Sydney LVR Limit rumour

This could be just a rumour but I heard from a friend who has been in the banking industry probably nearly 20 years that there is talk of Sydney LVRs being limited to 65-70%.
We know NAB has recently pulled back to 80% on many Sydney postcodes but to me limiting LVRs to 65-70% would be an extremely drastic measure.

Not sure if there is any truth to my friend's comment, but if it was to happen it would stop Sydney in its tracks and stop a lot of investing elsewhere too as investors become limited in options for pulling out equity from Sydney.

Double whammy to the market.

I guess pulling out equity while you can is a smart move to make and secondly don't be surprised if parts of Sydney go backwards - particularly the weaker/less desired parts.

Also goes to show investing in just 1 state/market is not a smart thing to do either, should policies like this arise. Diversify!! (Land tax is also a great motivator in any case).

It may not happen but you may as well be prepared if it does....

 

Does your friend work for a particular bank?

I haven't heard anything. It does sound drastic - banks like to make money.

Cheers

Jamie

 

Yup. Same place as me. I don't know from who he heard that from, and could just be a rumour, but as an investor its worth thinking about being prepared to be in the best position possible if it was to happen.

For brokers, obviously, it would change a heck of a lot. New policies to cope with but also more business as people may struggle to get deals across the line themselves. And fringe lenders would stop being so fringe...
Anyway, he could be completely wrong, but with NAB limiting to 80% LVRs in much of Sydney, well, its plausible.

 

That sort of lvr would create a recession, crash and scenes from the doom movie.

 

they probably would leave this as a back up plan due to the effect it would have on first home owners - very hard to save a 40% deposit.

 

@Gockie, i hope your bank isn't the first to do it, as majority of my loans are there.

 

It would be so backwards.... I can only see job losses and bad shareholder feelings in my workplace if it was to occur.

 

Um, would not be an issue as you already have the loan no?

 

Well, what I see is, you know how investors like to pull out equity/top up loans etc?

 

Pull now, or refinance...
Most of my loan is also with your bank, none with mine

 

Pointless move now, they needed to do this 12 months ago. The market seems to now be "self cooling".

 

Well, my friend said Big 4 so not necessarily my bank.

Very true. And with that in mind, maybe it won't be implemented.

 

Credit squeeze?

 

At the end of the day, there's houses in an area, there will be someone willing to lend money to that area. ING has pretty much pulled out of Sydney for investment loans. NAB has restricted a lot of postcodes.

Big deal.

One lender moving out gives another smaller lender an opportunity to move in. You might pay a bit more, have a lower LVR, valuations might be conservative. The bar changes but there's still options out there if you're willing to pay for it.

 

Why not different LVRs then for first home owners.

 

That'd be prejudicial to the investors.

 

Hmm i'm not so sure this is on the horizon at all, particularly with the market cooling down. It just doesn't make sense to do it.

The decision makers are reasonably intelligent people and have taken on a 'risk based' approach. LVR's going out of control simply isn't a risk factor in the Australian lending market. The rise in prices has been largely a result of investor demand and interest only loans do pose some concern (people not paying down loans).

See attached chart of high LVR loans through the boom - not much to see here.

LTV loans in Aus by Redom posted 9th Oct, 2015 at 9:40 AM

In saying that, rising prices in one market does pose a valuations problem. The regulators approach to this has so far been to 'let the market do its thing'. I'm not sure why they'd change that given they've only recently introduced serviceability actions and it appears to have cooled the market based on early data.

Imposing direct LVR caps is putting a sledgehammer to it and effectively the government deciding what happens (it would have a very big bearing to the marketplace and to certain sectors). It would most likely be kept up their sleeve as a last resort type tool.

 

New Zealand have recently introduced a 70% LVR for investors in Auckland. Too early to say what affect it will have.

 

It means that those who are already wealthy will be the only ones able to get into the market. Those who are early in their wealth creation journey will be locked out.

Fundamentally that's the end result of all the regulation we're currently seeing. Options still available to the rich, the poor are more likely to stay poor.

 

That sort of LVR is not going to happen....

The only bank that might impose a LVR lower than 80% is probably the Weestpac group/st George etc...and it will be location specific like Zetland/ Pyrmont etc...or even building specific

But chance of this going below 80% is low.