More possible RC lead changes-Tougher rules on borrowing capacity could be introduced.

I disagree. Everyone’s capacity is reduced, this effects lower income people more. People with cash or on higher incomes will be effected, they will have to slum it and compete in the suburbs lower income people might’ve had a shot at.

Getting rid of negative gearing and changes to CGT and super wouldn’t affect lower income borrowing capacity, but that’s a diferent thread.

 

True. If old housing stock remains at current price levels.

If people on higher incomes do not also hold higher debt.

Someone on a lower income with lower prices due to strict credit control has a good chance. A very good chance.

 

It is the "n" articles from UBS talking properties down within 2 years. Clearly they have their own agenda.

 

HEM may increase as suggested numerous times in different posts. However, the banks would have the ability to reduce floor rates as there is no reason why there should be 3.5% margin (eg. 7.25% - 3.75% o/o rate) if living expenses used in their assessment is accurate (or close to it)

 

What about as a buffer for a few rate rises?

 

3.5% buffer would be close to double of current rate...

 

I am beginning to think that the big banks have known for a while that they have lent out to much money to its customers.
By having a RC it lets them draw a line in the sand, and all the banks have to follow any new regulations/rules
In the past one bank may have tightened their lending restrictions only to see its potential customers go to its rivals, it was a no win situation, especially in an era when there was no real regulatory oversight, and it became a race to the bottom.
I was always under the impression that when a banks writes out a loan it assumes two things .
One is that over time the loan amount decreases and secondly with inflation, the person taking out the loan will see their wages continually increase.
As time goes by it lowers the risk to the bank.
Whats happened over the last few years is that wage growth has stalled (which increases the banks risk), and for the last 10-15 years they have been issuing out interest only loans to virtually anyone, which doubles their risk as the loan amount never decreases.
And in about 12 months time there is about a 50% chance that negative gearing will disappear for established property and only be available for new builds or redevelopments.

 

Or about 14 RBA rate rises.

 

Agree it sucks......however as wages weren't keeping up....they had to do it.

This said if I knew what I knew at 50 when I was 20.....I would have bought 20 properties by now - compound interest and "delayed gratification" is the most important lesson you can learn.....unfortunately its almost impossible to understand when you are young and you have your whole life....laying out ahead of you.

 

Yep.....this is the biggest question mark I have - how do people handle rising rents and do they draw the correlation that cheaper property prices are good for them or bad for them.

This said the current 2.5% rental yields are a little on the low side and we can afford to have them come back up to 5% etc before people really start to complain.

If I was renting in Sydney today I would downsize and then lock in a 4 year rental with fixed increases for each annual increase while building up equity in the future for my PPOR going to be some great bargains to be had by people who are cashed up.

 

APRA put a floor on assessment rates, 7.25%. For existing and new debt. That and Hem is why each lender now has similar capacity/calculators.

 

I think there'll be more of a shift to better verification of living expenses and more thorough assessments. Lenders may be obliged to do a bit more digging here than what has been done in the past (taking disclosures from originators/customers more at face value).

This verification will likely practically mean lower borrowing powers for higher expense households. I'd suspect there's an overall mis-disclosure of actual living expenses incurred by consumers, that will get closer to actuals given better verification.

I doubt there'll be some drastic overall change to min living expense calculations though. APRA have made some big moves here already, not sure whether they'd want to go further and restrict capacities even more.

 

I agree, but the problem is that lenders are implementing policies based on 'worst case' scenarios.

For example, some lender do differentiate between 'mandatory' and 'discretionary' living expenses. When it comes to assessment however, the discretionary expenses are taken fully into account, without consideration that if things go badly, people have a tendency to reduce their discretionary expenses quite quickly if they need to.

Some lenders look at all the income, but give no consideration to the debt associated with the income. I know of lenders that increase living expenses as you buy more property as a result of the rental income contributing to the overall income. What they don't consider is that there is also a debt associated with that income, therefore it's not really contributing to the overall household income. Essentially lenders are assuming that if you own an IP, you're going to spend the rental income on lifestyle, rather than servicing the mortgage.

I've no problem with lenders looking at living expenses more closely, but their rational of policies around people's cost of living (and several other things) is quite inconsistent with most people's actual behaviour.

 

I noted with interest Westpac specifically stresses in their new policy around expense verification that living expenses are not to be verified against bank statements. Smart. Trying to work out whats discretionary spending and whats not by looking at 1 or 3 months bank statements is a fools errand.

They know:

1) that would lead us down a rabbits hole and the UBS like reduction in general capacity which could crash the market and really put them under stress.
2) they will pick up good market share from the lenders who do decide that is what is required.

 

Nab appear to have taken a bank statement approach from a couple recent deal - makes it very difficult to do accurate living expense assessments when they override it.

Can be worked around, but requires a bit more time to obtain approval (explanation and higher delegation required to obtain approval override for living expenses, explanation of one off items, etc).