong reason?

My thoughts being their is a higher chance the self employed will require IO due to uncertainty in cashflow.

 

How you earn your income shouldn't really be overly connected to this particular policy roadblock put up.

E.g. they won't allow you to go 90% I/O OO with the justification that your self employed - that won't fly as policy doesn't allow it.

CBA also allow take latest years financials in LMI territory, so you may be able to do your deal there, as policy allows it.

 

5 years IO will result in the debt being entered into a servicing calc as 25 years @ P&I so IO makes servicing worse, not better. Worked well when we had 10 or so banks assesing other banks debt at actual repayments.

I predict most, not just the big 4, will be forced to comply due to the grey cardian brigades infinite knowledge on how this industry works, or doesnt work, according to them

Yep, very clunky and frustrating to make simple changes.

This would be close to zero of the IO loans in my book as its a legit cash flow strategy, not a way to earn a quick buck by placing someone in an IO loan. More evidence of the ignorance surrounding the industry.

Have thought about this as well and have also read commentry by "experts" that demonstrates gross ignorance.

I would say 50%+ of first home buyers on my books are above 90% LVR and many 95% + full cap of lmi so more like a 98% lend.

 

IMHO in terms of practicality, I actually like aggressive pay down strategies for over 90% LVR owner occ deals, so it's not the end of the world.

The only issue I do have is when these policy changes can create a policy culture shift across the lenders, the last thing you want is a cascading of conservative policies rolling through the lenders.

 

does anyone have a link / exact wordings for the official announcement they could share?

 

INTEREST ONLY LENDING POLICY UPDATE
After reviewing our products and rates we would like to communicate the following changes:

1. Interest Only lending (including EMA accounts) will no longer be available for any:
   • Lo Doc 60 (self-employed) loan applications
   • Loans reliant on any amount of foreign income for serviceability
   • Scorecard declined/overridden loan applications
2. Interest Only availability (including EMA accounts) for Owner-Occupied lending will be restricted to:
   • Maximum 90% LVR for all new lending (including credit critical renewals)
   • Maximum 80% LVR for external refinances

When will these changes come into effect?
Changes will come into effect Monday 30th January 2017.

 

Westpac has followed suit-I know. I have been hit badly.
Comm bank is still promoting a 15 year max, but It won't be for long.
IO loans were a cashflow strategy highly marketed in the 2000's.
We bought property, arranged finance with a mere phonecall, and often were even offered 105% loans,with the manager arriving at our office with the paperwork. 5 year IO, with an assumed IO for life of the loan, or until we decided to sell off.
The strategy was great, the gearing worked wonders, and luckily we paid out a few, to provide "future income " in retirement.Unfortunately, we still have a few stragglers in the fold, which are going to cause some huge problems with the new bank policy.
The properties are in a downturn zone, waiting for markets to rise, which will take time.
Rents are down, values down, and now repayments will almost double.
We have semi retired, so cashflow is also down.The wonderful lifetime strategy almost worked, except for this curveball.

Yes-IO to P&I hurts badly when cashflow has diminished, and age has crept up, which it does very quickly! Just be aware that the bigger your portfolio, the bigger the hurt when this happens.

If you are in your 30's, or 40's, it won't be that bad. If you are in your 50's and thought you could retire early, and live of your rents, this is not a good thing!

Currently you need about $1m in Super, and 3 or 4 IP's to have a comfortable or early retirement, because you probably won't get a pension, unless you want to wait until you are 70. To have to start dipping into savings to pay out principal, because your rents aren't covering your repayments, is a HUGE deal. Don't dismiss it just because you think you are in an invincible stage of life.
By the way, nice to see all the familiar faces from the old Somerset forums on this site.