Lending to become easier for Investors for the first time in 5 years

Discussion in 'Loans & Mortgage Brokers' started by Redom, 11th Jan, 2019.

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  1. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    During loose credit period,
    assessment buffer rate was at 2%, with RBAs rate hover over libor rate by 1%.

    Now in responsible lending period, assessment buffer rate is 3%( just one percent extra)
    And RBAs rate is 1.5% lower then current Libor rate, that's a gap of 2.5% between RBA and libor rate already, imagine the impact of this on FX swap rate.
    Do you see the external funding problem our lenders, even big four banks, can soon get in to if Libor rates increase even by 1%? And what it means for our mortgage rates as they won't be able to hold it any more.

    Anyway we shall see soon enough.
     
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  2. Redom

    Redom Mortgage Broker Business Plus Member

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    Yes the assessment rate buffer has always been THE key pillar of sound lending standards. A floor rate of 7% has been there for a long time. A macro prudential 'measure' is generally more counter-cyclical policy tinkering (like caps on lending segments, etc) in nature rather than structural policy (assessment rate, how to assess serviceability, lending verification guidelines, responsible lending guidelines).

    Its also the reason why APRA will be hesitant to make changes to the floor assessment rate and things would need to go pretty dire before this type of action is taken. While it may be an easy sensible measure, it goes against a long standing view of how lending policies are applied in Australia and would be a pretty substantial 'signal' about cash rates, future rates, inflation, etc.
     
  3. Redom

    Redom Mortgage Broker Business Plus Member

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    For those that are interested, podcast version of this post on SPI here --> Ex-Treasury economist shares his thoughts surrounding finance in 2019 - Smart Property Investment

    Gives a bit more context to the post & likelihood of some of these options.

    Also not sure what you mean by 2% or 3% assessment rate buffers. During both this boom cycle & down cycle assessment rate floor has been ~7%. The boom cycle saw this being breached on other financial debt by quite a few lenders. I guess the buffer has technically increased because rates have fallen, but the regulated actual buffer on debt has barely changed.
     
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  4. Redom

    Redom Mortgage Broker Business Plus Member

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    Adding another positive for lending conditions that'll begin to flow through in 2019:

    Funding lines from around the world are coming to Australia soon. Overall the Aussie market is strong, resilient & a mortgages are a great place to distribute capital.
    • Pepper, La-trobe & Bluestone have all been bought out by the worlds largest asset managers (KKR, Cebrus, Blackrock) in the past 18 months.
    • Their ability to generate low cost funding will increase through the year. Their size, institutional power & international management should be able to generate this over time. Also there's a big market for it. The issue to date is funding & product. The recent takeovers will open up funding, which opens up product choice for customers.
    • They have lending calculators that are very very very generous. 2014 type.
    • They are not being reigned in by regulators who are happy with some transfer of risk from mainstream to shadow.
    • Their backing will mean that they'll start opening up with a product suite that can compete with mainstream lenders soon + have their lending options.
    Overall, this stream of lending will remain for the 'over leveraged' and not a first choice solution. Nonetheless, it'll provide more options, particularly for savvy investors. The increased competition in this space will create more product choice will mean less funding risk associated with these options.
     
    Last edited: 8th Feb, 2019
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  5. Lacrim

    Lacrim Well-Known Member

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  6. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Households debts are already at all time, loosening credit meaningfully will just put us in the same spot posing systemic risk. RBA is not defending home price its defending economy,

    RBA has limited monetary ammo to spur economic activity,
    how about expansionary fiscal policy,
    for eg. tax breaks to spur economic activity?
     
    Last edited: 13th Feb, 2019
  7. Redom

    Redom Mortgage Broker Business Plus Member

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    I think Syd & Melb experienced brokers are well placed to comment on the direction of lending, we probably see & feel it before the data actually comes out...at least anecdotally.

    It was pretty clear that last quarter of last year, particularly Nov & Dec was tough. Its usually a very busy period, but many local brokers note that it was reasonably quiet in this period. Far less actual purchasing activity and a lot of fear with noticeable fast drops in prices as owners started adjusting expectations and getting more desperate to sell before Christmas. It looks like the retail sector had the same experience, with consumption numbers pretty weak over the period too.

    Using the same experiences, I think early stages of post Australia Day activity is quite drastically different. The anecdotal evidence is far more positive. Credit data that comes out in May-ish will likely reflect it. Plenty of stories now with customers that have been actively looking (in good areas) have completely flipped from 'lowballing offers' end of last year in a dead market to '30+ people at first inspection'. In 2-3 months time, if trends continue for the next couple of weeks, this will largely be the shift in sentiment/delayed media stories coming to light.

    I think the RBA is willing to wait and see what happens before making any moves. But if this trend continues, yes, it won't be long before theres a stronger response (potential lending options suggested in OP).
     
    Last edited: 13th Feb, 2019
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  8. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I would think the Westpac court action may impact any direction. If Westpac win it could push back on ASIC. If ASIC win they may push back on all lenders.

    From what I can determine its down to the way HEM is used. ASIC seem to want accurate real numbers for servicing where Westpac argue HEM is a fall back sometimes.

    Whats the broker view of this issue ?
     
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  10. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Are this investor reentering? or sideline OO interest?
    is it sellers matching buyers expectation? or buyers FOMO?
     
  11. Redom

    Redom Mortgage Broker Business Plus Member

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    Sideline OO. I think OO activity will drive stabilisation/recovery, investor activity required to actually drive growth. All the stories I've heard are OO's looking to purchase in specific local markets, noting that there's far more activity now vs late last year. So far, it's all been in the high demand areas too that have always been sought after (but experienced fast falls at end of last year).

    Not too sure how updates to this may translate, my general view is any guidance that helps lenders will assist decision making/clarity. The lack of clarity on how to treat living expenses lead to hair brain lending decisions in 2018, this is already getting better from lenders in the early part of this year, using a bit more common sense. This lack of clarity hurt the flow of lending in 2018 a bit...but really it was more demand for credit (cycle) based than actual availability of credit.

    Going through ASIC's updated guidance, in particular reference to HEM & living expenses, proposal C3, b, ii - is new. Asking lenders to take a buffer when HEM is applied. Some lenders do a bit of this in their credit decisioning process, others don't. I don't think this is a very notable impact. Much of the verification clarifications for lending is already happening, this document just notes it more formally...probably a bit too much (pendulum gone a bit too far with some lenders, this constantly oscillates over lending cycles).
     
    Last edited: 14th Feb, 2019
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  12. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    So no talk of easing?
    If Asic has its way can it result in further tightening to what we have now?
     
  13. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    clarity may result in faster outcomes not necessarily credit easing right?
     
  14. Redom

    Redom Mortgage Broker Business Plus Member

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    Yep exactly @TheSackedWiggle.

    ASIC aren't really the body designed to drive lending easing though...it'd be irresponsible if they drive an easing process given their role in lending is about following the law more than lending principles. APRA/RBA would be the bodies that can swing the lending pendulum. ASIC can improve the efficiency/quality of decision making processes via verification clarification.

    They are part of the broader CFR though (Treasury, APRA, ASIC, RBA). Leaders of the CFR (e.g. Lowe, Frydenberg) have come out indicating the lending pendulum has swung too far in late 2018/early 2019. No doubt they'd have some indication of the weak credit figures and issues in lending from their liaison with business. Similar situation to 2014, when they came out and signalled that tightening may be required to control credit growing too fast.
     
  15. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    There has been a slowdown in both FHB and OO demand as per latest credit figures, I guess you are implying the renewed interest will be reflected in next quarter or two?
    If RBA is relying on this figures to intervene wont it be too late to intervene by late 2019?
    Sydney house prices are already close to 15% fall by end of this/next month, and even if fall momentum slows down (as against completely stall) we are looking at an easy 20% fall by late 2019.

    IR cut even by 50 basis point, may have some economic effect as broad based household will have some spare dollars to spend, but will be meaningless in easing serviceability.
    Even a other easing efforts will take time to have its effect. wont it?
     
    Last edited: 14th Feb, 2019
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    House pricing isnt the RBA's remit I recall ?

    ta
    rolf
     
  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Agree, but their jawboning gives hope to those holding their breath for instant recovery.
     
  18. Redom

    Redom Mortgage Broker Business Plus Member

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    Yes pretty much. The data is always behind. I'm pretty sure I posted on forums in mid December that these figures would be brutal. It was pretty clear the market was going through a really rough time, no one wanted in, lending was dry, etc.

    I'm not sure on this. The pace which with its all moved has been a bit surprising. From the debt deleverage (rapid IO change in 2018) to the quietness of Q4 2018 to the hustle of Q1 2019. It's oscillating & moving fast.

    The same on the ground observations in December last year have flipped in February this year. It's not like 3-5 people are attending inspections for good quality homes. In some places in Melb/Syd you can barely walk through the door now. It doesn't feel dissimilar to 2016. Prices will move accordingly as market behaviour plays out.

    If the current February trends continue for the next few weeks (it may just be seasonal), the data will flip shortly. Effectively the trough has already passed and data will catchup later. Election could take this out I guess though, not sure how that will impact current market activity. Big IF essentially. Given potential downside, no harm and waiting for more info for investors.

    I.e. the actual trough would be late last year. Media & data will pick it up 3-6 months later though. The story will be 'sharp downturn, sharp stabilisation'. Charts will show a -4% QTR in Q42018, a negative 2-3% QTR in Q12019 and a positive 1-2% QTR. The negative 2-3% this quarter has already happened late last year, it's just data playing catchup (and the positive data is activity happening now). As a guide, for those that tracked the market in 2017, the data trough says October 2017 (data tells this story). But that was a good 6 months after prices had actually started coming off. E.g. June 2017 purchasing was cheaper than Jan 2017 (actual peak) purchasing. But June 2017 purchases come up in Oct/Dec data sets.
     
    Last edited: 14th Feb, 2019
  19. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    interesting, why the sudden rush? anything changed from last quarter?
     
  20. Redom

    Redom Mortgage Broker Business Plus Member

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    Need more data to have a clear explanation I think @TheSackedWiggle.

    At this point, I'd probably call it just seasonal in nature rather than a bigger conclusion that the downturn is over. Lots of stock clears in December (at discounted prices given need to sell), and new listings are low. Markets effectively been closed for 2 months, so more buyers re-entered. The combo of all that could be a sugar spike in activity for the month. Feb's usually busy (but so is December, which was way it was easy to predict last years data re credit coming to light now).

    Either way, if I'm an investor, market certainly isn't running away and doesn't suggest that its anywhere near that. If i'm hunting for an OO...early signs are you may be paying a little bit more in Feb 19 (above scenario so far) than Dec 18 (bargain time).
     
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