Indications budget will target property investors, IO loans

Discussion in 'Loans & Mortgage Brokers' started by au contraire, 24th Mar, 2017.

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  1. au contraire

    au contraire Well-Known Member

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  2. au contraire

    au contraire Well-Known Member

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    The full article:

    Treasurer Scott Morrison has signalled that renewed surge in investor property buying - particularly with interest only loans - is likely to trigger a fresh regulatory crackdown on banks as part of the government's efforts to boost affordability for actual home buyers.

    With the May budget due to unveil a series of measures that would "reduce the burden" on those looking to buy or rent a house, Mr Morrison indicated that so-called macroprudential restraints on lenders introduced in 2015 were no longer working as effectively as they were in 2016.

    "There remain pressures that have built up again over the last few months," Mr Morrison said in Canberra on Monday.

    Speaking after returning from the Group of 20 finance minister's meetings in Germany on Friday and Saturday, Mr Morrison said it was up to regulators - which are led by the Reserve Bank of Australia and the Australian Prudential Regulation Authority - to be "using the levers that they have".
    "I had discussions with the Council of Financial Regulators and we've been looking at these issues on the investor side, on the demand side, quite significantly, and that is the appropriate place for that discussion to take place," he said. The council is chaired by the RBA and includes APRA, ASIC and federal Treasury.
    "They've done it before wisely and it's for them to take any further action that they see as necessary."

    The remarks are the clearest indication that the federal government supports a renewed focus on bank lending to investors, which has gathered steam since the Reserve Bank last cut the official cash rate in August last year and is nearing APRA's 10 per cent annual speed-limit.

    ASIC sees a 'bubble'
    ASIC chairman Greg Medcraft attended the Council of Financial Regulators meeting and backed macroprudential measures to manage a build up in housing risks.

    "I have been saying for a while that I thought it was a bubble and other people are catching up now," he said on Monday.

    "We focused on the housing market and clearly the issue is if you raise interest rates that's a big tool but then you effect the whole economy."

    "It's Sydney and Melbourne [where prices are rising] so I think macroprudential are useful tools."

    He said there were two aspects to macroprudential policies - the "prudential" aspect which impacts capital and the "conduct" aspect which regulated responsible lending.

    Mr Medcraft said ASIC had played an active role with regard to conduct citing ASIC's report on mortgage broking and on interest only loans.

    Worried about buyers
    Speaking to media on the sidelines of ASIC's annual forum in Sydney on Monday, Mr Medcraft said he was worried about buyers rushing into property markets at current prices under some fear of missing out.

    "It is worrying because when you are in a market like this, people rush in and say I can't miss out, because it might keep going - and you can understand that, that's what happens in a booming market."


    He said he had been "troubled" by recent conversations with young borrowers which pointed to the need for banks to act responsibly regarding the provision of credit, because it is clear borrowers are relying on banks to conduct thorough assessments of their ability to service loans.

    "I was talking to a bunch of young people more recently, and they said even though we are not sure we can afford our mortgage, what really excites us is when we get our mortgage approval - because it means the bank actually thinks we can repay it.

    "People have behavioral bias to trust. Our banks are in a very trusted position, and we need them to act responsibility because consumers are relying on them – whether [banks] like it or not, they are…. This is really worrying that people do think that."

    Mr Medcraft said the current market conditions made it all the more important for banks to focus on underwriting standards and he said that remuneration incentives could encourage bankers to lend too much to vulnerable customers.


    "It is back to the banks to do their job in credit underwriting," he said. "Clearly from their point of view commercially, they don't want people to default. But having been in banks, sometimes it might be at the risk management level they've got it, but on the front line with the incentives in place to do business, things get potentially compromised.

    "And that's where they have to ensure [they] have really good risk management and tight underwriting is really important, frankly. But it's not just an institutional issue - I am really concerned consumers don't put themselves in above their head."

    RBA warned last week
    Reserve Bank assistant governor Michele Bullock effectively warned banks last week that regulators are weighing up more restraints to curb demand in cities such as Sydney and Melbourne, where prices continue to surge at double-digit rates.

    Two of the country's big four banks - National Australia Bank and Westpac - have already responded to the regulatory jaw-boning, hiking their interest rates for both investors and owner-occupiers.

    Mr Morrison contrasted the Coalition's approach to the nation's potential housing bubble to Labor's plans, which include curbing negative gearing.

    "The Labor Party only has a policy to increase taxes," Mr Morrison said. "And they promise that by increasing taxes that everybody will be able to buy a house wherever they want.

    "That is an absolute cruel hoax. I mean it's not like they're taking the money they're saying from raising the taxes and investing it in affordable housing or social housing or anything like that.


    "They're just stuffing the bag full of cash from their tax increases and just carrying it off to spend on higher welfare payments. Now, that's not a housing policy, that's a tax and spend policy."
     
  3. Toilandtrouble

    Toilandtrouble Well-Known Member

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    It doesn't appear to be affecting clearance rates in Sydney/Melbourne yet. I wonder if the government tries to soak up the political mileage out of this in the budget could sour sentiment.
     
  4. euro73

    euro73 Well-Known Member Business Member

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    It will take 2-3 months for the most recent rate rises to be felt. They dont even take effect until next week or next month ( same thing really) .... and the first full repayment at the higher amount will be the month after that....

    Then I expect another round of increases around budget time...

    RE the budget - we will more than likely see nothing but jibberish from Morrison at the budget in May, as far as housing affordability is concerned. Maybe some silly aggregated bond model for community housing providers which will more than likely fail because Australian banks and pension funds and super funds arent going to get on board funding public service organisations to build public housing with private sector money. If he was serious about it he'd direct the future fund to be a cornerstone investor and fund CHP's to start building thousands of "affordable" dwellings . That might attract private sector money. But I doubt he's serious about it .

    What we will hear is a lot of talk about how its the STATES not the feds who need to sort out stamp duty, developer contributions, land banking etc etc etc... in other words, supply, supply, supply - as though thats the cure all. There will be nothing about NG or CGT concessions.... There will be nothing about PPOR's over $1million becoming asset tested for pensioners. There will be nothing about expanding the regions. I'll be amazed if there's anything at all about value capturing to build stage 1 (Goulburn) of a high speed rail between Sydney and Melbourne, either. Now that's an idea that could transform Sydney and the regions and provide huge affordability relief within the next decade! Nope, he will play politics and pressure the regulators and the banks to do what he is too gutless to do. Another 50-75 bpts and much stricter limits on I/O lending, and even stricter HEM's will just about do the trick, without him needing to really take any political risk at all..
     
    Last edited: 27th Mar, 2017
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    As an aside

    what is "the" definition for housing affordability

    seems both sides of Politics dodge that with some people and pollies expecting a median income one person household to be able to live within a 40 minute commute of the Syd CBD.

    ta
    rolf
     
  6. au contraire

    au contraire Well-Known Member

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    Well a few days later and here we are with more apra and asic changes.

    It seems like now it is crucial to read between the lines - and also read the writing on the wall.

    I feel more changes will be coming in the lead up to the federal budget. Perhaps cgt discount reduction on the cards...

    I don't believe that is unreasonable to expect
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    What rent would be a reasonable for a 3 bed house in Parramatta say ?

    ta
    rolf
     
  8. dabbler

    dabbler Well-Known Member

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    No one wants to live in the sticks. Well not many of the loud, vocal complainers it seems.

    It would take you 40 mins from Randwick to the Rocks in peak hour wouldn't it ?

    With the way traffic is and the way the govt does infrastructure and roads etc in Syd., your probably better off on the outskirts or right out of Sydney altogether (as I not many here are). :)
     
  9. PandS

    PandS Well-Known Member

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    Oh they have target much higher rate rise target than the current rate to compensate for the slowdown in the loan book growth, they just do it in small increase so people can slowly adjust and not to shock them.
    Expect a few more, this is good stuff for banks, they like higher margin with less money
    than more loan with less margin
     
  10. euro73

    euro73 Well-Known Member Business Member

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    And EXACTLY AS EXPECTED, Morrison is back to jawboning about the STATES needing to ramp up supply..and ruling out any changes to the CGT or NG situation...

    'They want a chainsaw, we think you should use a scalpel': Scott Morrison hits back on housing

    Behind the scenes, several reporters have written that he was lobbying hard for change, but Cormann and Turnbull seem to have won the debate. So back to blaming the states, and absolving fed tax rules of any responsibility in creating an overheated , speculator driven property market in Australia's two largest cities......

    Meanwhile, non partisan , non political experts such as the RBA, ASIC and APRA, and even red blooded Liberal cheerleaders like Switzer have joined the conga line , loudly advocating for changes to the tax rules...

    You know its all about politics - ie having a wedge issue to fight Labor with - when even the liberal cheer squad are being ignored by the Liberal politicians.

    These guys are going to do nothing in this budget, by the look of it- and instead they'll blame the states and hope that APRA and ASIC saves the economy from a property bubble. This only means APRA and ASIC are going to be forced to get further involved, to deliberately de-risk the market.

    The RBA is sidelined - stuck between a rock and a hard place - with the cash rate stuck where it is for fear of further inflaming household debt levels. So its either tax reform or regulatory reform required. Long and short of it... if the feds dont do some of the lifting (and it appears they wont) then the regulators will have to move from scalpel to chainsaw...

    They appear to already be ramping up the rhetoric - increased scrutiny and increased capital requirements now being telegraphed.... I think they know the chance of political assistance is non existent ...

    APRA chief says home loans its 'biggest issue', warns banks to hold more capital

    ASIC joins APRA in interest-only home loan crackdown

    Rates will rise on interest-only loans thanks to new regulatory restrictions


    watch this degenerate into a blame game between the pollies and in increasingly exasperated RBA after the budget and into late 2017 ;)

    RBA boss blames lax lending, tax breaks for house prices
     
    Last edited: 5th Apr, 2017
  11. CK_Invest

    CK_Invest Well-Known Member

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    thats what domain wants you to think, the whole clearance rate numbers should be regulated as its based off self reporting.
     
  12. dabbler

    dabbler Well-Known Member

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    But does it not stand to reason that it would be better not too meddle too far at the moment and let the recent changes and rate rises and next lot of changes slowly bite ?

    Why over do things, why totally undermine everything, it needs to taper off, not be turned off ?

    Syd and Mel have to be close to slowing up anyway bar certain expensive markets, it is doing nothing where I am.....
     
  13. Ace in the Hole

    Ace in the Hole Well-Known Member

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    Come at me Bro !
     
  14. 2FAST4U

    2FAST4U Well-Known Member

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    The RBA were certainly scathing of the amount of IO loans the banks are approving. I'm expecting the banks to once again lift interest rates for IO loans as a disincentive for consumers to go IO.

    Policy wise with a Liberal Government I don't see them doing anything to address housing affordability as their typical stance is a watch and see approach.
     
  15. Phar Lap

    Phar Lap Well-Known Member

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    Supply & Demand are the only ones to "blame".
    The rest is noise and politics AND profits to banks.

    Watch rents skyrocket and then the new blame game will start.
     
  16. au contraire

    au contraire Well-Known Member

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    I think they have to offer something to be seen to be doing something. My bet is slight modifications to cgt discount.
     
  17. au contraire

    au contraire Well-Known Member

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    paulF likes this.
  18. paulF

    paulF Well-Known Member

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    I've always wondered in regards to these IO loans surging as of late, if they are simply First home buyers that can't afford to buy a PPOR on P&I. So they live with the parents for a bit and then rent their IP on IO for the first few years to save up a bit. Heard of plenty of people doing so but not sure if it really works that way.
    Any data that could shed some light on this?
     
  19. euro73

    euro73 Well-Known Member Business Member

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    That's about right
     
  20. Depreciator

    Depreciator Well-Known Member

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    Close to an hour often from Bondi Beach to the CBD in morning peak - bloke at work does that trip.