Is IO on the way back?

Discussion in 'Property Finance' started by Car tart, 11th Nov, 2018.

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  1. Car tart

    Car tart Well-Known Member

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    Mac Bank gave me a call to say they’re in the IO business again.

    Is this a one off?
     
  2. wylie

    wylie Moderator Staff Member

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    I know someone who was offered ten years IO last week.
     
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  3. Phar Lap

    Phar Lap Well-Known Member

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    Cool !

    Lets pile in again!
     
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  4. MTR

    MTR Material Girl Premium Member

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    Don't know?
    No luck with AMP, I had to refinance with another lender, meant property valuation and full financials again. AMP wont extend IO even if you can service debt if you are over 50.
     
  5. kierank

    kierank Well-Known Member

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    That was a short 3 years!!! :D
     
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  6. FrivolousPanda

    FrivolousPanda Well-Known Member

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    Hi Wylie, which bank? Was it for a usual situation (lvr, loan amount etc) or your friend having a relatively unique scenario?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    APRA lifted may restrictions early this year, as long as lenders met other certain critiera. Macquarie has been well below the IO targets for some time, so it's no surprise that they're open too it.

    In certain sectors (70% LVR or lower) they're extremely competitive, but at higher LVRs they're not. I wouldn't take this as a wholesale sign that they're open to IO, it's mostly restricted to lower LVRs where they're willing to get back into it.
     
  8. Harry30

    Harry30 Well-Known Member

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    Are their IO rates still more expensive than P&I?
     
  9. wylie

    wylie Moderator Staff Member

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    It wasn't a "just pile in" scenario at all.

    Offer came from NAB as an attempt to keep the business, after they'd totally ignored two approaches to see if they would reduce the rate. They couldn't even manage to return a phone call and then when the see they are losing the business, they suddenly want to offer incentives.

    They can go whistle.
     
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  10. datto

    datto Well-Known Member

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    IO is a Demi God!

    The precursor to a new housing boom.

    May all of the Druitt smash through the one million mark (including those 3 bedda ex-houso's with smashed fibro shells on 575 sqm).

    Long live IO.
     
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  11. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Of course they are!

    In Macquarie's case (and without looking it up on a Sunday night), IO is about 0.35% higher than P&I.

    Like most lenders, they're also still very reluctant to allow IO against a PPOR unless you have a very specific strategy. However this is somewhat more relaxed than some other comparable lenders who simply won't even consider IO on a PPOR.
     
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  12. Jamesaurus

    Jamesaurus Well-Known Member

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    saw mac for investors: 4.19 P&I w offset vs 4.84 IO no offset (0.65 diff)
     
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  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I just looked it up. The difference varies with LVR. That 0.65% difference is for an LVR between 70%-80%.

    If you're considering a 70% LVR or less, the rates are 3.99% P&I vs 4.39% IO which is 0.40% difference. This is where I'd say Macquarie is very competitive.
     
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  14. euro73

    euro73 Well-Known Member Business Member

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    There's still a 30% quota, and there are still sensitised assessment rates and HEM's. Some lenders will have some space in their quota's from time to time and thats why you'll see offers once in a while. But the quota is still there . Everyone should also remember that even if the quota was removed and IO was "game on" again... the servicing calc and HEMs policies remain... and everyone should also remember that the recommendations out of the Royal Commission, which are due early 2019 , will likely sit around additiional tightening rather than loosening of current policies.
     
  15. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Given that banks are getting aggressive in getting low end of the risk tail business to showcase the strength of their books,
    With Falling valuations resulting in rising LVRs, does banks revise existing IO/PI loan deals, which they might have offered to a client in past for fitting the bill of low risk then?
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    To the best of my knowledge lenders with LVR based pricing have never reviewed pricing when values are falling.

    The whole ideal of LVR based pricing is risk related. If the original LVR is 70% and values drop so it's now 80%, it's still a fairly good risk for lenders. I would speculate that 70% LVR pricing is considered very low risk because the buffer is quite large.
     
  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Just curious,
    For eg.
    If one was at 80 LVR when he got the loan say two years ago, let say the current valuations has come down to 15% which would put him under 90+ LVR for a fresh loan.
    Can/Do banks exploit this situation by raising rates more then they otherwise would for current 80 LVR clients?
     
  18. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I've never seen banks value residential property and then adjust rates to match LVR (up or down) without the borrower triggering the event.
     
  19. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Bank margin under pressure can make mgmt desperate,
    Their algo can identify potential easy targets (justified by funding pressure pretext) as these loan holders can't really move banks even if they want to due to LMI risk under new valuations.The increase should not be too exorbitant to justify loan switch with LMI factored in.
     
  20. spludgey

    spludgey Well-Known Member

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    For future loans, I will only consider IO if I'm confident that I'll be able to refinance to a new 25 or 30 year loan at the end of it.
    All my IO loans being converted to P&I around the same time was a big change for my cash flow!