Did APRA work??

It was a massive pain personally from around April last year.
But like childbirth, ready to go again

 

The froth is definatley out of the market. Those on crusp of buying were the most affected. It will take more time for the full effect to flow through.

 

Don't give up, that's half the battle.
Childbirth is much easier.... LOL

I will be looking at finance again this year to fund a development so it will be interesting to see what happens.

I have sold down properties and have now increased income so fingers crossed I can now secure full doc development loans.

My last loan was with RAMs lo doc.

 

Would like to hear from the brokers, has business dropped since APRA??

Some property markets are still going great guns, and then of course with have the interest rate drops which must help in some way?????

 

My business has picked up. Possibly one reason is that more people that may have went to a bank direct are now considering brokers because it is harder to get finance.

 

Not a broker so not speaking for them, but it would seem to me if someone wanted to buy a certain place and original thoughts of lender A no longer worked, it would just be a matter of moving onto B,C,D or X,Y,Z

It def hits those with multiple places and debt that is above the norm.

 

Lending criteria has become more strict but this hasn't changed demand. I agree with Terry's suggestion that the changing environment has increased the demand for brokers.

But what if you're already with X,Y,Z ??? Unfortunately it's not that simple. APRA have essentially harmonized many lenders (their servicing criteria are almost identical). There aren't that many alternatives available to people any more.

 

Well, then your goose is cooked with those under APRA.

What I was trying to point out, not so well, is that most people will not be effected the way those here with multiple properties would be.

Most probably have the home, and maybe an investment property/holiday house, most will still be able to buy what they want or something suitable, so I would expect brokers to be still doing good business, people are still buying in a lot of places, including Sydney again.

 

Everyone is forgetting HEM's. The new HEM's dont discriminate between haves and have nots. They are universally higher than the old poverty index formulas employed pre APRA.

 

It did for us...... St George refused to lend to expats under the portfolio loan program which screwed our plans right up.

 

Pre APRA / ASIC was very rare I couldnt place a deal.

Now its almost a once a week occurance to tell a client "you have hit the servicebility ceiling".

Its not marginal but a significant shortfall as well.

 

are there other lenders you can use???

 

If a deal doesnt service at Liberty, Pepper or NAB - game over unless you are self employed and can use some "self declare" lo docs products

 

thanks, good to cut to the chase

will it get worse?.

 

YES, if ...

NAB starts treating OFI at 7.4% instead of actual + 30%.

Pepper starts treating OFI at 7%+ instead of actual + 20%

Liberty stops using actuals below 80% and starts loading by 2.56% - which they do for deals above 80%.


NO, if...

NAB, Pepper and Liberty dont make any change to current policies, and if APRA doesnt impose further restrictions to I/O lending, such as 5% I/O speed limits - which some economists are predicting may happen.


Really though, the more appropriate question, 12 months after implementation would be
" are the banks going to revert to the use of actuals and old poverty index living expenses?" because the question people really want to know is... will this get better? will this go back to the old days? Because any reasonable person should well and truly understand by now that is only thing that's going to make most peoples servicing ceilings change in any meaningful way.

The answer of course, is - while ever APRA is on the banks case RE 10% I/O speed limits and ASIC is on their case RE assessing realistic living costs ...that looks very very very unlikely

So I would simply say again, 1 + year after this topic has been discussed 10,000 times already from every angle, every nook, every cranny across many many different posts - yet amazingly still doesnt seem to be registering/sinking in with many on the forums - if you are a relatively new investor reading these forums who thinks you can replicate some of the seasoned/experienced/succesful investors here. if you are an investor starting out or if you are in investor with only a small portfolio and wishing to grow, unless you are on very big incomes, you have to start investing whatever remaining borrowing capacity you have in some form of property cash cow. NRAS. Dual Occ. whatever floats your boat.

But please know this to be as certain as death and taxes- if you don't get rid of debt , no amount of equity will save you from the servicing ceilings that are coming to you one way or another...whether that's after your next purchase, or the one after that.

Now dont misunderstand me. You dont need to have a portfolio of only cash cows, but you absolutely need one or two. And you need to buy them while you can ie NOW - before you run out of capacity or before a 5% APRA speed limit comes in, or before NAB, Pepper or Liberty shut down the last "loophole" and you are left in the position formerly considered " excellent" - where you have lots of equity and the ability to harvest it, and instead find yourself in the position now known as "buggered" where you have lots of equity and diddly capacity to harvest it.

If you dont like the sound of what I am suggesting , ask yourself this... ... how do you intend to manufacture enough additional income to pay extra off your debt so you can access more money to keep growing your portfolio, once you run out of puff? Magic? Luck? Lottery win?

 

Currently buying US property and can now source finance. Looks like I may give Oz a break for a while


MTR

 

Care to share details of US financing?

 

Depends how you measure success, personally, i think its worked very well. Investors who've been severely impacted may have different views though!

General aims of policy intervention:

• Improve financial stability by reducing size of investor loans, interest only repayment loans, improvements in the quality of the origination of loans, etc.
• Take the top of the boom, without taking a sledgehammer to the market.
• Rebalance books towards a more prudent financial system.

I think this will go down in history as pretty similar to the policymaking experience in the early 2000s - a small regulatory action designed well and that did its job. Given it wasn't a direct intervention (e.g. blanket LVR cap, DSR ratios, etc) - it'll likely be forgotten by most in 5 years time as this becomes accepted as the normal.

Plenty believe that the pre APRA days were 'normal'. They weren't.

The 2011-2014 period will go down in history as the small period where regulators were playing catchup to their old policy settings that hadn't adjusted to a new very low rate environment. By that i mean, regulators believed that banks were applying buffers on debts as @euro73 has noted that they do (7% P/I). Thats because applying a ~2% sensitivity buffer has been part and parcel of our prudential guidelines for years. Read Australia's Financial Stability review papers with the IMF, they state it in their with a big tick of approval that Australia applies sensitivity buffers as a key measure of our prudence system.

But behind the scenes, this wasn't what was actually happening. Regulators weren't factoring that banks had only applied this to their own debts in their credit policy frameworks and excluded external debts held with other banks.

They didn't know this because for a good decade, it didn't matter how these were applied, because rates with lenders higher than a 5.5-6% range. Take 'actual' repayments on other lenders debts at 6% and you'll find its not particularly great for servicing!

Anyway, rates were slashed to 4% territory and lenders didn't apply buffers to other peoples debts. Savvy investment brokers took advantage of this and helped clients build portfolios by swapping lenders strategically and maximising borrowing capacities.

All in all, it didn't take too long for regulators to look under the carpet, unpick and fix.

As a keen observer, commentator, etc over the past few years, this set of government action gets full marks from me. It was necessary. They did what was required and got the balance right between too little and too much.

And as a broker - no it hasn't impacted business volumes in a negative way. It has shifted the mix more to owner occupiers as more and more investors are incentivised to purchase there with rate differentials/etc.

Like any business - for those that embrace it, change is a great opportunity to do well.

 

euro73
" a 5% APRA speed limit comes in"

What is a 5% Apra speed limit? Sorry, what is this 5% detail.

 

When APRA changes came in, they told many banks that investment loans need to be limited to 10%

This helped cause the cut back in investment lending along with other measures.

If they then said 5%, then it would cut existing lending again.

It is a bit more complex, but you can find the threads going into all the detail if Euro does not post detail.