Finance Select - Finance Industry News & Info

APRA - thoroughly liberal?

17/10/2015

When he became prime minister last month, Malcolm Turnbull pledged to lead a "thoroughly liberal government, committed to freedom, the individual and the market". For the record, I support him. However, does the role and impact of APRA accord with principles of the government?

APRA oversees a banking and insurance industry that controls around $5 trillion of funds. Following their extraordinary measures across all our major lenders that has increased rates and diminished loan affordability - where is the government and their commitment to the individual and a free, non-manipulated market?

http://www.theguardian.com/australia-news/video/2015/sep/14/malcolm-turnbull-pledges-thoroughly-liberal-government-video less

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Investment Loans - What the?

14/8/2015

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If you're a property investor and you haven't heard from your bank lately, that unopened letter on your desk might not be just a statement.

Many banks and lenders have recently increased lending rates on all of their investment loans, with little warning. Most increases have already taken effect - on new and existing borrowings.

Is that fair? .... Definitely not. Why so, when the Reserve Bank consistently tells us that rates are stable, unemployment is high and conditions for an economic resurgence are modest?

Well, the banking regulator, APRA www.apra.gov.au has been writing to the banks over the last year to warn them to keep their lending standards high (to control loan volumes) during a period of low rates and high property growth. More lately, they have expressed that each bank's investment lending should not grow by more than 10% per annum.

However, lending to property investors of late has consistently been over the 10% growth ceiling.

The Reserve Bank of Australia said in its latest data that lending to property investors grew by 0.8% in May and 10.4% year-on-year. Moreover, the central bank said housing credit was up 7.2%, close to its fastest pace since 2010.

APRA was prompted to introduce tighter lending conditions which include cutting discounts on investment loans. This new move by APRA came after the country’s investment property lending and soaring property prices continued to grow above 10%. The league table looks like this:

CBA 9.9%
Westpac 10%
ANZ 10.6%
NAB 14.1%
Suncorp 11.6%
Macquarie Bank 86.8% (yes, closer to 100% than 10%)

All that is only mildly alarming. The federal treasurer (and he should know) recently said there was never a better time to have a go. He said that housing is still affordable if you have a steady job.

So, how did the banks react?

First, its relevant to say that not all lenders come under the guise of APRA. However, many lenders receive funding from banks that are. Whether they are or aren't, they mostly feel compelled to fall into line.

At least one lender has ceased all investment lending forthwith! Some have reduced their maximum loan for investment to 80% of valuation. Most have reduced lending ratios, but not all to 80%.

They didn't stop there. Not only have lenders enforced a far stricter lending policy to all loans, but they have used the strongest measure to curtail lending growth - price. For new and existing investment loan borrowers, lenders have increased their rates across the board. Some rates increased by a massive 0.43% per annum!

The retrospective price increase is a penalty for those who have invested in moderation, and within APRA's comfort levels (however those are determined). It's simply unfair, yet there's not been a politician, let alone the federal treasurer that has yet made a single sound about it. Maybe we just can't hear them from the helicopter!

Consider that lender's cost of funds is around 3%, maybe less (the RBA rate is 2%). Some of the lenders passing on a 0.27% rate increase, also held on to 0.05% of the last RBA rate cut. This means it's AT LEAST a 10% increase in their investment loan income. Staggering!

Lenders are saying that because APRA has insisted they increase their cash reserves (capital adequacy ratios) per dollar of loan written, it adds cost to their bottom line. However, it surely is not a 10% slug. In fact, APRA wrote to the banks in February this year to assure them that the additional scrutiny of their portfolios won't impact severely on the bottom line.

We assure you that Finance Select has made representations to our lenders through managers that service our business. However, this comes from far above them. We'll be writing to our investment clients over coming weeks to work through the issues at hand.

These changes have far reaching consequences. Perhaps you are affected or know of others who have been. How do you feel about it and what message would you like us to send to the lenders? Please feel free to discuss

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Is Sydney property close to its peak?

12/8/2015

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McGrath Real Estate chief executive John McGrath has declared the Sydney property market "close to peak", according to an article in the Australian Financial Review.

McGrath's Monday report for its Sydney weekend clearance rate was 80 per cent, and while this was a "stronger property market" indicator, McGrath said the Sydney and Melbourne markets were 80 to 90 per cent through their cycle.

"I'd be concerned if Sydney sees another double-digit growth. I'm predicting three to five per cent more and then I think it's going to be plateauing. Melbourne is probably about the same," he said at the Aussie Home Loans conference in Melbourne on Monday.

What are you finding as a seller or buyer in August 2015?

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APRA - thoroughly liberal?

Investment Loans - What the?

Is Sydney property close to its peak?

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APRA - thoroughly liberal﻿?

Investment Loans - What the?

Is Sydney property close to its peak?

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Archives

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APRA - thoroughly liberal?