Originally posted by elguapo
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What are you seeing with the bank financing environment?
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Originally posted by Don't believe the Hype View Postdavo36 - do you think they’re being responsible or creating a rod for their own back? Tightening I understand but there is a balance and tightening too far could result in a self fulfilling prophecy and a downward spiral
It's a bubble IMHO, so they have to be very careful.Squadly dinky do!
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Originally posted by Chris W View Post
But basically what I think it says is that the 7% interest rate used for serviceability calculations has been removed and in it's place a 2.5% buffer has been stipulated.
So, say 3.5% + 2.5% = 6%. So a bit easier for people to borrow.
They are hellbent on propping up the property bubble.Squadly dinky do!
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From APRA
APRA finalises amendments to guidance on residential mortgage lending
5 July 2019
The Australian Prudential Regulation Authority (APRA) has announced that it will proceed with proposed changes to its guidance on the serviceability assessments that authorised deposit-taking institutions (ADIs) perform on residential mortgage applications.
In a letter to ADIs issued today, APRA confirmed its updated guidance on residential mortgage lending will no longer expect them to assess home loan applications using a minimum interest rate of at least 7 per cent. Common industry practice has been to use a rate of 7.25 per cent.
Instead, ADIs will be able to review and set their own minimum interest rate floor for use in serviceability assessments and utilise a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.
APRA received 26 submissions after commencing a consultation in May on proposed amendments to Prudential Practice Guide APG 223 Residential Mortgage Lending (APG 223). The majority of submissions supported the direction of APRA’s proposals, although some respondents requested that APRA provide new or additional guidance on how floor rates should be set and applied.
Having considered the submissions, Chair Wayne Byres said APRA believes its amendments are appropriately calibrated.
“In the prevailing environment, a serviceability floor of more than seven per cent is higher than necessary for ADIs to maintain sound lending standards. Additionally, the widespread use of differential pricing for different types of loans has challenged the merit of a uniform interest rate floor across all mortgage products,” Mr Byres said.
“However, with many risk factors remaining in place, such as high household debt, and subdued income growth, it is important that ADIs actively consider their portfolio mix and risk appetite in setting their own serviceability floors. Furthermore, they should regularly review these to ensure their approach to loan serviceability remains appropriate.”
APRA originally introduced the serviceability guidance in December 2014 as part of a package of measures designed to reinforce residential lending standards.
Mr Byres said: “The changes being finalised today are not intended to signal any lessening in the importance APRA places on the maintenance of sound lending standards. This updated guidance provides ADIs with greater flexibility to set their own serviceability floors, while maintaining a measure of prudence through the application of an appropriate buffer that reflects the inherent uncertainty in credit assessments.”
The new guidance takes effect immediately
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I wonder if this applies to the actual rate charged at the time of the loan drawn down, ie 3.8% fixed for a year then serviced at 6.3%? Here most lenders go at 7.5% ish being 2% over the floating ratewww.ilender.co.nz
Financial Paramedics
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Originally posted by Chris W View PostFrom APRA
APRA finalises amendments to guidance on residential mortgage lending
APRA confirmed its updated guidance on residential mortgage lending will no longer expect them to assess home loan applications using a minimum interest rate of at least 7 per cent. Common industry practice has been to use a rate of 7.25 per cent.
My blog. From personal experience.
http://statehousinginnz.wordpress.com/
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From talking with mortgage brokers, I am told the problem right now is assessed serviceability.
The main trading banks are looking at a property investors ability to service the loan on P&I at 7% out of 80% of their income.
For instance if an investor has a rental income of $120K they assess that as (120K x 80%) $96k
They then look at the ability to pay off the loan from that $96k on a P&I basis at 7% interest.
Cant do that = dont get the loan.
Even worse, if you have an interest only loan that has been running for five or ten years and roll-over time has come, they deduct that time off the 25 year window - can you pay the loan off over the remaining 20 or 15 years?
Getting the interest-only renewed on that basis with the same trading bank is nigh-on impossible.
Thus we are now seeing the rise of non-bank lenders - Resimac and now Select.
It is starting to look like a re-run of the 1970s>
Anybody betting on the emergence of Solicitors Trust Account mortgages once again?
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Reserve Bank has been on the bank's case for a few years now, making lending hard, to keep a lid on prices.
Eventually they will ease off the brakes, especially with prices flattening, recession is over, and interest rate set in a new low environment.
Then banks will lower their 7%+ (some 7.9%) test rates, and boom in the next cycle begins.
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Originally posted by flyernzl View PostFrom talking with mortgage brokers, I am told the problem right now is assessed serviceability.
The main trading banks are looking at a property investors ability to service the loan on P&I at 7% out of 80% of their income.
For instance if an investor has a rental income of $120K they assess that as (120K x 80%) $96k
They then look at the ability to pay off the loan from that $96k on a P&I basis at 7% interest.
Cant do that = dont get the loan.
Even worse, if you have an interest only loan that has been running for five or ten years and roll-over time has come, they deduct that time off the 25 year window - can you pay the loan off over the remaining 20 or 15 years?
Getting the interest-only renewed on that basis with the same trading bank is nigh-on impossible.
Thus we are now seeing the rise of non-bank lenders - Resimac and now Select.
It is starting to look like a re-run of the 1970s>
Anybody betting on the emergence of Solicitors Trust Account mortgages once again?Profiting from Property, not People
Want free help on taking your portfolio to the next level?
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Originally posted by GLin View PostReserve Bank has been on the bank's case for a few years now, making lending hard, to keep a lid on prices.
Eventually they will ease off the brakes, especially with prices flattening, recession is over, and interest rate set in a new low environment.
Then banks will lower their 7%+ (some 7.9%) test rates, and boom in the next cycle begins.
I do remember paying 9% floating near the peak of the 2000s Boom
I feel we are currently in another 2007 period with 2020 being a major correction year that even lower rates won’t stop the fall especially across the highest growth percentage areas like the resort towns where excess units/apartments are continuing to come to a slowing market
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When interest rate halves, people can take on another bucket loads of debt.
That's how the cycle will continue.
Perpetual debt.
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Originally posted by GLin View PostWhen interest rate halves, people can take on another bucket loads of debt.
That's how the cycle will continue.
Perpetual debt.
Aus/Canada only higher by a few percent
Now talking around NZ RES property we really have two basic types owner occupied & investment
So in your view we will turn japanese and have Negative core rates 0.01% etc which going off japanese lending would mean>>
20-30% deposit
that we would see floating 2.5% fixed terms 1.2% to 2%
I think this will only come about If we are in a much Bigger GFC with 10%+ unemployment ... developers falling over forced sales etc
It just doesn't make sense that the smallest floated currency in the world would command such a low yielding status unless the major currencies are even more woefully negative yeilding .... and if that's the case why the hell would anyone continue to save in it ??Last edited by JBM; 13-07-2019, 04:11 PM.
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Originally posted by flyernzl View PostFrom talking with mortgage brokers, I am told the problem right now is assessed serviceability.
The main trading banks are looking at a property investors ability to service the loan on P&I at 7% out of 80% of their income.
For instance if an investor has a rental income of $120K they assess that as (120K x 80%) $96k
They then look at the ability to pay off the loan from that $96k on a P&I basis at 7% interest.
Cant do that = dont get the loan.
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Originally posted by GLin View PostWhen interest rate halves, people can take on another bucket loads of debt.
That's how the cycle will continue.
Perpetual debt.
The RBNZ will probably lower the OCR again shortly.
Gotta get those first home buyers into debt man!Squadly dinky do!
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