Apra changes

That is what the brokers I deal with are telling me also. They too raise it from a risk perspective and try to show the impact to them if their rates increase or they go to PI. Most only want to borrow as much as possible. Interesting....

 

That is true for PPOR's, but not investors cashing out, or deceased estates.

 

Don’t think I agree with this point at all.

A rise in interest rates is too broad and pushes into areas aside from the housing market. For instance the travel sector - which needs all the help it can get.

Also it’s not a transfer to the wealthy, as a rise in interest rates only affects people that need to borrow the money, which is not the rich, so they get richer.

Things like this target the housing market specification. It’s all about supply and demand and taking out some demand.
Maybe another good thing to do would be to prevent foreign investment to take away some demand.

More needs to be done though, people need saving from themselves

 

Very interesting, same day, across the ditch the RBNZ increase interest rates and takes direct responsibility of house prices into their decision making.

Increasing interest rates is by far and away the most impactful way to actually reduce house price growth and would have a far greater impact on house price trajectory than what APRA have proposed. The contrast in ideas around who is responsible for house price growth, and the difference in policymaking decisions is very interesting for similar economies at a similar point.

https://www.rbnz.govt.nz/news/2021/...uced-official-cash-rate-raised-to-050-percent

As required by their Remit, members assessed the impact of monetary policy on the Government’s objective to support more sustainable house prices. The Committee noted the Reserve Bank’s assessment is that the level of house prices is currently unsustainable. Members noted that a number of factors are expected to constrain house prices over the medium term. These include a high rate of house building, slower population growth, changes to tax settings, and tighter bank lending rules. Rising mortgage interest rates, as monetary stimulus is reduced, would also constrain house prices to a more sustainable level. Members noted a risk that any continued near-term price growth could lead to sharper falls in house prices in the future.

 

So what does that say....for Australia?

Lately...we seem to following NZ (und Zed) rather than the other way around.

50 basis points a big jump...do ya thunk some here will take notice.or will they keep going Kamikaze...and say banzai?

Remember they out very strong policy constraints particularly around Auckland property and it did not contain it. This is now the direct shot...if people don't heed it ...it required another 50 basis point rise. That would be a 40% increase in rates.

 

NZ policymakers, particularly their central bank, have a far more aggressive approach to monetary policy to Lowe/Byres. They've been like this for years and take responsibility for house price growth in their policy remit.

Given policymakers attitude differences, I wouldn't look at their decision making and make assumptions about Australia's thinking. The results of their actions however (macropru, rate rises, etc) is very interesting and will provide clues to what may happen in Australia should similar policies be made.

Fascinating policy differences and a great case study.

 

I think we need to be saved from bad government policies: covid lockdowns, zero interest rates, endless deficits. These are not intellectual errors coming from the free functioning market.

 

I think we need to be saved from government My favourite conspiracy theory is the government cares about you

 

One of my favourite ronald reagan quotes springs to mind:

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

 

i very much agree.

 

great point. well said.

 

Well I've just chatted with my broker as I am in process of refinancing my loan. No official announcements from banks yet. I suspect that the banks will move fairly quickly though.

 

The letter from APRA requires banks to apply this by end of October so they still have time but banks will probably adjust soon.

 

I believe some banks are already applying the 3% interest rate buffer already

 

Haven't seen any communications from the banks yet. Best case it would take until next week to implement, but it is fairly easy to stress test this for most lenders.

 

I think the reason why borrowers are interested in pushing their DTI's up can be attributed to the incentives of below inflation interest rates. When rates were 4-5%, borrowers were very keen on paying down their PPORs.

With blended borrower rates now at 2%, the incentives have changed. The math for those reasonably good with money doesn't make too much sense to be paying down debt when the return of doing so is BELOW inflation. As a metaphor, storing cash in your mattress sends you backwards. With inflation at 3+ and rates below 2 now, paying off your mortgage is doing the same.

This obviously has a LOT of holes in it, as rates are not a constant into the future and inflation can move. But at the moment, it feels as though the more you take on, the more of a return you'll make. Its also tax free under PPOR provisions.

This is the monetary mechanism at work, and a unique feature of below inflation rates at the moment.

I.e. if you can afford to take on a 3-4m debt and own a 5m asset, where the cost of the debt is BELOW inflation, it is a far more attractive investment option in this market. Overall the blended cost of debt, fixed for a period, is around ~2%. On 4m, that's 80k a year. For someone purchasing at this level, that isn't a very high amount in terms of cost of debt. Large amounts held in offset to negate the impact of a higher repayment (i.e. a 500-1mill offset balance is used as a risk mitigation to higher P&I repayments)

Adjust the figures around to different households, add in 10trn wealth component, largely dominated by Sydney where $1m+ equity holders are very common, a record 'savings' balance of households, etc...its a fairly potent cocktail driving market growth (evidenced by 30 year+ growth rates!). Add in a lack of quality alternatives...the upgrading boom will likely continue into 2022.

At the top end, there are many who are consolidating their investment portfolios and shifting to this type of wealth accumulation strategy. E.g. sell up, take on the max OO debt allowable, and tip in a healthy equity portion.

The bigger banks who love this type of business are targeting it too - the LTV ratios on large loans previously 'luxury' properties are bumping up.

Of course, this continues for tooo long and gets too many involved/too strong, it does begin to present more and more financial stability risks. Everyone is monitoring this very closely though.

 

Meh, 50bps increase on assessment rate. I can’t see it affecting the market much at all. With how strong the price war is with banks, owner occupiers actual rate plus regular 250bps buffer would still be well below the floor rate so an increase here has next to no impact

A relatively small impact here on investor lending. Probably the first of a few policy changes set out by apra

 

this turned out to be a storm in a tea cup

 

Even storms in tea cups can upset the market

 

There are some interesting charts in this article by Greg Jericho at The Guardian.

Forget your post-Covid property hopes: crazy house prices are the only sure thing | Greg Jericho

The average loan size in NSW and Victoria has increased by about 20% in the last year, and are up 50% over five years, whilst incomes have basically gone nowhere for a long time.

The other thing that I noticed was that loans to owner occupiers peaked in June and are now falling, whilst borrowing for investment has been ramping up since a low in May. If the APRA regulations are going to clip the wings of investors more than first home buyers, it could have a bigger effect than some are predicting, particularly if they're starting to drive the market.

From a personal perspective, I'm half-heartedly looking at buying a house. Anything that cools the market will be of benefit to me.