Panic Setting in Sydney

When these regulatory changes started, I was concerned about the P&I "cliff" as well... and I would agree there is still a small risk of a P&I cliff... but my concerns about this have reduced quite a bit because of how the banks are apportioning / targeting their P&I and I/O rate settings.

What I mean is - the banks are offering very low P&I rates for PPOR securities, so even if lots and lots of Sydney PPOR buyers over the past 2,3,4 years did borrow using 5 year I/O terms or 10 year I/O terms as you are suggesting (and I think you're probably right) , the fact is that when they do actually roll out of I/O and into P&I, based on current rate settings at least, they'll roll out to P&I rates of sub 4%. So I'm not sure the P&I "cliff" will be as large as it had the potential to be, had the banks apportioned their out of cycle rate rises evenly between PPOR and INV borrowers

Investors are another story entirely, though... investors are going to get whacked on the rate rise front whether P&I or I/O. Essentially investors are now subsidising the banks rate war for P&I PPOR borrowers

 

all of my properties with most 15 yrs io

 

I'm comfortable I have as good an understanding on it (well as good as anyone can) Personally I'm more than happy if we go down or sideways.

My only real issue is a have a 3year fixed coming out of term in a few months and I'd like to roll over into a 5 year fixed as I prefer to have all my loans fixed but am thinking the timing wont be right - but I can live with that and don't have any real concerns that rates are going to get that much higher.....just wish it came out of fixed last year.

 

Agree.

And with APRA being behind it.....this will happen.

I'm actually surprised there hasn't been more competition spring up in the re-finance space due to the fact that APRA doesn't manage the whole market.

I have $665k I'm looking to roll over into a 5 year fixed in a few months (either IO or P+I ...doesn't really matter to me as have plenty of spare cash) and although haven't started actively looking haven't noticed much competition for my business from "non bank" lenders.

 

"non banks" wholesale their loans in banks, so they are caught by APRA as well. Think Firstmac, Resimac etc. Only Liberty and a small number of true non conforming banks are not caught by this. They dont wholesale their funds locally so dont come under APRA's rule.

 

Here is why I think Sydney and Inner Melbourne will wear the brunt of the changes on I/O

A lot of people have $1m mortages in these cities.

With 25 years to go.....I/O repayments is approximately $4100 ....with P/I it is $5800.

That is about $1700/mth difference.....this will sink a lot of people if they are not prepared. Note if it is a personal mortgage is is not tax deductible. So that is equivalent of at least another $34k in gross income........

 

The difference between $4100 and $4800 is $700, not $1700.

$4100 per month equates to $49,200 per annum, so I assume you are using 4.92% as your reference rate?

If that's a correct assumption , monthly repayments for 4.92%P&I over 25 years = $5799. So your $1700 per month becomes accurate then.

We all agree there is pain coming for anyone on I/O loans who are due to revert to P&I. Whats not clear though, is whether PPOR borrowers will suffer like INV borrowers. Seems to me that PPOR borrowers will be reverting to 4% rates or less, so repayments on $1 Million over 25 years would be $5278 . If they can secure 3.8% or better, repayments would be $5168 per month.

Also seems to me that the RBA has rate cuts at its disposal if required, and they could actually help the RBA and APRA towards their goals of getting more borrowers onto P&I loans. We all know the banks would only pass the cuts to PPOR P&I but not help INV rates one bit. So dont discount that outcome. Lower PPOR P&I rates happening simultaneously with higher INV P&I and I/O rates.

From the RBA's perspective, this may be necessary as its no longer certain the US Fed will get through 3 rate hikes this year. Will help the RBA get the dollar down further, generating better opportunities for education , manufacturing, exports etc....

anyway... late 2017 and early 2018 will tell the tale. Those with strong cash flow wont be bothered by any of this. Those with weak cash flow had better get some cash flow into their portfolio quick smart....

 

You are correct...typo..should be I/O 4100 and P/I 5800....

 

Average sydney dwelling has now lost $14k in value since peak few weeks ago.

A Sydney correction and rapid Brisbane take off is imminent unless RBA intervenes in some way to keep sydney prices high.

 

@standtall lol

 

When you say rapid Brisbane take off is imminent.... what do you mean by this.... ??? Curious, been waiting for this for 2 years now? why is it different this time? what is it that will make Brissy take off??

 

Cause we set the rules and make the policy from right here........and on a serious note, if you follow many things here, you would swear the above could be the case & would not surprise me if it was used in some way from time to time.

 

I posted a correlation between sydney and Brisbane prices a few days ago. It's not based on very robust data so take it with a margin of error but it appears that sydney peak results in a Brisbane boom. Someone else also posted a graph which showed that cycle after cycle Brisbane prices started growing when sydney median reached 2x of Brisbane prices and a consensus was reached that Sydney had hit the peak.

I think daily indices are quite robust in showing a trend and in the aftermath of banks raising interests + apra changes announced, sydney has shown quite a decline on a consistent basis (actually this is the longest number of consecutive days sydney indices have gone down as far corelogic public data is available).

Brisbane went flat after the changes but it has started going up after the RBA keeping the interest rates unchanged + media calling/debating a peak for sydney. In fact, Brisbane is the only major market posting positive numbers on a consistent basis.

See this chart (Brisbane is red, you can guess the rest easily)



This is the entire basis of my argument (I am exposed to both sydney and Brisbane markets so no agendas in terms of hyping one over other.)

Why Brisbane didn't start booming 2 years ago? Because sydney had lots of growth still left (go back to see my 2015 posts arguing over and over again that sydney was far from peak in 2015).

 

Hope you are right!

 

Guess it depends on the area (as usual)...
This one in St Marys NSW was listed @ $775k - 850k,
sold at auction on the weekend for 905k.
http://www.realestate.com.au/property-house-nsw-st+marys-125190862

Nice 5 BR, 2 storey house, but only 610 sqm…

At the same time the 1970s high set we bought in Moreton Bay 6 months ago had at least 3%-4% cap gain since Nov 2016...

 

Omg

 

omfg

now even St Marys...50km from Sydney CBD is fighting for that million dollar club.

Shahin must be doing well.

@Tonibell, tempted to sell another one? you sell I sell

 

Bloody spectacular result, where these people buy now?

 

There will be some drinks at the St Mary's Band Club for sure

 

I wouldn't be calling last drink on Sydney just yet. Easter, Anzac weekends, school holidays, the budget, coming into Winter... These have always been events that seem to slow down peoples financial decisions. Lets see what is happening around September time... if it is indeed slowing down then by December it will be very evident.

I don't think we'll see more than 5% growth left from now to the top but I still think it has just a bit of steam left.