What are you seeing with the bank financing environment?

[Don't believe the Hype]

Yes, perhaps a better strategy.

Have to be very disciplined to do this. I always think I have lots of funds available but in reality it is my principle paydown so we he money isn’t mine but if an opportunity pops up it’s easier to access than getting money out of a banks credit department

[Davo36]

davo36 - 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

Yes as elguapo says, it's a balancing act.

It's a bubble IMHO, so they have to be very careful.

[Chris W]

FYI

https://www.afr.com/business/banking-and-finance/apra-bins-buffer-lets-lending-rip-20190705-p524fm

[Davo36]

FYI
https://www.afr.com/business/banking...0190705-p524fm

It's behind a pay wall dude.

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.

[Chris W]

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

[brokerman]

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 rate

[sidinz]

From 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.

Do you think that this will flow on to the NZ ones owned by Aussie banks?

[flyernzl]

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?

[GLin]

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.

[DaveW]

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?

No surprise here. Yes my bet is in.

[JBM]

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.

The next upwards cycle can’t begin till we see a wash away all of the excesses like all Booms we must see a Bust or I can’t see how one has another boom the record low rates certainly helped drive the latest one longer and higher than before

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

[GLin]

When interest rate halves, people can take on another bucket loads of debt.

That's how the cycle will continue.

Perpetual debt.

[JBM]

When interest rate halves, people can take on another bucket loads of debt.

That's how the cycle will continue.

Perpetual debt.

So currently here in little old NZ we have 160+% Household DEBT to incomes we are third in the world leading this stat..

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 ??

[elguapo]

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.

I'm told the assessment is currently 7.5%, and P&I on an 18 year payback.

[Davo36]

When interest rate halves, people can take on another bucket loads of debt.

That's how the cycle will continue.

Perpetual debt.

Yep, the RBNZ (and other central banks like the RBA) and the government are doing everything they possibly can to keep the property bubble inflated.

The RBNZ will probably lower the OCR again shortly.

Gotta get those first home buyers into debt man!