My posts from over 2 years ago about interest rates and APRA

Let me get back to you on that!

(Just to clarify I wasn’t having a go at your post - it’s just a social forum and we’re all human and like to have a little fun sometimes. Might have come across the wrong way )

- Andrew

 

All good buddy, good luck with what you are doing

 

Houston we have a price rise in Sydney:

House prices rise in Sydney, Melbourne and Hobart, but still fall nationally


Where is the big interest rate hikes and massive drops in Sydney until whenever they thought it was going to happen? *pulls eyebrows together and looks in the distance* Thats right, nowhere to be found

So not only their predictions about interest rates were largely false, not only their predictions about Sydney was largely false, they also made people go buy in places that are now going to plateau or potentially go back as they were only attractive previously but the demand was a false prediction on investor activity rather than real demand.

If they asked you where you heard it first, you know what to say right?

 

@petewargent When do you expect this change?

 

pretty much exactly as the media's reporting, there's a bit of pushback going on from both sides from what i've heard...so it's all still ongoing for the time being. Source: scuttlebutt

 

I don't see any indication that APRA has unwound the screw at all. It's more that they're not screwing it in any more.

The thing I have been saying for years is that I don't see the policies being unwound to any significant degree and I don't see servicing getting much better, other than a some rationalisation of existing policies.

APRAs suggestion that that they'd modify assessment rates is a rationalisation and for the most part, fairly insignificant.

If anyone thinks borrowing capacity is better today than it was at any time in the past 4 years, please prove it. I'm happy to hand over a current and an older servicing calculator.

Even Westpac's foray into this space a few weeks ago wasn't going to improve things (had they not rolled it back). At the time they had plenty of conditions on it, and they increased their HEM living expense indexes at the same time. The net effect was their servicing calculator would be more conservative for almost everybody.

As for rate predictions, I think it's best not to try to predict more than 3 months out.

 

There are too many people getting excited about prices in Sydney and Melbourne heading back up a lot...this is just a short term dead cart bounce.

The banks are under increasing asked to look at the detailed spending. Their margins are thinning and are under pressure to do the right thing. Whilst interest rates will drop at least one more time and the assessment rate will come off by about 0.75%. It still take a long time to get a long and it is not easy....as most people do not have finances under control.

So the dreamers out there basing things on the market jumping in Sydney are dreamin'.

Though the silver lining is there is going to be a severe rental shortage in the next 2 years as building comes to grind due to the NSW govt putting in tighter rules around responsibilities of developers given the Olympic Park and Mascot building shennigans.

 

Would say it's mostly the investors rather than OO(so including mom and pops developers) bidding up prices back then. IO lending as a percentage was going way above PI lending back then, which gives good indication of who was really throwing up their arms and getting the final bid. Unless u are saying those OOs were mostly on IO loans?

Let's not forget the very many cashed up Asians who did not have fomo and we're just interested in locking in some aussie real estate to diversify their assets and didn't know how to bid at auctions other than to keep raising their hand until someone stopped them

 

I am loving these new sources of yours Pete!

 

You are not wrong but at the same time rather than a 7% flat stress test they are now saying that banks are able to stress test at 2.5% higher than their interest rate and this will eventually have an impact.

The problem with APRA is that it needed to be an entity of RBA rather than a separate regulator and I have argued this with legitimate reasons many times before.

In Australia we have difficulty understanding that we dont produce anything and apart from iron ore and some other raw products we barely have any exports.

So it is really the property that keeps the domestic market going.

At present IF APRA continues to keep the lending criteria strict, we are going to head into a recession there is no argument at all about it. We do need to re-stimulate the property market and at least bring it back to where it peaked and let it stay there for the foreseeable future.

We also need to open up foreign investment. North Americas, Hong Kong and even some of the European countries are uncertain places and their people view Australian property as a safe way of protecting their money and we must facilitate that rather than penalizing them with higher stamp duty. If anything reduce stamp duty they have to pay to buy Australian residential property.

Interest rates must remain low for at least 5 years or so and lending criteria must become easier if they are to see any form of inflation and change in wages.

 

Now Imagine what happens to real wages when current GIG-OLD economy overlap period starts subsiding and impact of full blown automation starts to kick in within next decade?

 

I think IO lending as a percentage is not a good benchmark to work out where the activity was. Back then we didn’t have IO loading and IO policies particularly around LVR. In the good old days you could get 95% IO on OO for the same rates as P&I.

The game is totally different. These days it’s simply much harder to get IO and for those investors that can then is the cash flow/tax benefits worth the loading? Ask most brokers and I bet once was a no brainer now requires specific consideration.

And Absolutely a lot of Owner Occupiers were on IO. A standard strategy was IO on OO with offset. Read back over SS forums. Don’t think you will find a broker not advertising this strategy.
Until the gap in rates and policy LVR restrictions why wouldn’t a lot of OO opt for IO given they can control their spending and just make the same repayments into offset?

I personally didn’t switch to P&I until the gap widened to 50bps.

 

I've done some modelling on this. Obviously if you're currently paying 4.75% or more, this policy (when implemented) would actually reduce borrowing capacity.

For the most part, the last rate cut, plus another one would increase most people's borrowing capacity by about 15%. This might be enough to get another deal over the line for some, but for most it's not exactly ground breaking.

At the same time, lenders are periodically reviewing living expenses and they only ever seem to go up. Any advantages on one policy might well be offset by something else.

I'm probably become a pessimist. It seems to me that every email from a lenders just adds to the 'death by one thousand cuts' and I've been getting them for years now.

 

Sydney already crossed its 2017 peak??
must be

once your done with your victory laps and able to contain your excitement, please note a minor omission... it was "2019 along with 20 and 21"

Note: Though there is still 230bn IO2PI left on the book till 2021, the repayment sting of IO2PI switch would be blunted on back of three interest rate cuts.

... its infinity and beyond from here

Note: may be a dead cat bounce? still too early to call.
there is still OTC issue,
migration intake changes affecting Syd/Melb due to skill independent visa cap of 18k down from 43k affecting slow absorption of upcoming access supply built in boom times and few other headwinds.

 

lol they won't be sources for long if i keep posting on chat forums

DMs ftw!

 

But the latest info suggests that lenders themselves acknowledge scrutinizing living expenses is too complex and time consuming.
Surely If banks believe this and can get away with it then brokers also don’t have to.

I struggle to understand why some banks are opting for this whilst a lot of others don’t.
Who is pushing this requirement?

If it’s APRA then why isn’t every lender bound by this practice?
If it’s not then why is anyone doing it?
The lenders asking for 3 months statements are just taking the p!..

 

I find it ironic that Sydney auction rates are at 70% and going up, interest rates are on the way down, US fed is talking about a cut prices are starting to go up, they are talking about relaxing lending but yet some users that couldn't predict 8 o'clock at 7:30 are still posting about their opinion on Sydney and Brisbane. Whats more is that there are people around them that cheer them on

 

I wouldn't be surprised if Sydney median grew up to 10% in the next 2-3 years and Brisbane should start making tracks in general

 

some progress, finally... (?!)

Treasurer to rein in ASIC on home loans

Banks quick to embrace Morrison's call for more lending

Morrison warns banks not to get 'sheepish'