APRA removes 10% growth restriction on investor loan growth

Discussion in 'Loans & Mortgage Brokers' started by Property Twins, 26th Apr, 2018.

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  1. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    BIG NEWS

    "The Australian Prudential Regulation Authority (APRA) has announced that it’s 10% annual cap on investor housing credit growth, introduced in December 2014, is no longer required given an improvement in lending standards over the past few years.

    “In recent years, authorised deposit-taking institutions (ADIs) have taken steps to improve the quality of lending, raise standards and increase capital resilience,” APRA said in a statement released this morning."

    APRA just relaxed lending quotas for Australian housing investors

    APRA removes 10% growth restriction on investor loan growth - Smart Property Investment
     
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  2. thydzik

    thydzik Well-Known Member

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  3. Redom

    Redom Mortgage Broker Business Plus Member

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    I think this may be more paper talk than practical ‘leaps of joy’ at this point for investors.

    Banks can’t reach a 10% investor credit growth limit, so having it is redundant in this credit climate.

    Also there’s a strong reference to better credit quality and serviceability frameworks in place. I.e servicing restrictions to stay. Practical reality:
    - servicing restrictions remain
    - borrowing power low and investor credit growth low
    - having a 10% upper limit cap doesn’t make much sense. Banks are below it because the market has changed and demand for investor credit is lower, and they can’t bend servicing or policy to get above it.

    I wonder if lenders will start pricing investor loans the same as owner occ. I doubt it, but as they get hungrier for business they may go down this route.
     
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  4. Eric Wu

    Eric Wu Well-Known Member Business Member

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    well said @Redom. won't have much impact
     
  5. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Yes, this is what could possibly happen - lending at higher LVR's... As this currently does limit someone with a limited deposit who may want to buy an investment instead of OO.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I suspect they'll use these margins to compete when they've got the appetite for it, but they're going to always try to keep some margin between owner occ and investment loans. It socially acceptable to profit off investors and I can't see them wanting to give up that opportunity.

    APRA themselves stated it. Lending standards are acceptable to them. It's the lending standards that are the real challenge for investors and APRAs statement indicates that they don't want this to change.

    I'm not even sure that we'll see much higher LVR action. 90% investment loans are still around, but 95% investment lending got its restrictions around the GFC (10 years ago). APRAs influence did little in this.

    There's no bad news in this statement, but it's really just a bit fluffy I don't see anything to get excited about. The best piece of news I can take from it is we'll probably see less changing of policies due to APRA comments. Now we've just got to deal with the fallout from the Royal Commission and overseas regulation.
     
    Last edited: 26th Apr, 2018
  7. chylld

    chylld Well-Known Member

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    What about measures that were introduced following the 10% growth limit? e.g. the increasing spread between P&I and IO rates? Could we see some of those being reversed, or are they likely to remain as "acceptable lending standards"
     
  8. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    That's a question of balancing bank profits with being competitive. Nothing to do with APRA at this point.

    There's plenty of things the banks could have done to restrict investor and interest only lending. They didn't have to adjust rates, a few policy changes could have had similar results. Turns out that increasing rates was the most profitable path for them.
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Completely agree with Redom - this isn't going to change much because the biggest hurdle to investors is servicing, not pricing. Servicing limitations are only going to get worse, despite the 10% cap not being a thing anymore.
     
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  10. Paterson00

    Paterson00 Well-Known Member

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    What is going to force servicing to get worse?

    I was really hoping that the LVR limitations would be eased when I read this headline, maybe we'll be surprised.
     
  11. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Living expenses are getting out of hand, and I can't see it getting any easier.
     
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  12. Redom

    Redom Mortgage Broker Business Plus Member

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    LVR investor limitations? This i didn't think was that big of a deal in recent times (LVR at least). The force to P&I above 80% was from the 2017 APRA changes targeting IO lending, not the investor lending cap per se.

    95% INV lending? I guess that could make more of a re-appearance. This is one of the things that the prudential practice guidelines doesn't really refer to and leaves to bank discretion.
    From previous experience, these products were rarely the best solution for borrowers (very high cost of LMI, etc). In a slower growth property market, it likely makes even less sense to do so (product was useful in fast rising markets). Its more of a niche product thats useful in a small subset of circumstances.
     
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  13. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I had a loan application declined this afternoon because the bank analysed her monthly spend to be about $2000 higher than declared. They pulled this info straight from her transaction records. It probably doesn't help that they believe she also has $18k in undisclosed credit cards, but this could have been paid out and closed. This loan isn't going to be approved unfortunately.

    I can see the day coming where people will have two accounts. One for the necessary living expenses and one for the fun optional stuff they don't want to tell the bank about.
     
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  14. highlighter

    highlighter Well-Known Member

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    This seems to be on the money. The banks weren't reaching 10% lending growth anyway, and the cap was redundant if not poorly designed. It's been replaced with other lending restrictions (have these been extended?) that are likely to keep limiting credit growth and access to credit in different ways, so it's not a loosening of restrictions as some news outlets seem to believe. Seems like they're just saying "okay the speed limit policy was silly, but apparently this tighter lending criteria works, so let's go with that."
     
    Last edited: 26th Apr, 2018
  15. Brady

    Brady Well-Known Member

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    I had been thinking about my personal spending recently... at the moment I'm at level of borrowing where I'm happy, I've accumulated a decent level of assets for now.
    This year my spending has been a whole lot more, more holidays, dinners, leisure etc
    But this is completely different to previous years...
     
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  16. thydzik

    thydzik Well-Known Member

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    APRA just made it even harder to get a home loan

     
  17. highlighter

    highlighter Well-Known Member

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    Seems almost like a switcheroo or distraction. Oh look we've removed the speed limit, isn't that nice? And by the way, we've also locked in tighter lending conditions, have fun with those. But look! No more growth cap that totally wasn't doing anything! (It just seems silly for them to make a song and dance about a policy that wasn't achieving much? Banks were coming in at around half the cap, so why not just remove it quietly, or not bother? Did they do it just to soften the blow?)
     
  18. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I'm curious, in your role do you collect borrowers transaction statements and analyse the living expenses? From my perspective it's becoming good practice to do this, even when it's not a lender requirement.
     
  19. Brady

    Brady Well-Known Member

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    As per policy we're required to investigate 1 month of clients income account (both business and personal)
    Through this meant to check for any undisclosed debts
    Along with questioning anything that doesn't make sense - example, declared no dependant... but transaction shows school fees being paid.
    In parts of our new processing there is further breakdown of MLE which has brackets for each area, housing costs, insurance, vehicle etc
     
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  20. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Thanks Brady. That's consistent from what the CBA asks of brokers, but they're one of the few that wants to mandatory review a transaction account at this point. Most lenders don't ask for this, but if it's there, they look and they look hard.

    I suspect that lenders know that they need to look if it's in front of them, but they're rather not because they know they'll do a lot less business if every expense is declared.
     
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