Told You So...

Just as predicted... LTI ratio's changing. And not for the better . Last year I wrote about this and several other members suggested I was incorrect.

Well... here 'tis.

Now, these changes are material but not seismic by any means ... NAB are reducing theirs from 8 to 7. Thats @ 11% reduction give or take.... But that's not really the point. The point is, it's yet another incremental de-tuning of servicing calcs . A HEM CPI increase here combined with an LTI ratio reduction there, and little or no wage inflation... adds up over time...

So the question remains... where's all the capital growth going to come from in this environment? Far better off purchasing for yield and concentrating on debt reduction...

 

Mine is currently sitting at around 27...

 

Does that include rental income?

 

No, good point. That reduces it to around 12.

 

Phew...I was sweating bullets there for a while.

 

buy for yield and naturally there will be capital growth because its a good property in good location ala dividend stock ?

 

Makes sense.

 

So let me see if I've got this right, you can now borrow seven times your income instead of eight? That's gone from completely crazy to just insane.

If someone earns $150K plus super, their take-home would be $8666 per month.

Eight times that would be $1.2 million. On a repayment mortgage at 4% interest rates, it'd cost $5783 per month. If rates go up to 7.5%, it'd swallow almost all the income.

Seven times would be $1.05 million, which would cost $5060 a month, leaving about $3600 of the salary. Still, if rates went up to 7.5% the buyer would have $1250 a month left over.

Neither scenario strikes me as prudent lending.