Did APRA work??

Is the dog back on its leash??... that's a joke.

We saw max loan amounts fall, changes to LVRs that the banks were willing to wear, changes to serviceability calculations, or premiums tacked on to our interest rates.

APRA estimate that maximum loan sizes have fallen about 6% for owner-occupiers and about 12% for investors.

Interesting - Loans with LVRs over 90% make up less than 10% of new loans issued.

Nothing too crazy here

But did it work???? Did it effect you????


MTR

 

APRA was the domestic face of a far deeper change being implemented world-wide. Google Basel III (or the Third Basel Accord).

 

Did it work? On one level, yes it did. Loan amounts are certainly down.

The demand for property hasn't really disappeared however. It's simply shifted. Mortgage brokers, buyers agents and lenders credit departments are as busy as they ever were.

 

Yes it is working.

 

Well I saw it work and have it's effect only a few months after the changes, if you were on th e ground watching things in Sydney's SW you would see a very clear picture, it will also filter slowly out to other areas.

So yes, it worked. Even the forum exchanges would demonstrate this.

 

More importantly now that is has worked will we see lenders purse strings loosening a little anytime soon? APRA changes bought the wall a lot closer for a lot of people, myself included. Will we see that wall slide back somewhat now? My gut says no, but I'm hearing whispers. . . .

 

I would mention as a first point that APRA and ASIC both took steps to tighten regulations - everyone seems to forget about ASIC and its tightening of responsible lending guidelines - which has been the driver behind HEM's being severely adjusted.

But to your question; the effects we can see so far have been a slow down in the speed of growth, as a result of a slow down in borrowing capacity/credit availability. And in some cases, we are even now seeing a drop in prices in areas that were quite hot just 10-12 months ago. But those outcomes were not the aim of the regulatory intervention, they are just a side effect of the intervention. So to those who are still of the belief that the regulatory intervention is a short term thing designed only to cool housing prices , and hoping the rules will be softened... you still aren't getting it . It is far bigger than that- and its not going to be changing any time soon.

Only a real world stress test of the banking sector would confirm whether the regulatory goals have "worked" one way or another, because what APRA and ASIC are trying to achieve is not directly related to housing prices, but rather banking system stability. And for that, we would need to see a fairly severe local recession with massive unemployment increases , or some form of GFC/Credit Crunch 2.0

So yes...at a consequential level the regulators have had an impact on the property market in Australia, but at a systemic level these regulatory changes are motivated by taking steps to better insulate Australia's banks in the event that a 2nd GFC/credit crisis emerged from somewhere. Specifically, the regulators are concerned about can be covered by 4 main areas;
1. The banks needing to hold more capital per $1 lent APRA
2. The banks needing to hold less I/O debt APRA
3. The banks applying sensitised assessment rates to all debt. APRA
4. The banks needing to assess costs of living/household expenditure properly ASIC

So I think that yes - the changes will go a long way to better insulating our banks in the event of a local or external crisis.

 

Both the gut and the ears might be right.

I am suspicious of the ease or even the enthusiasm with which the banks are adopting these guidelines. BASEL IV is yet to be finalized and its two main components are http://www.australiancentre.com.au/sites/default/files/NewsDocs/Day1Paper1 - Davis & Lawrence.pdf

• Changes to the calculation of risk weights
• Introduction of capital floors for IRB banks (big 4) which is rumored to be as high as 3 dollars per 100 dollars of capital and stress testing.

The former is an Australian, Canadian and European preference and the latter American and what is finally implemented will be a compromise between the two Basel 4 banking reforms take shape.

In its purest form BASEL IV will remove the autonomy from the banks to use their own risk models to determine how much equity is held against loans and in addition impose external capital floor.

The final decision will be made in end 2016 and Australian implementation should start in early 2017. I think that the current enthusiasm of credit slowdown both by APRA and the banks will persist till BASEL IV is finalized, to give enough firepower to Australian delegates to retain as far as possible current autonomy (risk models) and levels of equity against debt.

The foot will come off the pedal once the BASEL IV is behind us. In the interim, RBA might cut rates to take the pressure off and the banks will pass on most of the interest rate cut. Happy to be corrected...

 

@euro73 I do think, that somewhere in there, the Govt and RBA also wanted this to slow things, so it is not just about the banking system as they would know full well the effect, the other problem is that should have been doing something about it from the last Sydney boom.

@Skilled_Migrant this is all a 'world" govt type of thing, I hope we all push back away from it at some stage, but with all our money tied up together, it wont be in the short term, we can see the problems that arise when you try and make one big body though when we look at Europe.

@Sonamic ... I think Euro is right, you need to look at this as the new normal, money does go through phases and cycles, but it has been about as easy as it can get, if you want to grow, think of the other ways we have all discussed as a work around, or get a mate on the inside like some others must have.

 

I would put it to you that if banks had been lending 80% of loans as P&I, the 10% I/O speed limit wouldnt have been introduced.

Thus, servicing calc changes wouldnt have been as severe. LVR restrictions and now, postcode restrictions wouldnt have been as severe....

Other changes, such as capital buffers and increased HEM's would still have occurred... but I/O lending would still be relatively open slather, albeit at reduced capacity. But it would mean extensions to I/O periods would still be readily available... which will start proving a bit of a problem to many in the coming months and years I suspect.

Yes- these things should have occurred after the GFC. When the big RBA cuts commenced, assessment rates should have been addressed then.

Anyway...no point speculating about what did or didnt happen, now. What we now know to be true is that the era of almost unregulated lending is over, to be replaced by a more regulated environment. This is the new norm. The sky wont fall. Net result is simply going to be slower and lower growth. Setting aside those OTP apartment buyers yet to settle in banned postcodes, of course. They do have a bit of a chicken little scenario on their horizon.

The key change now is that the importance , or perhaps usefulness of equity, once considered the be all and end all to most investors, is now being matched or perhaps superseded by cash flow. You need both or you wont get far.

And to that theme - debt reduction will be the key to utilising /unlocking equity, moving forward.

 

Certainly has stopped me in my tracks. I'll just use the time to pay down some debt whilst all this blows over.

 

We saw a dramatic fall in the number of contracts terminated under finance.

 

I lost the ability to borrow overnight.

 

RAMS lo doc may be an option??

 

Meeting with the bank on Tuesday to try and extend some IO periods, a bit nervous as to the outcome...

 

@euro73 I am not on the inside or have experience, but that would seem to make sense.

What I think has changed, is the amount of people that now invest in property and how I/O is what is suggested for everyone, this is obviously not sustainable, 20 30 years ago there were not all these investors that I know of, however the internet may just make it easier for me to see them, but I also gauge this from people who talk to me about property.

 

fall, or rise ? I have seen many come back on the market due to finance failure in areas I look at.

 

The problem I found with RAMs, is they are employees, not motivated, I should try some other franchises.

 

Did APRA work??

No, I saw her at the dole office last week.

 

I have experienced one as well, did due diligence and was about to do the boundary survey, when someone put in an offer.

15 days later agent called back, if I was still interested. Wasn't so sure anymore as similar properties were on the market as well.

Interesting to see that finance declines are more widespread. I was beginning to doubt if it was an OK decision to wait. I do not mind the reduction in borrowing capacity if that is balanced by the decline in prices.