Westpac 20bps Rate Rise Across the Board

Did the investor drop the rents when interest rates were going down ? Probably not.
Anyway the market determines the rents not the owner, who can try but might end up with some vacancies

 

that's exactly what I think, come November

 

0,2 is a drop in the sea, but it's better than nothing.

 

but we don't want fixed rates if we want to access equity, see you damned if you do and damned if you don't. That's it, I cant take it anymore, where's my wine

 

What the RBA does and what the banks do has been out of whack for a long time, increases are always the out of step action (whether down or up, it is always in the banks favor), can't remember voluntary drops in any rates, or drop that pass the RBA.

They have to keep making more money, stakeholders demand it, so no surprise, they do as they want.

Look at credit card rates, how many are in the high teens as they were years ago.....

The only certainty is, they will always have a hand in your pocket.

 

No, I hope not. I put mine up every 6-12 months even if it is only by $5-10pw

Yes, but as investors WE are the market makers.

Yes, agreed. You research the market and pick your timing to avoid this

 

Don't think its that simple.

E.g. if you have a kebab shop and the price of beef kebabs rise, you decide the raise the price. But this doesn't take into account the market where the price is set. If the shop next door becomes a kebab shop too and absorbs that cost, than you have to cop it.

Point is, rent prices are a supply and demand equation. The increase in rates will adjust the supply equation as it will alter the number of rental dwellings available.

But that investor can't simply raise rents by $10. If you held 8 Canberra units and you tried that, you may have a lengthly vacancy period given some apartments have had rental price reductions.

 

In general terms Redom I agree with you. But a few things:

1. Rents do rise over time (to maintain a 5% RY) and mortgage payments tend to stay the same (give or take a few % points)
2. If enough investors (and there are twice as many as normal ATM) decide to put rents up, then rents go up (as the market allows)
3. If a PI cannot handle $4K worth of increased costs of borrowings in a year, then maybe they need more buffer or have over-extended. (I had to find $12K for a new roof recently and although I'd rather not, I did not lose any sleep over it).

 

Westpac increasing their rates doesn't automatically mean that an investor can start writing letters to increase their rent prices.

E.g. in Canberra plenty of renters have seen a fall of about 10-20% over the last three years with ample supply coming online. I know if i'd have got that letter i'd be picking up the phone call and saying i'm moving next door. I'm certain that the landlord will freak out and give me what I want.

Point is renters do have some power in this too when the market gives them some wiggle room. Competition drives price. Not investors, they're just one part of the equation.

1. Rents have risen over time but are also rising much slower over this boom period than they have in the early 2000s. This is because there has been an ample increase in supply numbers of rental dwellings as investors have made up 50%+ of the market. In some markets where supply is rising, rents have fallen significantly. The days of budgeting 5-6% p.a. rental growth inflation YoY are over.

2. Investors don't decide the rental price. Investors compete against each other to have their dwelling tenanted. They provide the supply. They definitely DONT control the price. They don't collude and band together to form their own pricing committee. The fact that there are twice as many does not assist rental price growth, it works the other way.

3. Completely agree!!! There have been a range of changes of late that have very much meant increased buffers are necessary. The potential for interest only terms to expire are one of the biggest ones that people forget.

 

NAB on rate increases - well we might, we might not...... (using other words) also saying they have to look at what others do and that rate is not that important (yeah, right, it is all about the rate AND security, service etc)

They did say that home loans are an area they want to grow (decoded, we may slug investors more if we do decide to go up)

 

Well another RBA rate cut might justify the banks cutting bank Deposit rates. But will not pass on to borrowers!

 

Could the RBA dropping the rate again make a louder noise than Westpac hiking it by .2?

Most home buyers responsible for the housing boom are emotional OO'so no doubt heavily influenced by the media or uneducated property gurus at a mates BBQ.

Point I am trying to make is do you think the RBA dropping again (or being forced because of moves like this) may actually continue to fuel the fire of the boom. I don't know the answer just throwing it out there.

On this forum we can seem to forget that most people have no idea about property and may be more heavily influenced hearing the news the RBA has cut rates again (not fully understanding this likely will never be passed on). Not everyone has an awesome broker like those on PC who would tell them otherwise.

 

if there was a town with 10 IPs, and 10 residents renting, and each owner agreed to raise the rent...then the landlords can control the rent....

can someone email all IP owners, in say canberra, and get everyone agree to a 5% rise....cheers

 

The RBA wont be forced to do anything directly if banks raise rates. Rising rates and cooling housing is what the RBA would have liked long ago.

The RBA may lower rates if they feel the fire is under control or going out, but I would suggest that if it has not worked yet, another drop wont do much, not only that, you can see how the banks would use any recent excuse not to pass on any cut.

In reality, dropping further is no good for anyone.

 

but what if there are really only 8 renters? would they not race to the bottom?

 

+1, lots of big players work this way, fuel supply for example, BHP & RIO to squeeze the small operators etc

 

is that why petrol in Sydney is back around 140c while oil prices have tanked, but hey, I though we had people looking out for this kind of thing & protecting us.

 

Firstly, I don't think the RBA would drop rates any further if there was a chance that the housing market would continue to boom/bubble. Here's why:

1. RBA members have repeatedly expressed concern about the housing bubbles in the Sydney and Melbourne markets
2. It would not make sense, from a policy/government perspective, to have one regulator purposely restrict finance to housing (APRA) and then another expand finance to housing (RBA lowering interest rates)

Second, the banks have been independently changing interest rates without input from the RBA for some time now. This began in 2013/2014 when IRs were only partially passed on - remember the public outcry about that??! Hilarious!
Now they have been increasing rates independently, and the recent move by Westpac, albeit small, only confirms that.
I do not believe the banks would pass on any further interest rate cuts (in home loans) should the RBA decide to continue towards 0%.

 

Great post @propernewb!

In terms of point 2 - in this case it may be the regulators working together rather than at odds to each other. A little strange to say that given APRA's actions are to 'raise' rates and RBA is to 'lower' rates. However, APRA have asked banks to hold more capital to add 'resilience' to the financial sector. The cost is an increase to funding costs. The FSI made clear that one way to maneouvre around this is to have the RBA reduce rates if required. They of course didn't say the RBA should or would do this, just that they'd have scope to offset the extra funding costs impact to the household sector. The net cost to the consumer is a safer financial system thats more resilient to shocks and little effect on their household budget.

In saying that, i don't think this alone will force the RBA's hands. Their framework for decision making is much broader than the financial market and is largely driven by inflation figures/forecasts - which is driven by a whole host of other factors.

 

So you are saying I should take advantage of the new share offering?