How long till APRA loosens their purse strings?

Hi all,

I know this might be a fairly difficult question to answer, but from your experience and best judgement, how long do you think it will be until APRA start to remove their recent lending restrictions, back to the good old days?

From my understanding, similar restrictions have been placed by APRA before and they were removed after a period of time?


Cheers,

Taku

 

Sooner or later banks will need to realise they need to make money for their shareholders and they do that by lending at interest.
Some rumblings already: Banks losing business following rate hikes

 

When it comes, I'd assume loosening wouldn't be free - it would have strings attached.

 

Serviceability changes - don't think they'll be changing anytime soon.

I think pricing changes should go soonish - but @D.T., there may be a catch in it. Not really incentivised to pass them on, so i'm not too sure how that'll play out. I assume competition will do its thing (slowly) and get it passed on (at least partially).

Re serviceability - pretty bad look for a regulator to suggest peoples living expenses are falling, not having appropriate buffers on debts, etc. The major changes that have really hit capacities and strategies are here to stay. I'm not sure poorer credit quality is something the system really wants anyway.

We just had a relatively short window (a few years) where rates were low and policymakers didn't adjust to borrowing capacity surges that lower rates created. Those loopholes meant people could map out strategies where serviceability was a non issue for many.

There may be no need to change them - IF we have a 1-2% rate rise over the next few years as we move towards a tightening cycle, then having them put back to before won't actually do much. Low rates are likely to be normalise at some point in the future.

Cheers,
Redom

 

Thank you all for your comments.
@Redom, can you please explain what you mean by your above quote regarding "price changes"?

 

I wasn't referring to price, I was referring to conditions

 

"Back to the good old days" - probably never. We're not going to see lending conditions like we did a year ago any time in the forseable future if ever.

There has been some very slight easing of credit policy by a few lenders recently, but others are still tightening. I'm hoping that this is an indication that APRA is satisfied with current lending conditions and there won't be much more bad news on the horizon.

 

One of the first changes last year was an increase in investment home loans rates - this is likely a temporary move designed to cool lending growth in response to market conditions.

In terms of longevity - i can't see this being sustained in the long term.

The serviceability changes in the main will remain in place IMO.

 

Hi @Peter_Tersteeg,
Thanks for the comment. Can you please give one or more examples of this?

 

Macquarie easied their assessment criteria in a few ways shortly before Christmas. Not a significant amount, but I think they recongised they'd gone a bit too far in their quest to appease APRA.

Plenty of lenders have been pricing investment loans for some time now, even though their official policy is they're not pricing investment loans.

 

What did Macquarie do exactly?

 

I think they dropped their assessment rate slightly and made a minor adjustment to the DSR requirement.

It's as if they hit borrowers with a bazooka 6 months ago and have now given them a band-aid to make it better.

I do expect we'll see more of this sort of thing in the future, but it's fairly irrelevant compared to what's been done in the past.

 

Changes are so minor they don't make much of a difference.

Lenders compete on pricing more now than on policy tweaks. Plenty are negotiating on investment loans again and offering incentives to pick up business.

Their hands are tied with making significant policy changes, as it'd draw attention and likely lead to significant pick up in volumes. If Macq went back to their old policy for a few months, they'd have a massive surge in loan volumes, it'd draw APRA's attention and they'd get slammed with a pretty serious stick.

 

I think the last tightening up was somewhere between 2007 and 2010. I am not sure if APRA were behind the tightening up then, but here we are again.

 

Seriously? That will be start of Sydney cycle again. Is that why you suggest 2022 @Rolf Latham?

 

Not until they see evidence of a cooling / normalisation in the Syd/Melb markets.

Such as through - 1. A rapid fall in prices, aka a "crash" 2. A sustained fall in prices over a few years. 3. Prices go stagnant for several years, or 4. a combination of the above.

 

Watch Sydney boys and girls...when that Titanics hits te proverbial iceberg....a question of when not if.....then you will see APRA actually encourage lending to stop the housing market from hitting free fall. People holding $1m homes out west will feel the brunt of it. Seriously...do people think that $1.3m houses in places like Wentworthville, Blacktown, Merrylands, Greystanes, Liverpool, Baulkham Hills is the norm. Don't think so....

A combination of things will make this come true in the next few years: 1. Very high debt levels in Sydney, 2) Interest rate increases, 3) Pull back of spending by the FEDs, and finally 4) the elephant in the room a pull back of Chinese money flow in which impacts Sydney more than places like Brisbane, Perth or Adelaide.

 

Serviceability will change when rates go back up. Banks don't want to price themselves out of the market. As rates when up 2007 2008 banks chased the business, loosening serviceability criteria and using income forms they previously buffered, or didn't use. It was also when they got rid of genuine savings and low doc lending took off.
The gfc and the pause in the securitised market wound lending back. The recent apra changes are pretty minor in comparison I reckon. I can't see any lenders taking actuals again. But they will find other ways to lend to investors with multiple properties.

 

I don't know that its a terrible thing that APRA are making things a bit tighter.

Its bringing prices down, so it starts to become par with serviceability. (I.e, you can borrow lots, but pay lots is kinda similar to, you can't borrow much, but you don't need to spend much)

Anyone can buy a house, it's just sometimes harder to keep it.

I for one, don't mind the slight tightening from APRA, as it actually ensures that the ass doesn't fall out of my investments, which I think is more important than being able to buy the next.