Apra changes

Or a teacup in the storm?

This is only "stage 1" of course... they'll wait a little, see what happens. Then they'll go harder with other measures.

I think at the moment it's just a bit of political posturing from the Government behalf, coming up to a Federal Election. Be seen to stop rampant house growth to win some votes from the younger demographic. Frydenberg was only pulled in at the last minute.. funny that.

Also IMF, etc having a whisper in the banks ears I think would have an affect. now they can say they have done something on their end.

Where it actually falls in 2022 is anybody's guess..maybe a chance of Federal Government will also subdue the market a bit.

Anyhow, general inflation is going to rise massively in the coming few years no matter who is in charge..rates will go up, it's better to prime things earlier rather than later.

 

thanks for the article, interesting read.

I think the OO loan data falls are associated with long lockdowns. Much harder to transact when inspections are difficult, particularly in major capitals. There has been a big surge in enquiry/people getting ready though, preapproval lodgements are well above normal levels in Sep/Oct. I think the OO lending demand will spike again come Nov/Dec as a result, in line with other ‘catch-up’ type economic activity.

 

Are you seeing any change in those buying up in QLD or regional areas as Sydney and Melbourne get ready for opening up?

Do you think this trend will increase, or start to slowdown as people are able to more easily buy/inspect a bit closer to home?

 

If the exit from last year's lockdown in Melbourne is anything to go by, prices just outside the metro areas will take off, as will good houses with a bit of space. The main type of property that hasn't done well is high density appartments.

 

Opinion & Commentary – The Centre for Independent Studies

"The biggest fault is that this is yet another policy aimed at managing demand for housing. And, as my colleague Peter Tulip and others have demonstrated extensively in recent years, the problem is not on the demand side, but on the supply side.

To be specific, by far the biggest issue contributing to high house and apartment prices is restrictive zoning practices. Tulip and Kendall estimated zoning added 73% to the cost of housing in Sydney and 69% in Melbourne."

 

This is a good bed time reading, if you are a finance nerd or bored... But the RBA wasn't paid for doing nothing. It was a good article published by them.
Mortgage Macroprudential Policies | Financial Stability Review – October 2021

And, yes. They have looked into other countries' policies too... Table 5.1 in that article.

 

Interesting read. Perhaps some restriction for LVR will be next if they need to tighten further, especially high LVR for investors.

 

Recent research demonstrates that some areas will be adversely impacted by APRA more so than others:

"Recent moves by regulators to restrict lending to homebuyers will have the biggest impact in Sydney, along with parts of Melbourne, new research has revealed."

Housing markets where lending changes will put a brake on booming prices - realestate.com.au

 

We seem to be following Kiwis nowadays...
BNZ introduces debt-to-income restrictions on mortgage lending ahead of RBNZ regulation

APARA says it's too hard to implement DTI... BNZ has just done it.
A side note: BNZ is owned by NAB...

 

https://www.apra.gov.au/sites/default/files/2021-11/Macroprudential policy_consultation_0.pdf

The draft of the new lending limits. Can just read the last two pages.

"
5. For residential mortgage lending, an ADI must ensure that it has the ability to limit the extent of lending in the following loan types:
(a) lending with a debt-to-income ratio greater than or equal to four times or six times;
(b) lending with a loan-to-valuation ratio greater than or equal to 80 per cent or 90 per cent;
(c) lending for the purposes of investment;
(d) lending on an interest-only basis;
and (e) lending with a combination of any two of the types specified in (a) to (d).

6. For residential mortgage lending, an ADI must apply a buffer over a loan’s interest rate to assess the serviceability of a borrower. The serviceability buffer must be applied to the interest rate on the loan to be paid by the borrower, ignoring any discounted introductory rates offered for a limited period at origination of the loan. The level of the serviceability buffer must be at least 3.0 per cent, unless determined otherwise by APRA. APRA may vary the minimum level of the buffer between 2.0 and 5.0 per cent.
"

 

I don’t see any lending changes from this APRA paper, they just tell banks to get systems in place to implement what APRA might do. It lists down parameters that they will tweak when needed through.

 

FYI my broker just showed me new interest rates.

2 year fixed up to 2.69% from around 2%.

 

Yea it's a new framework APARA set up for any future measures they may implement if necessary.
I'm feeling DTI is definitely on the agenda and it will depend on how the market is doing the next a few months. A bit like a warning shot... But I don't see the market is flattening... Some people are still offering silly price due to fomo. Just IMHO, the serviceability buffer should be increased to 4%. Its an effective brake to slow down the market...

 

APRAs new Capital Adequacy Framework (APS112 and APS113) may have some impact on certain types of Loan Products in the coming few months. Focus is probably on
1. High LVR (80% and above) Investment Loans
2. IO Investor Loans

The Risk Ratings according to the banks will rise and banks may be required to keep Capital Aside to cater for these high risk loans (IO/Low LVRs) probably resulting in higher borrowing costs for customers (Potentially higher rates?).

Banks are offering Tiered Interest rate pricing with sharper pricing for Lower LVRs Loans.

With Banks asked to keep Capital aside based on their loan portfolio - Banks Net Interest Margins will be squeezed and they may tinker some of their product pricing moving forward (Fixed Interest rates probably was the first of the changes I suspect).

 

In summary, investment rates will increase next year, especially interest only.

 

I suspect most investor loans may have some increase. OO may be spared for the short term.

 

Here are my thoughts, seeing some of this already in play:

1. Variable rates will creep up 5-25 basis points to restore bank margins
2. Fixed rates will creep up where even 1 and 2 years fixed rates will be within cooee of variable rates both OO and IO
3. Lending scrutiny will be increased significantly.
4. People will be find they will be able to borrow 10-20% less.
5. Top end market will be scrutinized the most.....goes without saying Sydney...Melbourne.....and Brisbane....better suburbs scrutinized the most.