Sydney LVR Limit rumour

That's already happening with some lenders.

 

Spoke to our broker last night and, banks are favoring home owners to investors, providing better interest rates.

 

It's APRA cooling

 

This has been going on for quite some time. The banks are particularly interested in attracting sub 80% PPOR P&I business, and are pricing very aggressively to win that business. This means their margins ( profits) are getting thinner on that new business - and as a consequence investors are being asked to do a little more lifting.

Mr and Mrs ( investor I/O ) Customer say "we dont like it"

Bank says... "You dont LIKE IT ? Sorry, but we just cant offer you the same sort of rates"

Mr and Mrs customer " we will have to consider going elsewhere"

Bank "oh gee......that's a real shame but ........." which really means - feel free to refinance. Its a price we are willing to pay because that will help us meet our APRA targets anyway...

Mr and Mrs customer ( a couple of weeks later) " Damn.... can't refinance. All of those changes to assessment rates and HEM's those clever brokers on PC have been warning me about for quite a while now mean that my existing levels of debt don't service at other banks anymore"

Bank says - LUMP IT



This is of course a hypothetical... simply designed to illustrate where the banks care factor will be at , right now.

Pull your equity now. Plan for that "rainy day" ... it's quite likely never ever going to be a better time to get your ducks lined up. If LVR's and servicing tighten further, it's only going to get more and more difficult.

 

If anyone was to do this, it would be targeted IMO, if I was in the lending business, I can think of where I would apply that more than a year ago.

 

Investment properties becoming to risky for the big banks?

 

Not at all... but Interest Only debt is an area that APRA has aggressively and assertively taken a VERY BIG STICK to several banks, over. So what you are seeing with I/O rate increases, P&I rate decreases, LVR reductions and servicing calc tightening is the banks trying to encourage more people into P&I and discourage and slow down I/O. Those lenders who received the biggest sticks from APRA have taken the biggest steps.

 

IMO so far, APRA have only used a very small stick so far for I/O debt - its mainly been pricing differentials, trying to incentivise the market to react with pricing changes. Other than that, there has been some logical serviceability changes for I/O debt.

Compared to what they could do and very live options on the table, they could bring out a bazooka and make a real difference to the marketplace. E.g. restrictions on I/O for PPOR loans, etc.

 

Does anyone have any trend stats on repossessions for Investor versus Owner-occupier loans?

 

Won't prices fall though?

The rich who are fine won't be buying if prices start to drop. No profit to be made buying an asset in a declining market.

Then once prices fall won't those various people locked out at the moment now qualify?

It's sort of the like the Australian towns with 30% deposit required - prices will keep dropping until they reach the point where people can buy.

 

I'd be interested in seeing that data too. I'm guessing far fewer investors get themselves in trouble.

Then again, my view of investors is dramatically skewed towards those who are a bit cluier.

 

I agree. Investors are a politically-convenient punching-bag. It would be nice if there were some stats to prove APRA otherwise, at least for certain classes and strategies of investment.

 

Investment loans have considerably lower delinquency rates, APRA have made that very clear in most of their communication as a bit of a caveat and contextualisation of the issue - but using this indicator as anything more than a sense test won't uncover deeper issues - it is an indicator with a significant lag and hasn't been stress tested to different environments.

What you'll see with investment loans is a larger spike during stress conditions. E.g. if there's a massive credit crunch, rates rise and prices significantly fall, than investors would be the most exposed. Owner occupiers will definitely feel the brunt, particularly those that are a the stretches of affordability, but investors would also be significantly hit.

As a regulator of the system to protect taxpayers against the costs of these conditions, they'd have to consider what it'll look like in stress conditions, not the current/past setting (the probability of that happening is not zero, and it can't be fully controlled - but your resilience to such conditions can be).

Cheers,
Redom