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

China have pumped billions of dollars of credit since December which is why every asset market has recovered: China opens the debt taps again as economic growth slows to multi-decade lows - China power - ABC News (Australian Broadcasting Corporation)

Wouldn’t you say this is why real estate has stabilised? It’s no coincidence that the downturn starts to stabilise just as the stock markets start growing again. Everything is hinged on central bank stimulus. The RC is just a dog and pony show. In London they blame brexit. In Canada they blame the new mortgage stress test laws. But really it was the Feds credit contraction. Now China is offsetting the Feds balance sheet roll off with their own form of QE

 

What I’m seeing in my segment is only the unique/discounted stock is going to auction. This time last year 90% of listings were auction now it’s 30%.

 

its just internal debt, China has become more stricter then ever for outflows, more recently they have announced the underground route for outflow will attracts jail terms.

 

I’ve read reports from the ABC and other sources which said this is adding to global money supply, it’s not limited to China. “We are back to liquidity levels of mid 2018 after hitting the trough in December.”

And PBOC are one of the big four central banks responsible for the QE which caused “the everything bubble”. Along with ECB, Fed and BOJ.

 

Here Comes The Shanghai Accord 2.0: China Unleashes Gargantuan Credit Injection To Start 2019

 

Good thing state governments took away the welcome mat for foreign investment with the myriad of new tax penalties...

 

They sucked them in and then introduced new taxes to penalise them. Now if they leave they would need to take a haircut too. Great way to help the economy

 

3k a month?

 

I don’t know how it works but I get the feeling the money being pumped into Chinese banks finds its way into Australian banks who lend it out to Australian investors. The RC was just a smoke screen with the outcome dependent on what the central banks did next. It was comical how quickly the RC hysteria got swept under the rug.

 

One thing I didn't mention in OP is the impact of positive credit reporting on lending assessments. There's quite a few moving parts to finance markets this year (potential rate adjustments, new influx of capital to non-banks, adjustments to risk appetites & the impact of positive credit reporting to name a few).

Large banks are finally using positive credit reporting & data sharing arrangements with each other. This has been a long time coming since its legislation a few years ago. Nonetheless, banks actually using this as part of their credit decisioning process is a relatively new thing (2019 now has it effectively rolled out by most lenders).

This means that come time of assessing your loan application, banks have better access to all of your existing debts, repayment histories, credit card behaviour, etc.

In itself, this should really lead to any material impact, in the short term, it does actually cause delays & slows the credit process down again while banks adjust to having more information on hand.

Why:

- Often banks will need additional verification of relatively small items to finalise their decisions. For example, you may have had a credit card that you thought you closed a few years ago, but the institution hasn't actually removed you off their credit system entirely and just left your account there with a zero balance. This will now pop up on your credit report as an open listing, and banks will require verification. In the past, this would have simple shown as an enquiry a few years ago on your credit file. Today, banks can see what is going on far more clearly.

- This type of information doesn't actually mean less work (at least initially) for bank decisioning, it typically creates more questions, more delays and more time to loan applications.

- Over time, banks will get used to having this information, adjust their requests to materiality and consumers/introducers will also adjust processes to better mirror credit process.

Positive:

- In the medium term, this is one of the key developments required to allow technology to continue to play a greater role in the process of obtaining finance. With proper data sharing, technology works more efficiently and has more power to do its work (allows for automation, productivity, etc over time).

 

I’ve had toll road fines go to private debt collectors now instead of police enforcement agency (gov). if toll fines start impacting credit scores that’ll likely have a big impact on finance.

 

I also think that for some, they will find it increasingly difficult, as multiple credit cards loaded up to the maximum, or multiple missed bill repayments will be much more transparent. This will knock many out of borrowing, as there could be many skeletons in the closet, so to speak.

The only thing I see this is benefiting is the banks here on making smarter credit decisions. Can't see it helping too many borrowers themselves.

 

At the beginning of this year, I thought that the regulators may 'spook' by what's happening in housing markets and adjust mortgage lending policies. I wrote a play by play of how they can do this and what may happen over 2019 as more and more data comes out. Turns out the economy has slowed too quickly and housing is having a bigger impact than first forecasted by regulators.

It looks as though the regulators will be implementing what's been listed, and broadly following the order noted too. They've started the year communicating to lenders to improve their risk profiles. The RBA are about to cut rates. Now APRA are about to provide a general boost to borrowing power.

APRA have now provided strong communication that they are about to allow lenders to set their assessment rates (point 5). Coupled with RBA rate cuts coming imminently (point 4), this will drive lending assessment rates down to around 6.5% on average. Changes to the assessment rate create a general 10-20% increase in borrowing power for all borrower. It will likely mean different assessment rates for different loan products (i.e. OO assessment rates closer to 6).



This is all within a matter of months. Rate cuts are approaching near certainty next month or the month after. Combining the impact of more flexible credit policies, faster decision making, lower rates & now an upcoming lower assessment rate...A rocket is about to be put under mortgage demand.

The regulators have blinked. Fear of the impacts of housing on the broader economy is about to translate into a drastic change in the credit environment.

Note this will be different to previous credit environments:

• Changes to general assessment rates dont allow investors to recycle their borrowing power to create 2nd/3rd order multiples. But it does allow their mainstream borrowing power to rise. I.e. if your already outside mainstream lender calculators, your probably going to stay there (unless your at the margins).
• It will be more broad reaching and lending is closely tied to incomes. I.e. higher income/lower debt households will benefit more from assessment rate changes.
• Rates are significantly lower

 

Excellent! It will be nice to see some sanity come back to lending.
You say "APRA have now provided strong communication" - how so?

 

APRA looks to amend mortgage lending guidance - Mortgage Business

 

I thought growth drives household-debts,
looks like household-debts drives growth

 

@Redom
I have heard many times here, how our borrowers have NOT borrowed to their max, wonder if that was a valid argument then? given that we are now excited about what this increase in borrowing power would do.


Able to take on additional debt doesn't mean willing to take, what would be trigger for that?

Earlier in 2011/12 the catalyst have been the Chinese money and easy IO credit to investors, Do you think in absence of those along with total D2I limit still on and assessment based on real expense, how big of an impact this increase in BC will have on prices?

 

@TheSackedWiggle - IMO a couple of rate cuts are a far bigger driver than an assessment rate change. Doing both and allowing rate cuts to fuel additional borrowing power and leverage across the board, thats huge.

Nominal asset values go up when rates fall. A look through all our rate cutting cycles in the past 10 years and mirroring them to Sydney asset prices, you can visually see there's a relatively large impact. May 2016 had a 3-4% decline in values for the 6 months prior, followed by two rate cuts, and boom, a 20% surge in values! For those buying around then, you'll recall feeling as though prices had risen ~50-100k in one weekend after the first rate cut.

IMO the reason why this coordinated response may not be so 'prudent' is the sheer size of it (assuming a couple of rate cuts, tax package goes through, assessment rate change occurs, etc). They'd navigated a 15% price fall with the backdrop of a very strong local economy (no forced selling) and brought back affordability.

A couple rate cuts and a ~6% OO assessment rate? You have better borrowing power conditions (price and access) for the majority of the market than ever before.

From first response commentating in the media, I believe this has been underestimated by regulators, commentators, etc. Suggestions 'prices will stop falling' have missed the mark on the impacts of monetary stimulus on nominal asset values. If the idea was to support the housing market, they'll achieve that very quickly. I don't think the idea from regulators would be to have nominal asset values run away again...which I think is where this 'stimulus package' will head.

Prices will rise. Fast. It won't be by the end of the year. By the first rate cut (in a couple of weeks), I believe actual on the ground prices in a lot of areas would have risen substantially already. I imagine anyone buying at this weekend auction market will be paying 30-50k more in Sydney already (we have half dozen bidders lined up and a lot of 'urgent pre-approvals' being requested, so can provide some feedback on this next week). Clearance rates will rise. And the herd will naturally follow when the rate cuts go through. What people read & hear will completely change in the next few months. The AFR is already onto it. Mass media will be there soon too.

In short, this housing downturn is over. It will be now be followed with a short term period of price rises. The regulators have blinked and decided enough is enough.

It will stabilise after this all gets priced in again & the 'supply' side response kicks in (there's a lot of sellers waiting to put their house on the market I believe).

 

That is why these days I still love to invest in property..

It only takes a few months of it tanking and governments, regulators, reserve banks, banks, the construction industry, and so many others all work so hard for action to be taken to protect the market. It happened during the GFC, it's happening now.

People can say its unjust, its unfair (and maybe it is), but at all levels it is so heavily stacked in the property investor's favour in this country. That is for prices to continually rise, and for price falls to be moderated.

With the sharemarket or other form of investment, the thing tanks 20%, then "bad luck".. but with housing, everybody else has your back when the same thing happens.

Agreed.. at least the very worst of it.