APRA

<html><body>APRA intervention and credit controls would be much preferred to what New Zealand has decided to do to calm their property market, following 20% house price gains in a yea, according to veteran Australian estate agent John McGrath.

His comments came after the NZ Prime Minister, Jacinda Ardern has announced plans to remove tax deductibility on investment loan interest payments (except new builds) not just for future buyers but existing landlords, too. 

He noted macroprudential controls, whereby APRA instructs the banks to restrict credit, are far more likely in Australia.

"They’ll probably restrict the number of new interest-only loans or reduce the debt-to-income ratio for new borrowers – things like that. 

"There are many levers they can pull. 

"But that’s a long way off, in my view. Sydney and Melbourne home prices are only just past their previous peaks and other capitals, particularly Perth, are enjoying a long-awaited catch-up on capital growth," he noted.

"This is actually helpful to the economy because of the psychological ‘wealth effect’ that rising home values creates. 

"People feel richer and spend more at the shops, which creates jobs.

"Plus, when (not if) stock levels increase, the market might settle down on its own. 

"Let me tell you, APRA intervention and credit controls would be much preferred to what New Zealand has decided to do to calm their property market," McGrath said. </body></html>

The NZ Prime Minister, Jacinda Ardern has announced plans to remove tax deductibility on investment loan interest payments, except new builds.

jchancellor

John McGrath says APRA credit controls preferable to New Zealand's new rules for property investors

<html><body>The Australian Prudential Regulation Authority chairman Wayne Byres has told parliamentarians that the regulator’s job was not to “solve house prices” or “solve affordability.” 

But Byers did tell the House of Representatives Economics Committee that APRA was watching closely for riskier lending.

“The last statement from the Council of Financial Regulators said quite clearly we are watching for a deterioration in lending standings and that’s not evident at this point,” he said 

“That is not to say it won’t emerge but it’s not obvious at this stage.” 

Byres accepted that house prices would rise faster than incomes when he noted the regulator remained focused on protecting depositors and the stability of the financial system.

“It’s not our job to solve house prices and it’s not our job to solve house pricing affordability,” Byres said.

“We are watching for a deterioration in lending standings, and that’s not evident at this point. 

"That is not to say it won’t emerge, but it’s not obvious at this point,” Mr Byres said.

The comments come despite strong monthly price growth and the highest auction clearance rates in years.

The AFR recently reported APRA data revealed a 31 per cent increase in interest-only loans, a 27 per cent increase in mortgages with a loan-to-valuation ratio (LVR) of 95 per cent and a 26 per cent increase in mortgages where the borrower was granted a loan more than six times their annual income.

Byres noted buying activity was being driven by first home buyers, which was creating a different dynamic to the prior times of APRA intervention that curbed investor and interest-only loans in 2014 and 2017.

Byers did note the vast majority of home owners who stopped mortgage payments during the pandemic last year had resumed repayments.

Deferred loans accounted for 0.5 per cent of banks’ total loan books in February, the parliamentary committee was advised on Monday.

It was down from 10 per cent on last May.

APRA will be monitoring how lenders dealt with customers still struggling to pay their mortgages.
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APRA, the prudential regulator has also rejected any suggestion the regulator’s job was to “solve house prices.” 

APRA doesn't see role as solving housing affordability

<html><body>The former APRA chairman Jeff Carmichael believes that lending restrictions are being discussed at the moment by banking regulators.

It comes as he sees the recent home price hikes as “the starting of overheating”.

“I think APRA will be starting to look at those very carefully, certainly over the next six to 12 months — whether they need to make adjustments in LVRs, debt-to-income ratios, debt-service ratios to raise the bar for the banks, so that they are not fuelling that overheating in the mortgage market,” he told The Age.

Carmichael expects lenders could start restricting their own offerings if, and when they become concerned about the market given housing loan commitments continue at record levels according to the Australian Bureau of Statistics.

The regulator has acted twice recently in restricting lending forcing banks in 2014 to restrict their offerings to investors and in 2017 with interest only loans restrictions.

The current boom is however being driven by owner occupiers.

Last week the Council of Financial Regulators, which is made up of the RBA, Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the federal Treasury, advised it was keeping a close eye on lending standards.

Most economists think any macroprudential policies to restrict lending will not be introduced until 2022.</body></html>

The regulator has recently acted twice forcing lenders to impose tougher lending restrictions

Tightened lending is coming: former APRA boss

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In an interesting take on APRA’s directives, the banks are pricing investment loans to be more expensive than ’owner-occupied’ home loans, for new and existing home loans.
There may be some contention as to what category your loan falls under. Did you borrow against your home to invest ? How about if only 50% of your loan relates to an investment property? What if your home and your investment property were cross-collateralised?
With this interest rate disparity, it’s ever more important to get your lending structure spot-on. Tailored advice is now paramount given there are ways to ensure you are getting the best rate available.  
For starters, having your home loan and investment loan at the same bank is now necessary unless you want to get slugged on the carded rate.
If you took out an investment loan to buy a property, which you have since moved into as your home, your broker should have been in touch with you by now regarding the suitability of asking the bank to re-classify your loan. Should it be appropriate, I reckon do it now before the mad rush in a couple of weeks. We have done our homework in advance - each bank will deal with this request differently.
So here are the new Standard Variable Rates. There’s not much difference in movement amongst the majors (not that I’m suggesting any opportunistic collusion). Hey, at least we can all be thankful that we all own part of the banks through our superfunds...
ANZ (Owner Occd): 5.38% (CR 5.49%)*
ANZ (Investment): 5.75% (CR 5.49%)*
CBA (Owner Occd): 5.45% (CR 5.59%)*
CBA (Investment): 5.86% (CR 5.86%)*
NAB (Owner Occd): 5.43% (CR 5.52%)*
NAB (Investment): 5.72% (CR 5.63%)*
WBC (Owner Occd): 5.48% (CR 5.62%)*
WBC (Investment): 5.89% (CR 5.89%)*
 * CR is the Comparison Rate. It is a notional rate which includes fees (mainly the annual package fee of around $395) into the interest rate in well-intentioned yet child-like attempt to come up with a single rate which punters can use to estimate the true cost of a loan. It is based on a $150,000 mortgage and hence does not at all relate to you unless your mortgage is exactly $150,000 and you never use your offset account or Credit Card interest free terms
The Standard Variable Rates are of course lacking meaning without applying your lifetime discount. One bank might be giving you a 1% discount off this headline rate (that discount is so 2011), whilst a broker may negotiate an unpublished cracking lifetime discount of 1.45%. 
You must always consider the upfront costs, ongoing fees and the ’after discount’ interest rate; then compare the loan products over a certain time frame (please don’t compare over 30 years, perhaps this is unrealistic). 
We think a 10-year projection is appropriate, that way it’s also easy to divide by 10 to see the annual $ saving.
Product Comparison – 10 Year Projection 
<a href="/images/2015/08/14/Screen%20Shot%202015-08-14%20at%204.52.53%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/08/14/Screen%20Shot%202015-08-14%20at%204.52.53%20PM.png" alt="">
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 Jason Khoury is the principal at iChoice. He can be contacted <a href="mailto:jason@ichoice.com.au" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

An interesting take on APRA’s directives: Jason Khoury

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The NAB's head of retail banking Gavin Slater forecasts slower growth in investor lending under the APRA crackdown would not significantly affect the Sydney property boom.
Gavin Slater was reported by Fairfax Media as saying the Australian Prudential Regulation Authority was not trying to influence price growth by imposing a 10% annual speed limit for investor credit growth. "I don't think where we're heading, around looking to moderate growth to under 10 per cent, at an industry level, will have a significant impact on asset prices themselves, but that's not the intent of the action," Slater said.
The banking regulator's 10% a year cap investor credit growth will have little impact on house prices, which are being driven by strong demand and a lack of supply, says National Australia Bank. Gavin Slater said prices would continue to be supported by strong buying, including from overseas.
Bloomberg reported Slater saying markets such as Sydney were struggling with undersupply amid "significant" foreign demand.
"All lenders are responding to the macro-prudential guidelines," Mr Slater said at a business lunch in the city.
"I don't believe it will have an impact on house prices."
 
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Overseas buyers will support Sydney house prices during APRA crackdown: NAB

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Rising household debt levels, the hot Sydney property market and continued low interest rates has made Australian Prudential Regulation Authority Wayne Byres uneasy.
It seems he especially fears a market propped up by artificially low, interest-only borrowing rates.
Last month he decided the trend to over borrow, and then not to repay home loans in the conventional manner of interest and principal, was a likely recipe for a economic uncertainty.
To preserve financial stability, the prudential regulator decided in its latest macro-prudential measure that the interest-only loans fad need to be constrained.
The banks were told that less than 30 per cent of their new mortgages can be interest-only, well below the 38 per cent of total loans currently taken.
With borrowers realising paying interest-only freed up cash-flow, they've dived into interest-only loans which haven't been below 30 per cent since around 2008.
Interest-only loans typically have a period of five years, and then the loan will revert to the normal P&amp;I repayments, with the recent accompanying price growth seeing the investor nicely placed to cope with the higher repayments.
The tax deduction of interest payments in the meantime on these investor loans will have been a big incentive for the investor.
Investors have accordingly snapped up the bulk of interest-only loans, but owner occupied borrowers have been a worrying large 40 per cent share.
As Sydney house prices have surged since 2012, house loan sizes have grown, and for most households who've have experienced limited wage growth, the upsizing to the bigger home has only really worked with getting an interest only loan.
On a $300,000 mortgage over 25 years at a 5% p.a. interest rate, the usual monthly repayment would be $1,754 a month. But if you were making interest-only payments, the monthly cost would be $1,250 a month.
For a $750,000 home loan the monthly repayment of $4,174 drops to $3,325 if only the interest is repaid – which for many Sydney families is the difference between owning a bigger home or not.
The push hasn't just come from borrowers as mortgage broker's commissions are calculated on the size of the loans so they are incentivised to write interest only loans.
ASIC advised this week while interest-only loans may be a reasonable option for some borrowers, for the vast majority of owner-occupiers in particular, an interest-only loan will not make sense.　
The Reserve Bank of Australia has warned for two years that the rise in interest-only loans could amplify the housing price cycle, increase the risk of significant price falls, and may result in households overburdened in debt. 
If house prices do drop, the borrower will likely end up owing more than the house is worth, paying much more interest than they would have otherwise paid, and then coping with the many ensuing dramatic problems.
This article first appeared in the Daily Telegraph.
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Three housing market factors making APRA's Wayne Byres uneasy

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GEUST OBSERVER
Westpac’s move to increase interest rates on its owner occupier loans will be the first from many lenders. 
We find that when one of the majors make a change like this, others follow.
Mozo calculates Westpac will earn an extra $1.59 million in interest each day from its decision which will impact existing and new owner occupier and investor loan customers. 
With APRA’s requirements not due until 1 July 2016, Westpac has made a bold move to increase rates so early, but we’re going to see a lot more of it over the coming months.
Despite rates being at record lows, lenders are looking at ways to meet APRA”s capital requirements including raising rates, not passing on official interest rate cuts or curbing discounts.
If the RBA cuts rates on Melbourne Cup day, we could see banks holding back part of a rate cut or not passing on cuts altogether.
The ‘borrower bonanza’ of sub 4% variable rates and incentives we’ve seen lately may become a distant memory come 2016.
In another measure to increase the ratio of deposits as a funding channel, Westpac, St George, Bank of Melbourne and Bank of SA have increased at call and term deposit rates. 
Westpac upped the introductory rate on its eSaver account by 6 basis points to 3.31% and its 4 and 6 month term deposits by 10 basis points and 1 year term deposit by 5 basis points in September. This comes after a 14 basis point increase in August for the eSaver introductory rate to 3.25%. 
After a long period of uncompetitive savings rates, deposit holders might have some light at the end of the tunnel with rates likely to increase over the next six months, thanks to the new capital rules.
It would be highly unlikely for any of the Big 4 banks not to follow Westpac’s early lead - which will also see them gain new deposit business.
Kirsty Lamont is marketing director of <a href="https://mozo.com.au" target="_blank">Mozo</a>.
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More rate hikes to follow Westpac move: Mozo's Kirsty Lamont

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<div>GUEST OBSERVER</div>
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<div>So what's going on with APRA currently?</div>
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<div>Firstly, the changes are not targetted at homeloans taken to purchase your homes. Rather, there is pressure on the lenders to tighten their policies for lending against, and to buy, investment properties.</div>
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<div>Lending to property investors is way past the speed limit, particularly in Sydney &amp; Melbourne. APRA have made it clear that the banks need to be more careful.</div>
<div>The capital aqequacy ratio's for the banks will also increase. What this effectively does it make it more expensive for banks to lend to investors.</div>
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<div>NAB, CBA &amp; Westpac have already announced to us that investors will not be offered discounts better that is what is published. As you know, us brokers often get discounts 30 or 40 points better than what the banks advertise. Thankfully, we expect our capacity to get much better-than-published rates will still apply to home loans for places you will live in.</div>
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<div>St George is one of my favorite banks, in large part due to their flexibility for investors. They have pre-warned iChoice of forthcoming changes too. For those of you wanting to land a better rate on your investment loan, or perhaps to unlock some equity, these are probably things you should be considering to do immediately, like right now. And the $1,250 Refinance Rebate is still alive. The mortgage industry is ready for a few busy weeks ahead.</div>
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<div>Once all the changes have been implemented, we will see stricter servicing calculations and pressure to reduce interest-only loans and 'cash-out' (equity unlocking). Also, several lenders have already ceased exceeding 80% LVR for investment property loans. On that note, it is important for anyone you know that may have a pre-approval in place for an investment property. Pre-approvals arent always what they seem to be.</div>
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<div>It's being branded a 'mini-GFC' but at the end of the day, it seems like we are simply going back to the old days, where speculative investment loans are harder to get and are not priced the same as your owner-occupied home loan.</div>
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<div>At the end of the day, the concerns held by APRA are to protect our system should we in fact be at 12 o'clock on the property cycle. You can be assured that we at iChoice are on our front foot with all changes and will kep you posted, and are more than happy to advise based on your individual goals and circumstances.</div>
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<div>Jason Khoury is the principal at iChoice. He can be contacted <a href="mailto:jason@ichoice.com.au" target="_blank">here</a>.</div>
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Concerned over getting an investment property loan?: iChoice's Jason Khoury

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Mortgage broker John Symond says he is worried that the APRA investor home loan lending crackdown will have unintended consequences given the huge increase in non-Australian residents buying property.
"I am just worried that there is not going to be unintended consequences here because you might find these foreign investors have even a bigger go because regular Australians are going to find it tougher to get through the hoops to be able to borrow money to buy an investment property, in most cases their future nest egg" John Symond, the founder and chairman of Aussie Home Loans said.
"I lot of these people are bringing money from China," he told Ross Greenwood on the 2GB Money News program last night.
 "Without picking on the Chinese, they have had a huge spike on new housing something like $12 billion in last 12 months - now this doesn't come under APRA as a lot bring money from China. 
"They are certainly help driving the pricing up and driving the shortage of properties available for first home buyers and people looking to buy their home in Australia.
"It is not just the Chinese there are other foreign investors who love Australia," he said.
The latest lending data suggests lenders are generally meeting the 10% growth restraint sought by APRA, though some still to sufficiently rein in the pace of investor loans.
It has been suggested more than 82% of investor lending remains within APRA’s macro prudential growth target (not materially above 10%).
While a number of lenders are comfortably below this range (around 12% of market share) and have scope to increase their exposure to housing investors, some lenders are tracking well above APRA’s macro prudential target growth range. 
The 10 per cent benchmark is not a hard limit, but is a key risk indicator for supervisors in the current environment. 
The benchmark has been established after advice from members of the Council of Financial Regulators, taking into account a range of factors including income growth and recent market trends.
ADIs with greater than $1 billion of residential term loans held 98.4% of all residential term loans as at 31 March 2015. These ADIs reported 5.3 million loans totalling $1.28 trillion.
Of these loans: the average loan size was approximately $243,000, compared to $235,000 as at 31 March 2014; $479.1 billion (37.4%) were interest-only loans; and $30.1 billion (2.3%) were low-documentation loans.
 
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Chinese buyers to benefit from APRA crackdown on local borrowers: John Symond

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The RBA deputy governor Philip Lowe says recent measures from banking regulator, the Australian Prudential Regulation Authority (APRA) were having a "positive, albeit modest, effect".
"In the past couple of weeks you've seen a number of banks say they're requiring larger deposits for investor loans, they're offering smaller discounts on interest rates and smaller rebates, they're requiring higher serviceability levels," Dr Lowe said at yesterday's Thomson Reuters regulatory summit in Sydney.
But he added that the use of macroprudential tools can only be pushed so far.
"This is an issue that's very clearly on our radar screen. How far can you push the tighter regulation of the banking system without causing the same volume of loans to be made but just through a different financial intermediary," Dr Lowe said.
"In the '70s and the '60s we had a lot of the tools that are currently in vogue and we ended up getting rid of them was because what happened was that institutions found out ways of getting around the rules.
"Finance is very flexible and people are very good at moving the money from the people who have it to the people who want it."
He said Australia has not experienced rapid growth in non-bank loans yet, but any tougher regulations would make that far more likely.
"Maybe a few more loans are being made through non-bank lenders than through the banking system as a result of the tougher requirements, but it's very much at the margins," he said.
"But it's a margin that we do need to watch very carefully, and history tells us that if you make the incentive too misaligned between the banks and the non-banks then the funding will follow to the non-banks."
"My conversations with a number of banks around the country [suggest] the various APRA measures are having an effect," he said. 
"The measures so far seem to be having a positive albeit modest effect and it is worthwhile seeing how those play out.
"My subjective assessment would be the level of risk in bank mortgage portfolios has risen over the past couple of years."
Dr Lowe said the RBA was watching the steps taken in New Zealand.
"We follow these issues very carefully. Of course New Zealand's not the only country that's implemented some type of macroprudential regulation," he said.
"The number of countries that have done that over recent times is very large and so we watch, study the experience of other countries carefully."
"It is entirely appropriate that (Australian) households are careful as well because the level of risk there, while I don't think it is extreme, it has picked up and both financial institutions and households need to respond to that," he told the conference in Sydney.
"Household debt is high, property prices are very high, household income growth is slow, the unemployment rate has drifted up – all those things would suggest there has been an increase in the level of risk, particularly as people have bought property for investment purposes.
"In that environment, it is entirely appropriate [the banking regulator] APRA has a very close dialogue with financial institutions about the risks in those portfolios, and makes sure there are plenty of buffers there in case things don't turn out so well."
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