Interest rate rises to start 2017

For those that are interested - looks like banks will be tightening up loan discounting to begin the year - especially the larger institutions.

A lay of the land at the moment:

• CBA have just announced without too much detail that they'll be dropping discounting levels. This just came out. As background, discounting is already far below the 1.50% discounting that was seen in Q1 & Q2 of 2016. In Q4 2016, this dropped a fair bit to 1.25-1.45% discounts.
• Westpac/St George have been very low on discounting of late. ~1.05-1.10% discounts for most loan sizes, and ~1.25% for the larger loan sizes. Again far below early last year.
• There was a period where the larger banks pricing last year was very similar to their smaller competitors. It was aggressive by the larger banks.
• Discounting for OO hasn't been too much stronger across the board either.
• Interest only reference rates have increased too not too long ago.
• The idea is funding costs are rising and banks are squeezing margins where they can. If the big four all move together with a drop in discounting, than competitive factors may keep discounting low.
• In 2016, discounting of loans was a bit of a game of musical chairs between the large banks - each of the big banks took turns in aggressive discounting and winning market share. Mostly at different times through the year and winning business with aggressive pricing. CBA to begin with (1.50%), Westpac in between (1.50-1.60%) and ANZ towards end of the year (1.45%).

Essentially this means that there will be rate rises for new loans for investors with the countries two largest banks, following rate rises late last year. Out of line with RBA. Therefore there may be situations where customers are seeking additional funds, but paying higher rates on that debt relative to their other debts with the same institutions.

With pricing changes, the time customers request discounts or apply for a loan, is often the biggest determinant to the outcome received. So some customers with relatively small borrowings may be on 1.50% discounts from last year, while others with larger borrowing amounts will have lower discounts - purely depending on the time requested. Now may not be the best time to ask for existing lending discounts!

Some of this has hit I/O owner occupier loans too, as the big four banks (ANZ aside for now) are moving to pricing I/O loans. CBA have announced this will happen soon, while NAB & Westpac have already done this.

 

Thanks
Yes, knew this was going to happen, already started

2017 will be interesting, question is will this put the brakes on Syd and Melb markets?

considering the massive growth these markets have already had servicing future buys just got more challenging

I think this is the last horrah...meaning the herd jump in for fear of missing out and prices will continue to rise in Syd and Melb, but much more risk in these markets.

I also think investors will seriously looking at markets with much lower entry levels, interestingly I think Perth seems to be on the hit list on PC from what I am reading.

 

Sydney and Melbourne to crash, Adelaide tipped to become Australia's most expensive city

 

Bahahaha hilarious.

 

LOL..........What's the median of Syd $1.2M, Melb now heading for over $800K

 

@Redom For a top up loan, what are the chances of CBA matching our existing 1.5% discount?

 

Thats fine - same loan account so they will honour existing pricing concession on it.

That may be the best way to go - top up & then separately split it out.

You can also go paperless, all done online - can save time and headaches. Have done a complete top up application to settlement inside 48 hours once with CBA! Love the process.

Note that servicing calculator actually is a bit weaker if you use this approach. They will treat the existing loan account you have as new debt via top up process, rather than only treating the new funding as new debt.

 

I wonder if APRA/the banks will ever loosen their stance on lending criteria now that I don't service with pretty much everyone

Have a decent buffer as well and am tempted to eat into it should the right property come along but if I can never top up again, that would push me into risky territory.

Just as well I've already accumulated what some would consider 'enough'.

 

Isn't it funny. APRA changes putting some investors/home buyers in a position to consider taking on MORE risk relating to housing purchases...

 

I think the regulators won't interpret more debt as lower risk in this situation.

This is where economic and stability financial theory often doesn't mirror the practical realities of good portfolio management.

Theory would suggest that additional debt would have an amortisation period, involve payoff and eat into cash flow.

Practical reality for most savvy investors would suggest additional funds in offset involve no additional interest burden, provide cover for housing, finance & personal related risks, and offer scope to further income advancement.

The difference between the two here is driven by financial innovation & unique features of our financial system that upsets theory - e.g. use of offsets/redraw facilities, tax implications, etc.

 

Don't worry I'm buying in an even more expensive city than Syd (there's only one). Actually I think Syd is 3x more likely to crash than that city.

 

HK?

 

Yea

 

The very definition of true land scarcity. How's the CG prospects in HK these days?

 

I would agree with you here, just when and how much it corrects will be the question

 

Very good I would think. Number of factors

1. most people think it'll crash and are not buying, usually a sign it'll boom soon (cf Syd/Melb in 2012)
2. LVRs have been capped for a long time at 50-60%, meaning there's a lot of savings on the side (the number of people I know who've saved up A$300-400k and couldn't buy a house would surprise people in Aus) and therefore a lot of pent-up demand. When these rules get relaxed, it'll go nuts (see Shenzhen/Shanghai 2015/2016)
3. for same reason above, the city is at a much lower risk of bursting because there is no credit bubble since most people are capped at 50-60% LVRs
4. there's a 500,000 apartment shortage (people already freaking out with a 30-40000 apartment oversupply in Melb/Brisbane)
5. annual visitors topped 70 million last year. Even excluding mainland Chinese, there were 25 million foreign visitors (cf entire number of visitors to Aus, which is 8 million)