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Who's idea was it to increase interest rate for Investors?

Discussion in 'Property Market Economics' started by fullylucky, 30th Jul, 2015.

  1. fullylucky

    fullylucky Well-Known Member

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    http://www.abc.net.au/news/2015-07-...interest-rates-for-property-investors/6645612

    Just wondering whose idea was it to increase interest rates for investors?

    APRA? or the banks?

    Who exactly is APRA? Never heard of this organisation before are they new? What's their main goal? like RBA’s goal is to control inflation through monetary policy, lowering official cash rate etc. What is APRA trying to do? Make sure people can buy their first home?

    Why should investors suffer this? If people are not smart enough to save up to buy a house I don’t see how kicking investors in the guts will help others buy their first property. 27-29 bpts = extra $2-3k a year for some...

    This kind of idea is like punishing the smart kids in the classroom hoping dumb kid’s grades will go up.
    Completely ridiculous.

    or is the banks just inventing some new bs reason to increase their rates? They probably
    had a closed door meeting... hey let's all cartel and up the rates?
     
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  2. Roosterman

    Roosterman Well-Known Member

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  3. fullylucky

    fullylucky Well-Known Member

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  4. fullylucky

    fullylucky Well-Known Member

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    Should only affect new investor loans, and not be applied retrospectively for existing established loans.

    Economically speaking, landlords just pass on the cost to tenants. Leading to an increase in rent making it harder for potential first home owners to scrape enough for a deposit…

    This new policy only hurts the dream of first home owners.

    The only winner here are the banks… and shareholders of banks…

    Complete bs.
     
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  5. THX

    THX Well-Known Member

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    APRA is suggesting/enforcing new limits on investing and capital holdings. The banks response to this is to gouge investors.

    According to Terry Mccrann APRA are doing this to cover up their own incompetence from a decade ago.

    If in doubt, when it comes to government and banks assume incompetence and greed (or vice versa) :)
     
  6. Hodor

    Hodor Well-Known Member

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    Landlords don't just pass on costs to renters. Rents are a function of demand not a landlord's costs.
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    APRA expressed concern to the banks last year that their capital holdings were insufficient to ensure a healthy banking system last year. They also expressed concern at the level of investment lending.

    The banks didn't so anything about this themselves at the time, so APRA has stepped in and made them adjust policies to become more conservative and take measures to raise additional capital to meet the new requirements.

    It's kind of like your Mum telling you to cut your sugar addiction, you ignore her, so she takes away all your lollies.

    In order to raise capital the banks have quite a few options, including reducing shareholder returns. Obviously nobody wants that, so another option is to increase rates. Part of the equation of balancing their owner occupied to investment lending rations is to encourage owner occupied, so they don't want to push away owner occupiers, in fact they offer them incentives.

    That leaves the investment lending market to bear the brunt of the capital raising requirements.

    Lenders are less likely to approve investment loans. Investment loans are already more expensive and I expect there's more to come. The lenders that don't fall under APRAs umbrella do have to kneel before ASIC and they will have measures of their own implemented. Switching to the smaller lenders isn't the solution, in fact the smaller lenders tend to be fully securetised, they could end up being a very nasty trap (looking at the online lenders here).

    It's getting harder for investors and that's not going to change. It's no longer about getting the cheapest rates (it never has been, but like the banks, people are greedy and don't listen).

    The solution is simple. Accept that it's going to cost more to invest, people need to get over this and deal with it. Frankly pass those costs onto your tenants where you can (I'm sure that's popular with the general public). Work with a broker to navigate the web of policies, rates and options available. It's not going to be too hard to buy your own home and a single IP in the future, but if you're looking to build an investment portfolio, good advice is becoming more important than ever.
     
  8. keithj

    keithj Moderator Staff Member

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    I think PTs post is an excellent summary of the current situation. The net result is that OOs & those buying 1 or 2 IPs will feel little effect, however for many here who are aiming for more, the environment just got a bit tougher.

    The only thing I would add is that the banks reaction has been knee jerk - they need to be seen to be complying with APRA requirements immediately. In 12 months time, I believe there is a reasonable probability that some of the recent restrictions will be relaxed. They need to wait & see if IP lending growth slows enough to please APRA, and for the word Boom to disappear from the headlines.
     
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  9. fullylucky

    fullylucky Well-Known Member

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    https://www.boundless.com/economics...ply-and-shifts-in-the-supply-curve-178-12276/

    "A change in the cost of an input will impact the cost of producing a good and will result in a shift in supply; supply will shift outward if costs decrease and will shift inward if they increase."

    In the final graph at the bottom of the page. the supply curve will shift from S2 to S1.
    Result: new market equilibrium = increase in price (rent) and decrease quantity traded.

    Banks are justifying their action based on the latter of the above sentence... what I'm saying is the former of the above sentence hurts their goal more... since I would think housing / shelter has inelastic demand...

    I'll draw it...

    [​IMG]
     
    Last edited: 30th Jul, 2015
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I don't know that I'd call the changes, "knee jerk", given they've been coming for a while, but I do agree that to some extent they're throwing the baby out with the bathwater. The effect of these types of changes doesn't come through overnight, but the frequency of adjustments suggests they're looking for instant results. Some locations aren't in need of regulation, but the changes affect every postcode in the country.

    I've indicated before that I don't see the policy changes easing any time soon. Macquarie has indicated that they now feel some of their assessment policy was too aggressive and they're comfortable to be scaling it back. History shows us that lenders don't ease their policies quickly, it's their rates and risk profiling they tweak on a daily basis.

    Given that these rate rises are being promoted to raise capital to meet new regulatory requirements, the banks can reasonably justify their approach for their actions in the last week (even though none of us like it).

    The question I've got is that once the banks have raised the capital required, the market has cooled and they do have their investment lending more restrained, what then? At this point will they reduce their investment rates to the same margin as owner occupied mortgages? This point is probably 12-18 months away, but I think this is when the real profiteering will start.

    My overall thoughts:
    * Policy changes restricting investment lending aren't going to change in any time frame that people are hoping for. That's going to take years, if it ever happens at all.
    * For investment rates to reduce, first the major markets will need to cools off, investment lending will need to reduce to regulator acceptable levels and then there'll need to be decent competition in the market to incentive lenders to try to win investment business again. Right now they're actively trying to off load it (AMP is a clear case of trying to get rid of investors).
     
    Last edited: 30th Jul, 2015
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  11. spludgey

    spludgey Well-Known Member

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    "Whose"

    While I think that they overshot the mark a bit, in general, I agree with what APRA is doing.
    Investors shouldn't be a driving force on prices in markets that are largely owner occupier areas.
    The unfortunate part is that the fallout from this also hits areas where it wasn't really intended.
    For example, why should my finance of a property in Elizabeth SA get harder and more expensive because of skyrocketing prices in Sydney?


    But I do understand that I’m being a collateral damage to the process and I can live with that.
     
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  12. willair

    willair Well-Known Member Premium Member

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    There is also a very simple way,buy banking equities and become a stake holder ,that way you can balance the dice before they roll,and once this gain traction in main stream media you don't have to be a visionary to see what may happen,..
     
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  13. wategos

    wategos Well-Known Member

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    Its really a stretch to claim this is going to hurt first home owners.. quite the opposite, without as much investor demand and competition, prices will fall and FHBs will generally find it easier to buy a place. Some banks are reducing rates for owner occupiers as well, also helping FHBs.
     
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  14. fullylucky

    fullylucky Well-Known Member

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    What is this "Lets make it easier for them... and f up the evil investors bs"?? Communist much?
     
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  15. Hodor

    Hodor Well-Known Member

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    I was only replying to your comment about landlords passing on the cost. Which I don't believe they will be able to. 27 basis points will not change supply, especially when the lead time on developments is so long. Therefore keeping things simple, Landlord's will be wearing this extra cost.
     
  16. pinkboy

    pinkboy Well-Known Member Premium Member

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    If you don't like it, save up and buy houses cash.

    Otherwise, get the lube out.

    Got it!

    pinkboy
     
  17. fullylucky

    fullylucky Well-Known Member

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    No.
     
  18. Bayview

    Bayview Well-Known Member

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    Prices won't fall...they'll just stop going up, or slow down to a trickle
     
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  19. Bayview

    Bayview Well-Known Member

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    It doesn't work like this.

    The price of rents is only controlled by demand.

    A rise in interest rates by 2.7% will have no impact on rents - only the bottom line for investors. LL's can not simply whack the rents up just because their costs go up.

    Having said that; if the trend continues, and less investors are in the market as a result, then in the longer term this will possibly cause a shortage of rentals, and thus a rent increase.

    So all the FHB's better start saving harder.
     
  20. 2FAST4U

    2FAST4U Well-Known Member

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    True!

    Cash is king all you can do is save up as much as possible and hope the market stagnates in the mean time.