APRA changes ?

Thanks rolf and I assume you're referring to resi investments only right?

 

I think he's referring to rental yields. Lenders cap them at 6% generally... some allow a touch more.... But as an example- if a lender takes 6% rental yield, then uses 80% of that amount for servicing ..it's really 4.8% that they are using . Or in Macquarie's case, 75% would equate to 4.5% being used. So unless you are being assessed at a rate of 4.8% or below, then you are suffering a net reduction of borrowing capacity even with 6% yields. There's no way to be assessed at 4.8% as the floor rates sit higher than that. In order to be assessed at 4.8% - especially if you are paying IO for 5 years or 10 years , you'd need the floor rates to fall to 3% or thereabouts - which, allowing for a buffer of 2.5% , would require interest rates to fall to 0.5% or less, which would require the cash rate to be somewhere around negative 2% - 3%. So pretty much buckleys and none.

Or looked at another way , as @Rolf Latham is pointing out - in order to be servicing neutral at floor rates available today - say 5.5% P&I ( and remember, no IO investor loans are going to be getting 5.5% assessment rate without another 2 rate cuts probably ) you'd need yields of well over 8% - which most lenders wont accept anyway .

So any which way you look at this, it just isnt a sudden rocket under borrowing capacity for investors carrying IO debt with sub 8% yields- which is pretty well most investors, yeah?

I continue to be surprised by how little some of the borrowing capacity bulls seem to know about how servicing calculators actually work.... They continue to focus largely on one component only - the assessment rate. But it's the P & the I and the remaining term and the H and the E and the M and the living expense scrutiny that are the components that really changed things for most investor borrowers - none of which have changed - and are actually getting tighter .

Everyone reading should certainly call their broker, have them run their numbers on the new Westpac, ANZ or Macquarie calcs and see whether they have suddenly got oodles more capacity than they had last time they checked..... I think that the answers won’t be quite as exciting as has been suggested ...

Couple more rate cuts and maybe ... but right now , appears not.

 

Great post. I think you're pointing out who exactly benefits a lot from these changes.

The answer to the above will depend a lot on who you are.

For example:

- If your a single income highly leveraged investor with Pepper, you're not going to see many changes to your actual figures from this. Going from a -$2k fail to a -$1.5k fail doesn't do much good for you. If you're a dual income investor with a load of properties, you're likely to be in the same boat.

- If you're a low expense (relatively restrained) household in the market for an OO and not much of an investor, than you will see tangible improvements to your borrowing power. A lot of young first home buyers or first time investors will see noticeable, material, improvements. Improvements so big, that they'll outweigh ALL of the negative influences to your borrowing power over the past 5 years (given the largest change was to existing debt holders and these assessment rate changes outweigh living expense adjustments for debt sizes above 500k). I.e. you will likely have the highest set set of figures for your income profile that has EVER been allowed in Australia. Of course, prices are close to their highest ever, so it makes sense borrowing calculators allow for that.

Note that this second group of people rarely actually go to their max borrowing amount. I.e. they don't take on the debt that the bank lets them have. Its more the young borrowers that know/feel that they'll have income rises over time that feel more comfortable leveraging to bank ratios. Households that are a bit more mature are less likely to go out there and upgrade further just because a bank tells them to and their affordability improves (high debt sizes do scare a

The first group of people, typically exhibit behaviours that look to leverage further (higher risk profiles).

 

Has the new CBA borrowing calculator been released as yet that factors in the new APRA rates?

 

Yes

 

Doesn't look like many of the banks have updated the basic borrowing power calculators on their websites though (as useless as they are), these look to still be using 7.25%.

 

Ignore them. Those calculators have never been accurate anyway. Even if they were accurate, you're probably not going to give it the correct figures.

Online borrowing capacity calculators are nothing more than marketing tools designed to get you to give your email address to the bank or broker publishing it.

 

I am looking for some advice on my situation.

In the beginning of this year I talked to few of the big banks they said I had the borrowing power of around 500K-510K.

Since the changes to serviceability and floor rate, I decided to check again with them to see if it has made any difference.

Talked with an ANZ lender and was advised that my borrowing capacity has increased to 570K. Thought it was great news.

Decided to do a pre-approval as I am in the market and it came back back with an approval for 500K. Can someone please explain why? I was not expecting to get the maximum of 570K anyway. Maybe 540K-550K. But 500K seems a big drop.

 

I would suggest speak to the ANZ lending representative to understand why they dropped it back down to $500k.

When they advised your borrowing capacity has increased to $570K, did they ask for any information such as payslips, bank statements?

Cheers,
David

 

Yes, they had all those documents.

The reason they gave was that there was an issue with the bank assessed expenditure calculator when the lender checked our borrowing capacity.

So when the assessor checked our application, the issue had resolved with the calculator and bought our capacity down to 500K.

 

Have you guys heard that NAB is going to increase more items in the post loan expenses to hike up living expenses especially for investors?

 

An issue with their expenditure calculator? I doubt it. More likely they've been told by the higher ups to get more aggressive and they've made some manual adjustments in order to get your business. The ANZ has recently made statements that they went too conservative in their lending criteria.

 

Which banks would be less conservative in their lending criteria?

Instead of going to another bank directly, would I be better of going to a mortage broker in my situation?

 

Absolutely you should have done that in the first place.

 

The lender with the best servicing criteria depends on your circumstances. There's not simple answer to this question, but I do know that ANZ has generally been more conservative than the other big-4 lenders, as well as many second tier lenders.

I'm a mortgage broker so my answer is bias. Feel free to call me, have a discussion with me, then compare the info I give to the person you're dealing with in the branch. We can both get the same deal, so base your decision on the information you receive.

 

Thank you so much. When would be a good time to contact you?

 

Has anybody heard anything around when Firstmac will be realising their new servicing calculators?

 

Being a non bank smaller lender, I'd assume they'd be one of the last ones to do it?!?!

 

Can anyone throw some light on CBA's new calculator? What's lesser and what's increased in the new calculator as far as servicing goes?

 

Firstmac moved their calculator online about a month ago. As far as I know they haven't made any announcement but they could change at any time and nobody would be the wiser.