Westpac 20bps Rate Rise Across the Board

Nah. People have incredibly short memories.

Need I remind you of the multiple times majors gouged after the GFC by either increasing rates well outside the RBA, or not passing RBA cuts on? I worked at Firstmac at the time, who did neither of those things and were consistently offering lower rates. Firstmac ran dozens and dozens of roadshows around the country - breakfasts, lunches, all kinds of promotions over months and months - thousands of brokers showed up for the free feed but the net increase to business was essentially diddly. 80- 90%+ of business still went to the big 4. I want to be really clear. Firstmac's rates were lower than the majors throughout. It was only when Firstmac had a superior servicing calc that anyone was interested in them. Go back just a few months and even the experienced brokers on here barely knew a thing about Firstmac. I posted extensively on how to use them to get around servicing constraints and you wouldnt believe the number of PM's I received offline from professionals asking for tips n tricks... I dont know the Homeloans Ltd business quite as well, nor Resimac, but I know for certain it was the same for them.

Or when Macquarie exited stage left - then all being forgiven when they returned.

This post isnt about Firstmac. Kim Cannon owns that business. I own Hibernian . All I'm saying is - when it comes to needing money, if Westpac is where you can get it in a years time - expedience will rule - that is the reality. Anyone on here who is with Westpac? Have you called your broker today outraged, and asked to be refinanced elsewhere?????

It's amazing what consumers will tolerate from their banks. That apathy is precisely what the banks rely on to get away with things like this. These days a bank would have to do something so corrupt, so bad, so disgraceful you could barely imagine it - and I doubt that would change anything too much either. It was just a few months ago the boiler room culture of the banks was shown in all its colours - but I don't see mass migration of bank accounts and loans to the credit unions, the non banks etc...

Banks will look after their profits and share price first - consumers come a distant last - especially when they say they want competition but their behaviour says they do not. Consumers actually tend to reward the Big 4 with more business when they screw them. It's truly amazing

 

Im refinancing away from westpac for multiple reasons for one property and already contacted peter because im considering refinancing away from them for another property.

 

Good for you. Well played. I stand corrected sir ! Now we just need 15 or 20,000 others to do the same and Westpac will actually notice.

 

@euro73
Just wanted to give a shout out for your awesome and thorough posts! Very interesting read on my morning commute!

 

Glad to be of service

 

Poor Bill Evans (Westpac chief economist) must have been kept in the dark about his bank's decision to raise rates. Now he's saying the RBA might react.

See: http://a.email6.westpac.com.au/?DrC...ons.aspx?PublicationId=15916&customerid=34310

 

Hey Tim, who are you moving to if you don't mind telling us?

 

It wont matter - if one goes all will go eventually. Pricing differences are only ever short term measures when market share is being chased. No one wants additional INV market share right now... any pricing will be done for P&I . You'll see a small range of lenders cut rates to get a little business, then they'll hike because they have to go and raise capital.. by the end of the financial year the first level of game will have been played and everyone will be back at pretty much the same rates as each other.... and with APRA imposing month on month limits within the year on year limits - there will be little scope for any lender to operate courageously and go it alone on discounting. someone will of course do it - but then they'll hike rates again. The net outcome cannot be avoided. Cannot be worked around. Cannot be circumvented. The capital raising programmes for 2016 APRA requirements and then for 2018 BASEL requirements mean you and I and everyone else will be paying more for debt.

Expect large additional capital raising by the billions next year - then expect additional capital rising by 2018 for BASEL

All in all, if I was a betting man - @ 50-60bpts across the next 18 months just from re-capitalisation costs ( although that' s just a guess) , right when a large number of I/O facilities are rolling out and many will find it harder than they think to renew I/O terms.

We have a very clear picture forming now of the next 2-3 years. Everyone is being reeled in by regulators seeking to make the banking sector safer.

The best news is that the RBA may very well drop rates 50bpts now, so you have a fantastic opportunity to use this decade to deleverage, because your borrowing capacity will not improve for a long time in spite of any rate cuts, without divine intervention or some pretty crazy luck.

 

@euro73 Great point regarding the tightening of the I/O loans. The wash-up of +50-60pts is not going to make a huge difference in portfolios, but the pressure on investment cash flow for converting to P&I loans would be substantial. Unfortunately the mum/dad investors are the ones that will be exposed to this change.

 

Every investor will potentially be exposed - mums, dads, trusts, smsf's, companies.... depending on their ability to re-qualify at the post APRA assessment rates when existing I/O terms need to be extended, or refinanced so that they can start anew.

 

Is there anywhere to find out how many billions in I/O loans are coming due for extension/refinancing at what time?

For example, all the NSW loans that earlier this year outstripped OO loans - how many years are we talking?

 

Are you able to explain in short what these requirements would mean?

Thanks

 

In short, regulators in Australia and around the world are trying to make banks safer. This is partly in response to banks failing around the world during the GFC.

The theory is banks are safer if they hold more money and have more skin in the game. If hold $2 instead of $1 for every $10 they lend out, they are considerably safer. Holding capital is one of the main 'safety regulations' in the banking system designed to protect taxpayers from having to bail out banks if they get in trouble.

BUT, if banks need to hold more money for every dollar they lend out, their profit margins fall.

Banks don't like their profit margins falling, so they increase the price (the interest rate) for consumers.

Thats us investors here on PC, mums and dads trying to pay down their home loans, first home buyers across the country, etc. So we pay a higher interest rate because banks don't like their profits being eaten into and the government want banks to be safer.

 

Question - if the RBA drops by 50 basis points, do the banks serviceability calculators adjust the ability to service by 50 points too?

 

Redom has explained it above. This is about banks re-capitalising to hold more $$$ on their balance sheets per $$$ lent . Regulators are imposing this both locally and globally across increments , across the coming 2-3 years.

 

@Redom and @euro73 are the most sensible posters I have read on this issue.

It surprises me that many seem to forget that Banks are ultimately here to make a profit. Not to benefit investors. They're here to sell you money and to make a return on that money. It's only natural that they will take any chance they get to improve their profit margins.
Investors do the same to tenants, so how can you not expect the same from your "Creditlords"?

 

In the pre APRA days - on many banks calculators the answer would have been yes. They would have either used an assessment rate of "actuals" or they would have had a floating margin of say 2% for example, so if you were paying 4% they may have assessed you at 6%. If rates fell to 3% their 2% floating assessment rate buffer would have fallen to 5%.
Now - the answer will be no. APRA wants a minimum assessment rate of around 7% to be used, moving forward - no matter what rate you are actually paying. Most lenders have elected to use an assessment rate closer to 7.4 or 7.5%. This is why a cut in rates will not improve your borrowing capacity in the same way it would have in the pre APRA days.

 

Understatement,

The banks could not afford the property costs to store all this money they should hold if it had to be something of material, but we have to play by the rules of the game were all stuck in, not many like paying more, but it is better than let to collapse.

 

Just saw a graph on bank returns, basically they said our banks have double US and Japanese bank returns and near triple Euro banks........

We all have an interest in good banks, but the cynicism may not be out of place.

If it goes on and on, and they grab more, if they go far enough, the RBA wont be able to rescue us from the fall out, too much, too late & playing with fire it seems....

 

Is the capital raising a seperate issue to the current tightening on lending to investors? I guess so, if the BASEL requirements are an international response?