Westpac 20bps Rate Rise Across the Board

This says it all

 

BASEL IV ( 4) is not set in stone yet - you can read about it's proposed scope via any number of articles - I have attached some below FYI.

It's all about derisking the banks ...draw your own conclusions but big, big changes are coming .

http://www.afr.com/business/basel-4-adds-a-twist-to-murray-20150126-12ymxg

http://www.bloomberg.com/news/artic...uzzword-as-europe-s-big-banks-brace-for-costs

http://www.americanbanker.com/news/law-regulation/ready-or-not-here-comes-basel-iv-1071503-1.html

http://www.australiancentre.com.au/News/basel-4-and-implications-australia

http://www.smh.com.au/business/bank...nbank-lenders-offer-hope-20150610-ghkefv.html

 

So "Basel 4" = increased capital requirements and standardised risk modelling? Sounds like a credit crunch to me, especially in a market that is so dependent on loans

How long until Australian banks implement it?

 

Looking at BOQ and NAB. If BOQ servicing looks tight I'll have to use NAB. But I'll get a better rate with BOQ. So it's just weighing things up at this stage. But Westpac has rubbish rates and rubbish servicing. So it's lose lose with Westpac.

 

It will have some impact on your overall 'portfolio' ability, as some lenders still apply certain % buffers over your actual repayment (NAB, Homeloans, CBA etc), instead of using a floor rate on all your debt.

However, with most lenders, it won't make much of a difference as they impose a minimum 7% rate, regardless of the current interest rate setting.

Cheers,
Redom

 

Any other banks/lenders moved on their rates yet? Seems to be a bit quiet this time round.

 

Rate cuts at this point will actually reduce peoples serviceability in a few instances.

As already mentioned, banks now have a floor rate of about 7% - 7.5% for assessment purposes; they won't reduce this further with rate cuts. They banks are already well and truly at that floor rate. This means that rate cuts won't actually improve peoples serviceability.

However a few lenders are still factoring in negative gearing in their servicing calculations. They use the actual rate you pay to calculate negative gearing add backs and it doesn't have a floor rate.

This means that as rates drop, the negative gearing benefits reduce and the add-back to your income also reduces. Thus further rate cuts thus reduce your servicing in the opinion of some lenders.


Here's the really silly thing though. We're actually about 0.25% to 0.75% below where the assessment rate floor kicks in, depending on the lender. This means that if rates increase, the assessment rate won't increase and your serviceability would stay the same. This will hold true for about 1-3 rate increases. Additionally as rates go up, so will your negative gearing add-backs, so with some lenders your servicing will actually increase with the first rate increase or 3.


The CBA is most affected by this, they use both assessment rates and negative gearing. Westpac & ANZ don't use negative gearing but do use assessment rates, so their serviceability shouldn't change with rate cuts but as rates increase it will get worse. The NAB is a bit more complicated so it depends on the make up of existing loans and lenders.

 

This wont follow a pattern where they all act at the same time. As each goes out to re-capitalise, their rates will be adjusted upwards. They wont be going to market with capital raising programs at the same time though

 

Not sure about anyone else, but I do not like the idea of an International body setting policy for us. Are we bound by this due to having to get funds OS

It was a mistake to tie ourselves to the US IMO, they got really drunken at the party and we have to clean up the mess.

What happens when the US dollar is no longer top dog, I mean it has been dead for a while from what I can see, it is like being chained to titanic but worrying about whats on this weeks menu, or will some of the changes free us from OS problems.

 

We went with NAB for one since all of the changes, no complaints so far - besides not getting all of the paperwork I guess.

 

They don't set policy for us. They set global "preferred" or "recommended" policy and if Australia ignores it, our banks would see AA+ ratings plunge quick smart, and suffer much higher funding costs than if they play ball. I continue to be surprised at some of the resistance being posted on here - do posters really think an unstable, inadequately capitalised Australian banking sector, full to the gills with high LVR, Interest Only debt, and very little capital set aside by the 5 or 6 lenders holding 80%+ of that debt, is fundamentally sound? Adjustments are necessary. In fact, adjustments are well overdue.

As a G20 member , and having witnessed a credit crunch that almost undid just about all of the Northern Hemispheres economies simultaneously and instantly just a handful of years ago, Australia has been fortunate enough to ride the credit free for all another 6-7 years before being roped in....

But unless you want to bake the same cake using the same ingredients, everyone here just needs to get used to the fact that the credit world is going to get tighter now. It's not like these regulations require P&I only, and 70% max LVR's..... these are just steps to de-risk undercapitalised lenders so that you and I the taxpayers will have some half chance of not having to bail them out in the event of another credit crunch. Think it cant happen again so soon? Think Australia would be immune if it did happen? come on now....

 

I am not sure if I am lumped in with "posters", many of my posts say the same thing, too much too late, banking system needs to be in a good position as is good for us all.

Policy makers have been asleep at the wheel, woken up just as running off the road, but that is not good enough.



In regard to policy being set OS, well, that is the same thing, with all the profits made year on year, decades in fact, this should not be something that needs correcting, we should have been there, during the good times,

 

With individual lenders it may be the case that your serviceability is affected - the CBA anomaly is there in specific instances. In terms of a structured finance portfolio approach, reduction in rates will most definitely assist your borrowing power.

Recent APRA changes have served to minimise this effect with individual lenders though.

Adding some more flavour/mechanics where it'll bite is:

• When you go to the same bank you already bank with. In CBA's case, if your new to them and have $2mill worth of debt elsewhere, the rate cut is most likely going to assist you. You'll reduce the expense burden you input into the serviceability calculator as they apply a % loading over your actual repayment.
• For NAB, a rate cut, when utilising a structured finance approach, should very much have a positive impact to your serviceability. E.g. if you're paying 5% on $1mill of debt, and the interest rate falls to 4%, your assessed repayment will fall by $12,800. Its about a $150k increase to your serviceability with NAB. There may be some negative gearing consequence, but from my understanding they use a net investment debt figure and apply their own calculation to work it that effect. It doesn't appear to be based on the repayment you make.
• For other lenders required to expand serviceability, they'd also use a % buffer above actuals rather than a floor rate approach. It'll assist with these lenders too.
• In general terms, the impact of reducing your expense burden directly in your servicing calculations outweighs the taxation benefits of negative gearing addbacks.

Cheers,
Redom

 

NAB - Effective Saturday 13 June 2015 , the affordability rate used in serviceability assessment will be amended to the HIGHER of 7.4% or 2.25% above the effective borrower rate.

 

Thats not for OFI debt, just their own and NAB funded debt. As of today, they have one of the better calculators/policy mix - one of the poorer rates.

 

They (NAB) are moving a bit with discounts, i had an extra 20 bps applied to 2 existing IO INV loans just prior to the WBC announcements (giving an effective rate of 4.3)

 

Did anyone of you ever considering Westpac shares? It looks like the banks' priority is not their customers but their shareholders!

 

Shareholders have always been the priority for all, without shareholders what are they ?

 

OMG I just had a meeting at the new Westpac HQ in Barangaroo as first tenants in the International Towers moved in.

Well it's so freaking modern and fitouts are topnotch. It must be bloody expensive no wonder they're gonna need more money from their customers!

 

If you can't beat 'em, join 'em.