APRA changes ?

APRA looks to amend mortgage lending guidance - Mortgage Business

 

Give it a month or two , these idiots will understand what they did and reverse it.

 

Here’s a link to the media release:

APRA proposes amending guidance on mortgage lending | APRA

 

Wow...

 

A 2.5% buffer is being recommended rather than a one size fits all floor rate of 7% . On a 4% rate, that would mean an assessment rate of 6.5% - but on a 5% rate it would mean 7.5%, so before we all get too crazy excited, probably best that we understand the nuance.

My take from this is that we may end up with "some" loans being assessed at a lower rate than 7%. Some may not receive any material advantage. Existing debt, particular;ly existing INV debt - currently assessed at the floor rate, may also see some relaxation ( depending on the rate you are paying- you'd need to be under 4.75% to be better off)

Of course, if the RBA were to cut the cash rate and lenders passed it through, the 2.5% buffer would then start to work in investors favour quite a bit more.

So it could give some borrowers a nice little boost. But its not a return to "actuals" by any means...

APRA has also proposed that ADIs’ serviceability assessments incorporate an interest rate buffer of 2.5 per cent. Currently, APRA expects ADIs to assess loan serviceability using the higher of either (i) an interest rate floor of at least 7 per cent, or (ii) a 2 per cent buffer over the loan’s interest rate. APRA’s guidance also indicates that a prudent ADI should use rates comfortably above these minima; most ADIs use 7.25 per cent and 2.25 per cent respectively.

“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so.

“In addition, the introduction of differential pricing in recent years – with a substantial gap emerging between interest rates for owner-occupiers with principal-and-interest loans on the one hand, and investors with interest-only loans on the other – has meant that the merits of a single floor rate across all products have been substantially reduced.

“The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards. Rather, it is simply recognition that the current interest rate environment does not warrant a uniform mandated interest rate floor of 7 per cent across all products.

"The proposed changes will provide ADIs with greater flexibility to set their own serviceability floors, while still maintaining a measure of prudence through the application of an appropriate buffer to reflect the inherent uncertainty in credit assessments.”

 

This. Is. WOW.

They've spooked. I thought they'd be concerned...

Two rate cuts + assessment rate changes? That is genuine fear and an intentional rocket being put under housing. Targeted specifically to housing demand too.

The turbocharger to housing demand this is going to cause, specifically for the capitals, is going to be seriously underestimated. IMO once rate cuts go through and assessment rates are at 6.5%, they've literally just inflated nominal asset values materially (10-20%).

I wonder how 'prudent' this is.

 

Agree @euro73 - it does mean different assessment rates for different products. Noting the increased 2.5% buffer (vs 2% in prior assessment guides), it's shadowing & effectively signalling rate cuts too (it's a package the CFR have put together).

Although it does impact a far greater % of people than that particular policy (multi-property/debt owners). FHBs. Upgraders. First time investors. Etc. Actuals policy was in effect a 'lower effective' assessment rate for a specific group - mortgage holders. Albeit, it was lower than 6.5% once all played out in certain cases.

 

@Redom and @euro73 do you think Scomo/Frydenberg might have picked up the phone and told APRA the slide in property market has to stop and do whatever is needed?

Cheers,
Oracle.

 

I have stated my displeasure towards Apra multiple times. They are a big reason as to why this economy is currently where it is.
The big 4 have put their hands around APRA's neck for the last 3 months. Its common knowledge

 

This is the best week I've had in years!!!

* Saturday night, Liberal party wins the election.
* Sunday morning, I shoot an archery tournament and win gold.
* Tuesday and APRA may be rationalising the assessment rates.

If this keeps going, but the end of the week a Victoria's Secret model will have called me asking me out for 'coffee'.

 

In all seriousness, this is a really, really big deal. For some scenarios the assessment rate could increase. For the most part, the assessment rate drops there's a boost to people's affordability. For some it will be a little, for others it could be quite significant.

There could be a lot of interesting outcomes from this. An expensive interest only investment loan is probably going to damage servicing as Euro has already outlined. On the other hand, may fixed investment rates are very low and there's likely a net positive to be had for principal & interest loans.

I imagine lenders will move very cautiously with this. It will still be a balance between allowing them to lend more money, but remaining to appear to be lending in a responsible manner overall.

 

Thats the great thing about leaving APRA in charge.
Its all their fault for the entire Aussie housing market going into a tailspin.
Decisions slowly get wound back as political pressure mounts , the leadership may even change and they go back to being a toothless tiger.
Property will always be a sure bet in Sydney and Melbourne because its "to big to fail"
Give it another year and their will probably be a few more decisions wound back to help stimulate the markets, before it takes off again.

 

I feel that it's going to be good for people that are currently trapped with unfavourable lenders and high interest rates.

 

I'm a little concerned about this. Not sure if the regulator should be trying to prop up the market

 

Don't be it means almost nothing. All this does is allows the assessment rate to move when interest rates go up or down (because right now it is a flat 7% across the board). It would be totally nuts if that couldn't happen. This change just means 2.5% above whatever the rate is (so yes for some people the assessment rate could go up). I'd be curious to see if it hurts boutique lenders who might offer higher rates?

 

Well not necessarily, it means those offering higher rates (higher than 4.75%) will actually have the assessment rate rise so this could lock buyers out if larger banks won't touch them. It'll be good for others, as for many the assessment rate would fall. This is based on current rates.

 

I'm wondering if part of their logic here is wanting to encourage more people away from IO and into P&I products, which is a good thing.

 

@highlighter - higher rate loans already do this (have an assessment rate above the floor). They're usually not subject to APG223, but do this out of prudence.

 

Not quite sure what everyone is on about.
I recently saw my loan manager at commonwealth bank. He offered me 4.82% for p and I. Based on this 4.82 plus 2.5. That’s 7.32%. That’s worse than 7.25%. I know my case is anecdotal. Scratching my head why everyone is rejoicing given 80% home loans are with one of big 4?

 

Banks are very smart. I am hearing about moves to completely outsourcing all due diligence on loans to third party companies.