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Pre-APRA/Post APRA - an experience

Discussion in 'Property Finance' started by adrian_christian, 3rd Aug, 2015.

  1. adrian_christian

    adrian_christian Well-Known Member

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    Morning All,

    Just wanted to share with everyone an experience with my pre/post APRA scenario.

    Firstly, I am an Australian living OS and am classified as a non-resident.

    Initial estimates from my mortgage broker said our borrowing capacity was around $400K for our 3rd IP. This was prior to last Friday....

    I check my emails this morning to see the following email from my broker:

    "Unfortunately on Friday, Westpac announced considerable changes to their assessment policy regarding Investment loans. One of these changes affects our borrowing power with them and where our maximum was $406K it is now under $200K which obviously creates problems.

    I need to ascertain if any other Lenders will consider a non-resident loan which is the category you fall in
    ".

    I'm guessing my situation is a little different as an Australian non-resident, but my outlook doesn't look good. Does anyone else have the same experience during cutover?
     
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  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Westpac has got one of the biggest non resident and IP books so they have gone hard on the policy changes such as removing negative gearing on their borrowing capacity however since you are a non resident you can't do negative gearing anyway so I'm not sure how the Westpac changes would have affected you.

    The only significant Westpac change was the reduction of the LVR from 80% to 70%.

    Note that Westpac take 80% of the converted currency whereas there are other lenders like Homeloans and Firstmac that will take actual repayments and also 90% of the converted overseas income.

    If servicing is an issue and they have been working on Westpac then you are definitely going to have more borrowing capacity elsewhere.

    In their defence though Westpac takes a lot of currencies that other lenders don't so you may be earning dirhams each explains the need to use Westpac.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Unfortunately I think you'll find that your affordability has significantly reduced with pretty much every lender. It doesn't have much to do with your being an ex-pat.

    In fact Westpac tend to be one of the better lenders for non-residents, but if you're a citizen, there's plenty of good alternatives that I find are much better to work with for ex-pats. The biggest question usually boils down to the method via which you're paid (bank statements helps a lot) and what currency you're paid in.
     
  4. chylld

    chylld Well-Known Member

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    Will they be chasing existing customers between 70-80% LVR to get it down to 70? Or is this just a cap for new loans and topups?
     
  5. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    No - it just applies for top ups and new loans.

    Westpac non-resident lending policy in this area for expats is quite poor unless you need one of the crazy currencies that they accept.
     
  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Borrowing isn't going to get any easier in the short term with APRA requiring the Big 4 and Macquarie to hold 25% capital for all the investor property debts. That's going to make borrowing a lot harder for IPs. Yes, we've seen it mentioned in the forums but its worth sharing the detail. If you think its hard already, unfortunately I think it will get even harder in the next few months to borrow from these institutions.... do your research but maybe its worth fixing some loans (if you don't need the flexibility). But really read up on the pros and cons of fixing before making any decisions.

    http://realestatetalk.com.au/being-...our-dream-business-investing-myths-plus-more/

    Here is the transcript of the interview:

    Andrew Mirams
    Kevin: Some sobering news on the horizon – a warning of heightened levels of risk in the housing market. After that warning, APRA has ordered five banks to increase the amount of capital required for their residential mortgage exposures. This could be just the tip of the iceberg in terms of changes that are on the horizon that are going to impact you and me as property investors.

    With more information on this, Andrew Mirams from Intuitive Finance joins us. Andrew, what do you believe is ahead?

    Andrew: Good day, Kevin. How are things? There are probably a lot of changes that we have already seen happen, and I think that it would be naïve to say that there are not more coming. We’re seeing quite a number of lenders already changing the way they assess borrowers and more particularly, the lending to investment has gotten quite harsh.

    We had some of the before-and-after examples where we’ve seen clients going from being able to borrow up around $1 million, and that’s now come down to around $400,000. Every client is different, and there are a whole range of different serviceability measures and things that we do.

    Kevin: On this point of the notice by APRA to the banks, what does that actually mean? Explain to me how that works.

    Andrew: Basically, what APRA has said is they’re worried about the banks’ liquidity and if the market was to crash – as they’re all fearful of – they’re worried whether the banks have enough capital to be able to fund and absorb any losses. Right at the moment, the Big Five banks – ANZ, Commonwealth, NAB, Westpac, and Macquarie Bank they’ve put in there because they are quite strong in the investment lending – all hold around about 16% of liquidity or capital that is set aside…

    Kevin: As a buffer.

    Andrew: Yes, to be able to withstand or withhold any adjustments in the markets and things like that.

    From July 1st next year, they’re going to be asked to have 25%. What does that mean? That doesn’t sound like a lot – 9% – but if you put it into some big numbers like what the banks do, that means they’re going to have to put aside billions of dollars in capital that they can no longer use. What that will mean for you and me potentially is that it might cost us all more to get access to what they can lend out.

    Kevin: Less funds and probably more requirement for a bit more “hurt money” from people who want to buy property.

    Andrew: Yes, absolutely. Again, we’re seeing changes coming through with banks and what LVRs they are willing to do for investors. We’re seeing quite a number now restricting the investment loans back to 80%. Mortgage insurance going up to 90% and 95% is no longer available.

    I think it would be naïve to think that it’s not only a matter of time until most of the lenders follow suit, because they’ve all been asked to restrict or slow down on their investment lending. While we’re seeing some come through quite quickly, I think most of the other lenders are probably sitting back as well, going, “What does this mean for us? How do we implement it?”

    Some of them have system constraints. It’s not as easy as flicking a switch so they’ll be working on things. I know that for a fact because I’m in regular contact with a lot of the major lenders and senior management.

    Kevin: With these changes, does it look like they’re going to tighten up on lending in self-managed superannuation funds, as well, Andrew?

    Andrew: Yes, it is, Kevin, and it’s happening already. We’ve had a couple of lenders pull out of self-managed super fund lending altogether, the National Australia Bank probably being the largest one of those. We just recently had Sir George – who has been quite a big player in the self-managed super fund space, as well – reducing its LVRs for super funds from 80% if you have a company in trust back to 70%.

    The other thing to note with that is it’s almost like reducing it back to 60% because now they’re also asking that the super fund has at least a 10% liquidity. If you’re buying a property for $500,000, you would need to contribute $150,000 plus your associated stamp duties and costs plus also make sure you have another 10% in liquidity sitting aside.

    Kevin: It’s certainly getting tougher, isn’t it?

    Andrew: It is. Yes, it’s like every part of the cycle. It’ll get tougher and the measures will be implemented to slow things down, and then what we’ll see is in time, it will rebalance itself. Home-occupiers and buyers will get out there and hopefully take advantage of the low rates and upgrade and things like that, and it will turn around again.

    Kevin: There is a positive in all of this, too. That is that I think anything that strengthens the banking industry and keeps it nice and stable as opposed to what it had in America, I think is a good thing.

    Andrew: No doubt. Our banks were very strong through the GFC and the measures that our banks and probably the regulators have had and been able to manage our process and everything like that, all the way through was very strong. There is no doubt that the intentions are right.

    The other thing is it takes a little bit of heat out of the markets, where we’ve said that Sydney and Melbourne have been very strong of late. It probably is going to avoid a crash where we’re going to get that boom/bust cycle. If we just take a bit more measure to the markets, then hopefully it should be a good thing for all of us in the long term.

    Kevin: Always good talking to you, Andrew Mirams from Intuitive Finance. Thanks for your time.

    Andrew: Pleasure, Kevin. Thanks.
     
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  7. euro73

    euro73 Well-Known Member Business Member

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    Does anyone still believe these changes arent going to have a material impact?
     
  8. headsonbeds

    headsonbeds Well-Known Member

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    Seems to me that one of the major risk factors for a market crash is APRA itself!
     
  9. euro73

    euro73 Well-Known Member Business Member

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    Just got even more real....

    Screen Shot 2016-04-26 at 1.59.07 PM.png
     
  10. Marty McDonald

    Marty McDonald Mortgage broker

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    Why all off a sudden are non residents seen to be such a massive risk. Could it have anything to do with the fact that only a few years ago Westpac would accept an employment letter as sole income evidence!!
     
  11. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    A number of lenders have announced this change - no doubt there will be a lot of teams scowering over the previously settled files who will uncover some dodgy income docs.
     
  12. emza

    emza Well-Known Member

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    If things go very bad then the Banks will claim they were always applying prudent standards!

    This is... marketing. APRA is the best friend the banks ever had. They're going through this tightening of rules and they'll try to push the public perception of banks as responsible lenders. Trying to stave off a royal commission, too.
     
  13. euro73

    euro73 Well-Known Member Business Member

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    Public perception and royal commissions have nothing to do with this at all. ... it's as simple as this; they banks have to get under the 10% I/O speed limit by June 30,2016 or face massive capital penalties. This is easy, low hanging fruit to help them do so..... Westpac in particular, was WAAAAAAAAAY over the 10% limit last year and while they have taken big steps to slow it down by reducing their LVR's, making their servicing calc useless for investors, etc...they were still writing a massive percentage of the total non resident I/O lending in Australia because their policies were very Chinese friendly. So this action will help them get under the 10% speed limit before the June 30 deadline.

    Don't be surprised if this is a bit like the AMP withdrawal, and Westpac ( and their family of STG, BOM, BankSA) re-enters later in the year but with far stricter non resident policies.
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    @euro73 my understanding is that it's also to do with copious amounts of no-resident dodginess going on. I've been advised that things will be tightening on non-res lending across the board, not just in the wBC group - although it makes sense that it would start there with their previous niches.
     
  15. euro73

    euro73 Well-Known Member Business Member

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    I think there's plenty of merit to that too,Jess... but I wonder whether this is primarily just a short term measure to get under their June 30 targets, and then they'll return to the market with stricter non resident policies?

    I say that because if they don't return to market by years end, and if other lenders make it super difficult for non residents to get funds moving forward, we could have an OTP apartment catastrophe on our hands in Sydney, Melbourne and Brisbane in particular, where large percentages of apartments have been speculated on by offshore investors . This is something I would think banks would be very anxious to avoid , as they have massive amounts of exposure in those projects and will not want to take that particular bath, which could be hundreds of millions in bad debt provisioning, or potentially even billions. It just seems like they'd be courting disaster if they stay withdrawn.

    The longer it stays an unknown though, the more fear and uncertainty it will create - so I think they'd be wise to clarify their intentions sooner rather than later. I can already see that one of the immediate consequences while it remains an unknown , will be valuers getting really harsh, really quickly, on any new apartment stock... simply because they will think apartment prices are going to suffer a massive correction down the road off the back of the Westpac/STG/BOM/BSA announcement, and they'll be putting all kinds of backside protection in place...
     
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  16. euro73

    euro73 Well-Known Member Business Member

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    And just like that, the non banks and mortgage managers start promoting their alternatives...:)
    Screen Shot 2016-04-27 at 1.54.36 PM.png
     

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  17. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Harry Triguboff has similar concerns
    What worries billionaire developer Harry Triguboff
     
  18. euro73

    euro73 Well-Known Member Business Member

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