The 7.25% assessment rate and the future.

Discussion in 'Investment Strategy' started by Beelzebub, 13th Apr, 2018.

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  1. albanga

    albanga Well-Known Member

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    @euro73 I have read numerous posts from you post APRA saying new credit is here to stay yet less than 2 years later we are talking reduced assessment rates...and it seems as though it may happen.

    I know this has minimal impact to BC compared to pre APRA but it’s still a vast improvement than some of the sentiment from as far back as 12 months ago.

    Your usually fairly solid with predictions so just curious what your outlook is like these days?
     
  2. euro73

    euro73 Well-Known Member Business Member

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    Two things

    1. A modest reduction to assessment rates still comfortably sits within the definition of "new credit" ie its nowhere near "actuals" being restored as a policy. You'll note Ive repeatedly added a disclaimer along the lines of "unless APRA reverses or walks back its changes" over the past few years and I've also posted quite often along the lines of "they could reduce the assessment rate while still achieving their goals" So havent been inflexible in my views. Ive allowed for some wiggle room in what "new credit" looks like

    2. 2 years ago was May 2017. The changes commenced in mid 2015. So it's closer to 4 years than 2 years :)

    My outlook is that nothing much will change, besides the possibility of a modest reduction to the assessment rate and some RBA cash rate reductions. I believe that a modest reduction to the assessment rate would have a better chance of putting a floor under the correction than 25 or 50bpts reduction.... But neither will provide an accelerant to prices I would imagine, so any action will be about releasing some downward pressure on the brakes, rather than adding upward pressure to the gas, so to speak. And in my view at least- thats how it should be. I strongly agree with what APRA is seeking to engineer here - a migration to P&I and forced debt reduction - in order to strengthen a banking system heavily reliant on o/s wholesale and securitised debt . But I also believe they can do that without blowing things up. They ( and ASIC ) have had remarkable success in effecting change to policies which will serve us all well into the future...but I think there's some room for a modest wind back to help cushion things along....
     
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  3. Redom

    Redom Mortgage Broker Business Plus Member

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    At a macro level - is this true?
    - Actuals only benefits those with mortgage debt.

    So anyone who fits the below:
    - First Home Buyers
    - First time Investors
    - Upgraders with no existing debt

    This probably makes up more than 50% of transactions and would be ahead on a lower assessment rate vs actuals on OFI being used.

    Nonetheless, there’s been a myriad of other changes that have reduced capacity for the above groups (living expenses, variable income, verification, etc). So there’s be some reversal of this impact.
     
  4. euro73

    euro73 Well-Known Member Business Member

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    Yes, I think it is true.

    Firstly, Im not suggesting "actuals" are coming back... Im suggesting a reduction to the floor rate benefits everyone. Even those who arent carrying debt already.

    If a lender reduced their assessment rate to 6.75% or 6.5% for example, ( assuming the floor rate is reduced not abandoned) or if they went to 2% above rate to borrower ie 5.9% or thereabouts ( assuming a floor rate was abandoned - which we agree is snowballs chance ) then first home buyers, first time investors and upgraders with no existing debt will absolutely, definitely, unambiguously have a higher borrowing capacity than if that assessment rate stayed at 7.25%. It may not be a massive amount of extra capacity, but it will meet the definition of the word "more" or "additional" or "improved" or "extra"

    So the answer to your question is YES... resoundingly :)
     
    Last edited: 3rd May, 2019
    Redom likes this.

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