List of lenders responses to May 2016 RBA cut

Discussion in 'Loans & Mortgage Brokers' started by Marty McDonald, 6th May, 2016.

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  1. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Agree...CPI fall was not due to reduction in demand as much as due to oil prices, RBA had seen through that. In addition to election timing, there is change of guard at RBA. This rate cut and possibly one more before sep 16 would make life easier for the incoming Governor. Basel IV will be more of a deterministic event.

    @euro73 any feelers on equity ratios / capital raising being discussed in your circles ?
     
  2. euro73

    euro73 Well-Known Member Business Member

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    APRA has only just commenced discussions with the banks RE BASEL IV. They have said 2016 will be the year for consultation.

    What we don't really know yet is whether APRA feel they've done most the heavy lifting already in late 2015 by requiring the banks increase their Tier 1 ratios from 1.5% to 2.5%, and will only want to do a modest "top up" in Tier 1 capital to 2.8 or 3% by 2018 ( which is the lower end of BASEL's recommendations) OR whether they will want to go a little harder for the 3.5% + range (which is at the upper end of BASEL's recommendations) in which case the capital raising will be larger... either way the banks ROE per $1 will fall ( just like in late 2015 ) , meaning some bpts increases will be required to restore that ROE per $1... ( just like we have seen in the past 6-8 months ) This is what the "consultations" throughout 2016 are meant to determine... My personal view is that the next capital raising will be at the modest end of this and APRA will consider 2.8% - 3% adequate. A move from 2.5% - 3% would require something in the order of 10-15 bpts increase to recover ROE per $1

    Whatever the outcome, there is also the separate BASEL requirement of transitioning banks short term wholesale funding arrangements to medium term. At the moment we know that @ 30 - 35 % of bank wholesale funding sits on 90 day or 180 day terms - although this varies from lender to lender, of course. We also know that by transitioning to 12 month terms, that will likely create a cost of funds imposition of @ 30 - 35 bpts... based on current cost of funds at least - although if every bank around the world is moving this way, perhaps wholesale markets will invest in 12 month RMBS at the same sorts of margins they currently invest in 90 or 180 day RMBS, and the impact will be minimal... we just dont know yet.

    Really, all we know for sure right now is that "some" capital raising will likely be necessary, and that the banks need to migrate about a third of their wholesale funding into longer term arrangements by 2018.... so my best guess is that the impact of the two will mean @ 40-50bpts worth of upward adjustments to funding costs at worst , and 10-20 bpts at best.... and it will likely be passed on to I/O rather than P&I. But to counter that, if the RBA has cut the cash rate by an additional 25 or 50 bpts by then, the net impact for I/O will be neglible when compared with today's rates... but P&I will likely be the big winner .... which brings me full circle to comments elsewhere that the big cliff people are concerned about investors falling off when I/O terms expire and aren't renewed, may not be such a big cliff after all...
     
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  3. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Thanks @euro73 assidious and educative as always. Much appreciated.
     
  4. sash

    sash Well-Known Member

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    OK mid 3.5%...PI and so more people go and buy up big....they buy more properties in better locations less say people who could only afford $1m at say 4.7%....now buy for 1.5m properties. So on a P&I basis that is like 60k pa in repayments.

    So what happens if it goes from say 3.5% P&I ...to something like 6.5%...that is like 105k in repayments....do ya think....something is going to happen???

    Its about systemic risk...which I am worried about not who wins....though if Labor wins the risks is less ...

     
  5. euro73

    euro73 Well-Known Member Business Member

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    I'm not suggesting people will go out and buy up big off a 25 or 50 point cut - or even a 100 point cut- remember, even if rates fall, the assessment rates at all but a very limited number of lenders remains sensitised at mid 7%'s - mid 8's... and HEM's have been introduced which are far higher than the previous HPI model. So as far as most banks are concerned when assessing your capacity to repay, you are now spending far more on your repayments than you actually are , and your monthly household outlays are far higher than they used to consider, as well. Again, at all but a very limited number of lenders, rate cuts ie what you actually pay , will do nothing to increase your borrowing power.

    Unless everyone intends refinancing to Liberty, Pepper, QBank , Heritage etc...which just isnt possible , the rate cuts only improve affordability, not borrowing capacity.

    Too many people get the two mixed up. They are distinctly different beasts.

    So the point I was making is that the potential impact of I/O loans reverting to P&I may be less damaging than would be the case if the cash rate wasnt being reduced, because lower P&I rates may not end up being too different to the present I/O rates... which should allow for more people to transition from I/O to P&I without there being a big problem...
     
    Last edited: 7th May, 2016
  6. willy1111

    willy1111 Well-Known Member

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    Any news on ME Bank?
     
  7. kr11

    kr11 Well-Known Member

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    Out of curiosity, what would have to be discrepancy in rates between i/o and p/i for there to be the same outcome in loan repayments

    is it about 1.5%

    eg 3%pi vs 4.5%i/o

    thanks
     
  8. euro73

    euro73 Well-Known Member Business Member

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    As an example...using a 30 year loan term.

    300K 3% P&I = $1265 per month. 5% I/O = $1250 per month
    400K 3% P&I = $1686 per month. 5% I/O = $1666 per month
    500K 3% P&I = $2108 per month. 5% I/O = $2083 per month
     
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  9. Abooking

    Abooking Well-Known Member

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    Time to re-finance...
     
  10. TaylorChang

    TaylorChang Well-Known Member

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    As per last week conversation with my Macquarie BDM, he thinks they will pass on the full rate cut, but it's not yet official.
     
  11. Sonamic

    Sonamic Well-Known Member

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    Thanks Peter.

    Asked NAB Broker 2 weeks ago. Best they could do was 4.86% down from 5.05%. 366k lend to build @90% LVR. Val now ~450k so about 81% LVR. More room to negotiate once 80% or better?
     
  12. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    They get a lot more generous once you're below 80%. They also have a bit of a thing for loans below 70%.

    Have your broker do the negotiating. They're currently piloting a new rate negotiation system through a few select brokers.
     
  13. Sonamic

    Sonamic Well-Known Member

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    My broker did the negotiating. Unfortunately they're still assessing it at the 90% pre construction Val. So short of a favourable revaluation or paying the principal down out of 40k buffer in offset I'm stuck for a bit.
     
  14. MPZ

    MPZ New Member

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  15. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Saw that. And only 15 days to conditionally approve a loan. Luckily I have never placed a client with them.
     
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  16. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Further to the above, all existing variable rate home loans (excluding Line Of Credit) will be reduced by 0.17% effective 30 May 2016. e
     
  17. DaveM

    DaveM Well-Known Member

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    Thanks Marty
     
  18. Steven Ryan

    Steven Ryan Well-Known Member

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    Macquarie just passed it on in full.
     
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