Westpac returns investor LVR to 90%.

Overall this had to be positive for property values. More leverage and also a recent rba rate drop = happy days for property investors.

 

Is there servicing calc more stringent than CBA's @Jess Peletier ??

 

Westpac currently have one of the most conservative calculators out there. Right alongside ANZ.

For investors CBA is about average, NAB is one of the most generous.

 

Thanks for the feedback @Peter_Tersteeg

 

Exactly! It would be a mistake to see this as any sign that the APRA or ASIC regulations are unwinding, softening or relaxing... Westpac ( and its family of brands) only ever reduced LVR's because it was easy, low hanging fruit. They were so far over the APRA threshold last year, they had to take drastic steps to avoid severe penalties.... so they slaughtered ( graphic language yes, but it's the right word) their servicing calc - absolutely ripped the guts out of it to be fair... and reduced their LVR's on every conceivable I/O product. resi loans dropped from 95 to 80. Non resident dropped from 80 to 70 and then into oblivion (but that's temporary I think - they will be back after the election , just far stricter ) and smsf dropped from 80 to 70LVR. This was all super easy, low hanging fruit to make the barriers to entry a little less "inviting" for Investors... but it was very small stuff in the scheme of things.

Like every lender, everything you have seen since July, August last year - the policy tightening, the postcode restrictions, the servicing tightening, the increasing HEM/living expenses, the reducing LVR's, the increased cost of I/O v P &I..its all aimed at the same outcome.... and that is to stay under the APRA 10% speed limits. and to get more of us to move away from I/O and into P&I . Thats the end game. Simple as that. Some lenders were in far deeper grass than others, and had to take far more drastic steps than others...I give you Westpac as Exhibit A.... You may recall AMP were also well over the thresholds. They didnt faff around and make incremental changes like many lenders did... ( they couldn't, their reporting season is Dec 31 not June 30 like all the other banks so they had far less time to act) they just took a deep breath , faced up to their issues , left the investor market for many months to ensure they got under the thresholds, then re-entered with a severely weakened servicing calc and tighter policies- but with the same outcome in mind - stay under the APRA speed limit! . Different strokes...

Anyway, now that we are near the end of the financial year - which also happens to be the deadline to be under the 10% APRA speed limits, and most lenders have finally gotten themselves to a place where they feel they are comfortably under the APRA threshold, you are seeing short term specials ( such as the STG and Westpac 2 and 3 year rates, and the Suncorp rate in March ) and some restoring of LVR's. I have to say that as far as Westpac restoring LVR's is concerned.... it's really a very small deal! Dont forget, they still have to stay under the 10% speed limits, so it's their servicing calc where the action is.... and that is still a shadow of its former self... nothing has really improved there. To put it in perspective - Westpac's servicing calc was top 5 for investors for the last decade... now it's bottom 5. But thats really the point... APRA wants less I/O lending, right? So its the lenders with the best servicing calcs who have been hit the hardest, as they had the most I/O on their books. I give you Westpac, AMP, Macquarie as Exhibit B.... all had superb investor servicing calcs pre APRA ... now they are all average at best. Anyway ...end result = you can get less I/O money from Westpac than just about any lender in the land, nowadays... As @Jess said earlier - you cant get very far with Westpac any more.

So the LVR increase is nice for marketing purposes, but it's not a game changer at all ...in fact it's not even a game influencer to be honest.... not as long as their servicing calc is so weak. They need a far better servicing calc to move the needle now, and thats the conundrum for them... unless they want to ignore the severe penalties APRA will impose on them for breaching the 10% speed limits, its just not going to be possible for them to make their servicing calculator a lot more aggressive... it would just see them back in the deep grass , where they just came from.

Just like with all lenders...the LVR is not the game. Borrowing capacity is where the game is at.

 

You may be thinking of the small list of postcodes NAB reduced to 80% or 70%... but aside from those, 90% has remained available for investors...NAB never dropped to 80% as a core policy.

 

NAB only have this for for doctors/dentists @ 90%

 

They're not really doing cash out above 80% either (technically they are, but practically it doesn't work). That might have been a contributor.

 

@euro73 you are spot on mate....

I guess non-bank lenders still enjoying their time

 

If the family loan was appropirately documented I can't see that they've have a problem with it. I do recal a lender was offering an LMI waiver for engineers but I don't think it was NAB. They're fine for the medico's but nothing else, whilst other lenders do have broader options available in this respect.

Perhaps I should dust of my own eng degree.

 

Funny you should mention that.... here goes Teachers Mutual. They had been taking "actuals" and I guess they got to the APRA tipping point .
Teachers Mutual announces major lending changes

We have been talking about this for many months now, and I hope readers are finally understanding- we are NOT going back to the pre APRA days of "actuals" and aggressive Investor servicing calcs... not for a loooooong time at least. If you want to take advantage of Liberty, Pepper, QBank etc... get cracking- their super investor friendly calculators policies wont be around much longer I imagine.

Borrowing capacity restrictions, ceilings, speed limits- whatever you want to call them - are going to stay with us until APRA is satisfied that the banks have far more P&I on their books than I/O. It took decades for the imbalance to evolve, so its not going to be remedied overnight.

These changes aren't even a year old and the objectives of the regulators are a long way from being met, and there are now plenty of senior people in the industry who are stating publicly (just like I called many months back) that by the end of this year or early next year, further I/O funding increases will occur due to the additional capital raising exercises the banks will be required to undertake for BASEL IV, and the migration of their RMBS from short term to minimum 12 month terms, also required by BASEL IV. Those changes need to be finalised before 2018, so they will start gearing up for those changes in late 2016 or early 2017.

So even if the RBA cuts rates further, it's going to be P&I borrowers who see the benefits more than I/O borrowers. In fact, I think P&I borrowers are going to enjoy a prolonged period of very very good lending conditions... but importantly, that will NOT increase their borrowing capacity - unless they use the low rate environment to get way way ahead on their repayments . So in the meantime, accept that the new world is the new world... and focus on debt reduction or increasing your income , as that's going to prove to be the key for most on here to unlock equity to move forward in future.

We will still have growth - banks havent closed down or stopped lending - but it will be slower because ceilings will be reached far sooner than before, and that means the speed with which you and everyone else gains equity and the speed with which you and everyone else can harvest that equity will also be much slower, which perpetuates into further periods of slower growth. ie if you cant borrow more money, and most others cant either- prices arent really able to explode upwards.

And another early call I made...(which you are seeing now ).... you will see short term investor specials at different times throughout the year. One bank will do a cracking I/O deal for a few weeks, fill up their 10% monthly limit and then turn the taps off... then another will do the same. The only ongoing pricing war will be at the P&I level. good I/O deals will be like Aldi specials. be quick or they'll be gone.

 

If you are going to these guys for servicing, you need to be very careful and understand the implications of what you're doing. They are not just a lender of last resort, by using them you are literally trapping yourself so make sure that -
a) your whole portfolio is set up correctly first, lender choice is critical, no x-coll etc
b) you're ready to wear IO rollovers to P&I when they occur, and have plan to manage them.
c) you're with a lender that will give you a level of flexibility in regard to product changes moving forward - ie, can change to LOC without reassessment.

Very very important.

If you're looking at these guys for servicing, you need to either have a realistic chance of significant income increase in the future, or a plan to deleverage at some point to regain a level of flexibility in your lending. Or, do some very careful planning prior.

 

All very true... and again - precisely why the decisions you take now that help you start addressing debt reduction ( or for the lucky few, securing large enough pay rises to have a meaningful impact on servicing ) will be so key to where you sit in @ 5 years time ...

If there's one critical lesson to be taken from the new regulated credit environment, its that old philosophies around harvesting equity and repeat purchasing - which worked for many in the past - are no longer going to work for most, moving forward. Don't be fooled into believing equity is the answer to anything and everything, if you are still building a portfolio.

That strategy really only works when your borrowing capacity increases as your equity increases. The removal of "actuals" and the use of much higher sensitised assessment rates and HEM's means that strategy has been pretty well disrupted. Equity alone will no longer automatically ensure you can move onto your next purchase . You must have sufficient borrowing capacity available as well.

Which brings us full circle to.... precisely why the decisions you take now that help you start addressing debt reduction ( or for the lucky few, securing large enough pay rises to have a meaningful impact on servicing ) will be so key to where you sit in @ 5 years time ...

 

CBA must still be well under their cap.

 

CBA are a mystery.... by all reports they were just as far over the cap as Westpac when this was introduced last year, yet they haven't taken any of the aggressive steps Westpac have taken.

We have seen all the lenders that we know were just above the caps - ANZ, NAB, and the lenders we know were well above the caps - AMP, STG, Westpac,macquarie.... take fairly aggressive steps, but for the most part CBA havent done too much.

 

Had heard CBA were travelling at around 10% increase per annum for investor loans. But given size of their loan book, still increasing in number terms by as much as many others.
NAB was at 14%.
ING, AMP, Macquarie etc all from 40-70%: Culminating in dramatic policy change, such as AMP ceasing to lend to investors for a few months.

 

What I'd heard from some fairly well connected people inside the lenders was that Westpac were at 37% I/O growth between 2014 and 2015 , CBA low 30's... AMP and Macquarie at @ 15%, and NAB/ANZ @ 14%... or thereabouts.

AMP had to pull out completely for a few months , not because they were in a very bad position, but moreso because they report to APRA on Dec 31, rather than June 30 like all other lenders, so their deadline to get under the speed limits was much earlier.... thats why they only stayed out for a while and re-entered in late 2015...they had done what they needed to , in order to comply

And as we also know, Macquarie, ANZ and NAB didnt take anywhere near as aggressive an approach to getting under the speed limits as Westpac ( and its STG, BSA and BOM subsidiaries) and AMP did. None of them aggressively dropped LVR's for investors . None of them dropped neg gearing from their calcs, etc etc... like Westpac did. Yes there was some tinkering, but it wasnt as extreme as what Westpac or AMP did in order to get under the APRA speed limits

The industry guys I spoke with may have been wrong about CBA. Perhaps CBA wasn't as far over as Westpac after all, or perhaps they weren't even over at all, as you are suggesting.....but that just seems really unlikely given the dominant market share CBA and Westpac have... ie - it's just really unusal one would be so far overweight on I/O and the other wouldn't be...

Anyhooooo... we are where we are now... and we just all have to work within these new boundaries.

 

Great information Euro. very helpful to know what the banks are doing in terms of lending.

Regarding the above point. Are you able to give more real life examples? Correct me if I am wrong but are you saying if you (investor) are prepared to go P&I instead of IO you can negotiate further rate discounts on your loans?

Cheers,
Oracle.