APRA changes ?

Sorry - that’s just not stacking up - from beginning to end . The premise is flawed .

1. There’s been no change to P&I and remaining term being mandatory in the assessment rate . You are making the mistake in believing the reduction from 7 to 6.5 or 6 matters enough to transform things , when it’s the P&I assessment of debt over the remaining term of the loan , rather than the IO assessment of the same rate with no consideration for the remaining term , that really matters much more . We all know this by now - or should. It’s not just the assessment rate . It’s the assessment rate PLUS P&I. PLUS the remaining term that hurts . So yes - Borrowing capacity will improve , but we aren’t anywhere near where we were before APG223

2. As for HEMS making a comeback - HEMS is the current standard. It was introduced variously by lenders between late 2015 and as late as 2016 by others , and it replaced the Henderson Poverty Index. How can something that’s still in use be making a comeback? It would need to have been set aside or replaced or superseded or abandoned in order to be making a comeback . Lenders continue to use it and continue to apply incremental CPI indexing to it .... and they’ve all increased how credit card limits are assessed - ING doing so just last week . 3.8% per month is the new norm - replacing 3%

3. This change remains firmly within any reasonable definition of the new norm. If you don’t believe it to be so, please demonstrate how it doesn’t meet that definition Are actuals back? Is IO ignored when debt is assessed , as it used to be? or does it still damage your capacity if you carry 10 years IO and have your debt assessed at 20 years P&I rather than 30 years “actuals” - even if it’s potentially going to be at 6.5% P&I instead of 7.25% P&I as a result of this weeks announcement? Bottom line - Will you now be able to borrow 15-20 x income again as a result ? ... Or close to it ??? Because that was the old normal.

You see, you are arguing that any change means the new norm has been blown up and you called it . Even if that change / increase represents an opportunity for some borrowers (not all) to recover only 20% or thereabouts of their already significantly decreased post APRA capacity.

Whereas I would argue that when the old normal (pre APRA) allowed for 15-20 x DTI , anything well below that ( currently 7x income or thereabouts , And possibly now expanding out to 8 or 9x ..., or even 10x if rates are also cut ) continues to meet that definition quite reasonably .

put very simply - it’s still well below where we used to be . And what will potentially be given back to borrowing capacity with this change doesn’t really come close to replacing what’s been taken away from pre APRA borrowing capacity - . For investors especially . As for Owner occupiers - yes they will receive a modest advantage for sure - but new money has always been assessed at a buffer so it won’t be as big a change as you think . Yes it will mean a reduction from 7.25 to low 6’s , but that won’t double their capacity . It would require a change to the treatment of existing debt to make a real argument that the “new normal “ has been replaced by the Old normal again .

It’s like suffering a $10,000 reduction in salary , then getting a $2,000 pay rise a few years later and saying. - “told you so. Back to the good old days , eh...”. It’s nice to get back some of what youve lost , but really.....

 

Property purchasing aside, this should work out pretty well for investors.

Those stuck in IO lending with the liberty, bluestone types - paying high 5s

Should give them a breather to refinance into P&I over 30 years

Extend the loan term, knock off 100-150 pts on the loan. The repayments shouldn't a huge leap

I/O @ 5.5% $400,000 - monthly repayments $1,850
P&I @ 4% $400,000 - monthly repayments $1,910

 

Yeah - not necessarily . You are assuming they can refinance . Even if rates fell to 3% IO and they were assessed at 5.5% P&I - that’s higher than “actuals “ of 5.5 % used by those lenders ... it’s certainly a possibility it will help some - but it’s by no means as straightforward as only looking at the monthly repayments. Repayments aren’t the issue - you have to pass a buffered P&I calc still - and even a lower one than 7.25 will still be challenging for many , especially those who have exhausted mainstream lenders and are at those few old school lenders now.

There’s also the question of LVR . Many markets have corrected so it’s possible that some of these loans may not work LVR wise , even if the calc works

And there’s also the question of NG add backs if rates are cut - that will knock off some of the improvement offers by a lower assessment rate

If the RBA cuts hard and banks decide to abuse this self regulation APRA is handing them , I would agree it’s possible for things to take off , but you could be sure that APRA would step back in again if that happens ...

We should try to see this for what it is ... a modest removal of the foot from the brakes that has the potential to create a sugar hit - but it isnt a foot being planted on the accelerator so without strong wage growth as well its difficult to see how this will solve everyone’s borrowing capacity challenges

 

The fundamentals of investing and market psychology haven't changed much at all in hundreds of years. I don't see them changing now. It's all a cycle. Markets, sentiments, lending etc. I always tell people forget the noise, focus on the opportunities.

 

Spot on pal.
So was I when I said Apra had a lot to answer for and the Government will step in because the economy is cooked.
As if they were going to let the IO to P&I worth billions and billions ruin thousands of people and just sit back and watch, like we heard here in hundreds of posts by the same people.
The people that spew this stuff are on their first rodeo

 

Here here!

 

A sensible, balanced regulator would:

- adjust assessment rate buffer (in train)
- encourage banks to investigate and distinguish between genuine non-discretionary living expenses and those that clearly can be wound back if needed (we have the technology, people!!)
- take a more balanced approach to assessing the source of repayment for investors (ie being asset sale as the way out in most cases, not a 20-25yr P&I profile..which means not over-gearing investment deals on the way in and applying sensible LVR buffer - think this is the approach they take in the UK from memory)

 

APRA changes “unlikely” to invigorate housing market

 

If you believe Magic Scott or Magic Josh made this happen - that's la la land stuff. This is a long term, well executed, strategic intervention .Govt has nothing to do with this. These changes will have been in the works by the independent regulators well before the election, when everyone was certain Bill would be in. Plenty of media leaks going back 2 months tell us they were preparing this a long time ago...

if we are going to use "as if" arguments, here's one ; as if they were going to let IO volumes stay at 53% of all lending and do nothing, allowing the trajectory to continue to 60% and then 70%. All debt thats never to paid off - serviced at "actuals" , making up 50%,60%, 70% of the next generation of Australian RMBS to be sold to the world. The threat to the entire economy when our mortgage bonds become junk rated because the world realises IO is potentially the new subprime is what this was always about . It doesnt matter whether they'd be right or fair in reaching that conclusion- it only matters that they would reach that conclusion, and shut down credit to Australian banks , if a forced migration to P&I wasnt effected. For a nation heavily reliant on RMBS and wholesale capital imports, thats just not an acceptable risk. The Big 4 going down would mean the ASX going down, every superannuation fund going down, every SMSF going down , every small business going down, every mortgage holder going down. ie calamity.

This was a choice between two unsavoury acts - do nothing and let the whole thing become so risky that the chances of it coming down become more and more realistic, or step in and force a recalibration , deal with some pain for a while, before gently moderating the intervention - which is what they are doing

The stuff you are saying is written by people who cant ride a horse, let alone ride in a rodeo.

 

If you think that The gov't and big 4 haven't put the squeeze on Apra, You're in lala land

 

Unfortunately Liberty's rates aren't quite that good.

Their interest only loan for investors with 4 or more properties is about 6.30% - $2,100 / month.

 

Big 4 and Govt to APRA

We are here to squeeze you APRA- you are hurting our calcs with this silly floor rate.help us make even more money. I mean... err.. help us help you ....
Frydenberg- yeah. these guys tell me that your rules are unreasonable. why dont you pull them back so my economy looks better, eh? charge up, fella's , you are going to make my budget projections leak like a sieve

APRA to Big 4 and Govt

Um, respectfully .....you clowns can already use 7% if you want to. You've been able to do so from day one. You are using 7.25% and higher . That's your call, not ours. You clowns can also use 7% for NG addbacks if you want to, but have decided to treat NG addbacks at "actuals" . Thats also your call, not ours. You clowns have also gilded the lily by shading all kinds of secondary income sources, and let me just remind you that you've made massive profits by gouging IO borrowers along the way, just quietly You didnt mind the new rulkes then, did you old chaps? eh???? eh???? . My advice to you is that before you walk in here with the treasurer telling us that WE are holding things back, take a look at some of the very easy, very immediate steps you can take to unshackle things a little at your end. I notice several of you have been talking with media of late, telling markets you are hitting the GO button... I guess that was all talk, eh? And Mr treasurer, respectfully- we are independent and you ought to be talking to the banks more about letting credit flow. We believe they have quite some capacity to do so. So perhaps start with them. Our job is to protect retail deposits and keep the banking system safe. You do want us to keep the banking system safe, right?

And thats what we saw after the RC wound up in the new year - the treasurer doing multiple doorstops demanding the banks unshackle and start letting money flow....

Probably around the same time, the RBA comes a knocking

Hey APRA, we cant get this current mob in Canberra to spend on infrastructure and get wage growth going. Two Governors have been imploring them to go hard on this for 6 years now, to no effect. They arent listening to us. They just cant get things done. We have tried and tried and tried to talk up the economy but wage growth is going nowhere and while we agree your regulations were necessary, they are starting to cause some issues in the broader economy now- because the Govt isnt doing their bit on the fiscal side and wages are stagnant... Frustratingly I cant convince these muppets to do as we have been asking for years an years, so we need to get a plan B together before the election. If Bill gets in, his policies for wage growth and apprenticeships and housing construction will be of great use on the fiscal side , we think , but if he doesnt get in the only stimulus in the pipeline is some modest tax relief and its a one off sugar hit . So lets get a plan B ready in case they get back in and continue to ignore their fiscal options. We were considering rate cuts but we really really really dont want to give away any of our 150bpts if we can avoid it- I mean, its all we have left . it's a pretty skinny safety net - so we will be deferring any decision until after the election and talking things up wherever possible. So the basic game plan is that maybe we can avoid cuts if Bill wins, but probably have to cut if Scott wins. BUT, we are going to need a favour in that scenario ... you see, we think rate cuts wont do very much at all... yes they will be a small sugar hit but they dont help borrowing power anymore , so rather than us cutting rates in isolation- which , as we said earlier we are loathe to do but may have no choice to do if Scott wins - we think that if you give up a smidgeon on assessment rates in combination with our cash rate reductions, we can keep the show afloat for a while longer, while preserving your end goals to get the whole thing rebalanced and safe ... Besides, your stuff has largely worked its way through the system and we have a much better balance between IO and P&I now, and thats a safer place to make concessions from than where we were in 2015.... what do you say to some modest recalibration so that our rate cuts are actually felt by borrowers ?

 

I've spoken with two separate people at one of the big 4 lenders this week and asked what sort of conversations they're having internally about the assessment rate.

Far too early of course, but they were indicating that they'd take the assessment rate of 7.25% and reduce it to 6.75%. Not a particularly significant change in the grand scheme of things. This sort of thing helps get some of the currently difficult deals across the line, but it's not going to help very many buy an extra property.

Clowns indeed. I got the feeling the people I was speaking too didn't really understand where I was coming from or where this could take them. They're eager to business, but they don't seem to really appreciate the things they could be doing to make that happen. They're still talking about interest rates, not about lending policy.

 

Lenders turned off the taps. Economy which was already struggling, basically came to a stop.
Whether you like it or not, Big 4 have a massive say in how things run here.
You're ahead of the curve aren't you lol

 

Great post @euro73

 

Actually, yes... I called a modest reduction to the assessment rate quite some time back

Just like I called rate cuts when everyone else said increases

And it's likely the calls I have made on the impact of a 6.5% or 6.75% assessment rate will be spot on as well. Just do the math. It isn't difficult to see this stuff coming.

 

You seem very defensive about these changes of which a few of us here said would happen, but well done to being ahead of the curve, You should have left it in your signature

 

@euro73 appreciate your perspective

Hopefully, this is the beginning, but just looking at living expenses (especially around the discretionary part), changes to the assessment of credit card limits. These alone have a bigger impact on borrowing capacity compared to a small adjustment to the floor rate.

Different demographic, but I worry about the younger FHB generation. Banks will be eager to lend, new federal policy - but their addiction to afterpay - will smash their borrowing capacity.

 

Oh I’d imagine this is easily managed . I expect that plenty of FHBs will be brought forward by this alignment of policies .... I think that’s definitely going to contribute to the sugar hit

 

Did She?/