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Bank Increased LVR for Investment from 80% to 90%

Discussion in 'Property Finance' started by rhinsor, 9th Nov, 2015.

  1. rhinsor

    rhinsor Well-Known Member

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    Question for the brokers,

    I've just read a certain bank who changed lending to investors at 80% max about 6 months ago are now going to start lending up to 90% including LMI.

    Has anyone heard this news? Will this continue for other banks?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yep Bankwest are now lending up to 90% again and also pricing investments. I imagine it's just a matter of time until other lenders follow suit - they'll do what they need to do to stay competitive once they've got themselves where they need to be APRA-wise.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    AMp stopped lending altogether to investors, they are opening up again.
     
  4. euro73

    euro73 Well-Known Member Business Member

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    The great game of swings and roundabouts...
     
  5. rhinsor

    rhinsor Well-Known Member

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    Does anyone see the bank changing their serviceability calculators soon to increase lending?
     
  6. tobe

    tobe Well-Known Member

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    Not dramatically. Some might build further niches, do more stuff by exception, but I doubt anyone sees serviceability rates and calculators changing a great deal.
     
  7. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Interesting stuff!
    I believe the sudden drop in investor demand was way over expectation, lenders are now not at risk of surpassing that limit of 10% increase in investor lends so they can afford to ease off a bit.
     
  8. Redom

    Redom Mortgage Broker Business Member

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    No i don't think you'll see much changes to serviceability calculators.

    They're not the sort of thing you change in response to monthly investment loan numbers - you change product offerings, promotions, etc.

    Serviceability calculators are tied closer to credit quality. You don't really want to be seen to reducing your credit quality to win more business, at least not while the regulators are monitoring closely.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't see any change in serviceability calcs soon either - at least no easing up.
     
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    We actually have seen a case of easing serviceability.

    A few weeks ago Macquarie adjusted their servicing rate down a little which directly increases servicing (I can't remember the exact amounts).

    Not a big change, they're really just tweaking things a little. I don't expect to see any game changers in any foreseeable future.
     
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  11. Redom

    Redom Mortgage Broker Business Member

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    The big change for investors is whether anyone touches OFI repayments.

    That will be a big surprise if anyone does. Anyone thats APRA regulated at least, some of the smaller credit unions etc may do for short term windows to drive business.
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There is zero chance that OFI repayments will go back to what they were. Any lender that even comes close will immediately draw unwanted regulatory attention to themselves. Certainly there'll be continual tweaks around the edges, but what we were all enjoying 7 months ago is gone for good.

    This isn't even an APRA issue. This particular component of lending falls under 'responsible lending' which is ASICs domain. APRA may be making the noise but it's ASIC that has the real power to enforce this. Unlike APRA, absolutely every lender falls under ASIC review.
     
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  13. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Do you mean 90% lends for investors or OO's?
     
  14. chylld

    chylld Well-Known Member

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    noob question. what are OFI repayments?
     
  15. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Other Financial Institutions

    So loans you hold with other banks.
     
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  16. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Both :)
     
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  17. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Here I was thinking it was OFI = Open For Inspections and scratching my head :)
     
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  18. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Thanks Jess
     
  19. euro73

    euro73 Well-Known Member Business Member

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    Its the practice of applying no buffering to existing debt. It isn't actually correct to call it OFI, because most lenders also treated their own existing debt without buffering. So the correct way to describe it is "actuals" . But that's just me being pedantic. :)

    NAB was the only obvious exception in this regard. They treated any OLD debt at "actuals" if it wasnt NAB issued debt ( meaning UBank, Advantage, NAB, Homeside) but they treated any OLD NAB issued debt at their benchmark assessment rate.

    Here's how it used to work. You go to a bank or broker and apply for X dollars. lets say $500K. Because that is an application for NEW money, it was assessed with some form of "loading" or "buffering" by the banks. They call this their benchmark rate or assessment rate. Each bank had their own version of this, and it varied quite a bit.
    Each bank also had their own approach to how they treated any existing debt you held. So lets say that in this scenario, in addition to the NEW 500K you are asking or , you also had $1Mil of existing debt - either with that lender or with other lenders. What used to happen in the pre APRA days was that all of the better investor friendly banks ( AMP, Macquarie, are just two examples - but there were several others ) would treat that debt as unbuffered on their calculators. In other words, if you were paying 4.5% Interest Only on that $1Million, they would assess your repayments at what they called the "actual" level of 4.5% , which worked out to $45,000 per annum. ( 4.5% x $1Million) That is what their servicing calculator policies allowed for. This is why you see brokers here talk about "actuals"

    Now - how it works has changed. And as Redom has pointed out and others have pointed out previously - its a game changer. All banks now assess all debt at a much higher assessment/ bufferred rate, which has been prescribed to them as a minimum 7% by the regulators . Most lenders have actually adopted 7.2-7.5% buffer rates though, so here's the impact - that same scenario as above means that the $1Million in debt is now deemed to cost you $70-$75,000 to service per annum on the banks servicing calculators. Even if you are actually paying 4.5%. That's a HUGE difference on a bank servicing calculator. When looked at per $1Million of debt - it equates to 25-30K of higher repayments - and that directly impacts your borrowing capacity

    Add to that the much higher HEM's, which take out even more servicing capacity, and most people will find they can now borrow far far less than they could pre APRA.

    Some lenders have also reduced LVR's, tightened cash out and removed the use of negative gearing, casual income, Overtime etc... everywhere you look, you can borrow less than pre APRA.

    This is also why you can see how rate cuts of the past were automatic property price drivers, as they used to translate to higher borrowing capacity on servicing calculators. Future rate cuts ( if there are any) will no longer do this because there is a prescribed assessment rate in place now, and "actuals" cant be used any more.

    Eventually salary increases and rental increases will recover these "losses" but that will take years and years potentially - how long do you think it would it take an average Joe to recover 25-30K of income from pay rises and rental increases?

    Or, as has been discussed- the use of 'actuals" may return - which would obviously provide an enormous adrenaline shot to many peoples servicing - but all experienced observers here agree that is very unlikely.
     
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  20. chylld

    chylld Well-Known Member

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    thanks so much for that explanation. i knew apra had tightened up equity releases and serviceability but wasn't aware of the exact mechanics.

    one more noob question: what's HEM?
     
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