All posts by Obu Ramaraj

About Obu Ramaraj

Obu Ramaraj has been a mortgage broker since 2009. She has written over $80 million dollars of loans and still maintains a personal touch to all her clients, no matter how small or big your deal is because she enjoys helping people achieve their dream of buying their own property. By sharing her knowledge and experience she hopes to instil confidence in anyone looking for a home loan. Her attention to detail and drive to achieve the best result for each and every client are enviable assets in the home loan industry. Obu is passionate about helping all home buyers feel comfortable with the property buying process; however her strongest passion is to help more people become self-assured property buyers. Her goal is to increase their financial awareness and have more people buying houses from a very early age, comfortable in the knowledge that they have made the right choice for their circumstances.

Recent changes in the home loan sector

Home Buyer, Money, , , ,

Investment lending changes

If you are an investor, you must be following all the changes in the lending sector. This has been going on for a while and you can read my June article here – in case you missed out on what was happening.

A week or so ago, I attended a session conducted by one of the lenders and here are some points that I picked up from the economist.

There could be a rate cut by the Reserve Bank of Australia (RBA) in November 2015, which could see cash rate as low as 1.75%. This will then stabilise and remain there for a while.

Apparently, businesses are growing and this is evident from the increased job ads on different job websites. I guess this is good news for the Australian economy and those of you looking for a job!

As for investor lending, I heard some interesting news on how it came to all the changes that are being made currently.

There are three regulatory bodies trying to control the investor lending – APRA, ASIC and RBA.

Australian Prudential Regulation Authority or APRA is focusing on the servicing side of home loans. Australian Securities and Investment Commission or ASIC is more concerned with NCCP or responsible lending. Lastly, RBA does it part by controlling cash rate.

All these bodies have been asking lenders to curb investment lending since mid 2014. In December 2014, APRA noticed that lenders were not slowing down and still lending increased LVRs to investors. Hence it stepped in to curb investment lending to 90%. The trend still continues where some lenders have now restricted investment lending to 80% and AMP has pulled out of the investment market till later this year. This is seen in the SMSF market and non-resident lending as well.

At the same time, ASIC being concerned about responsible lending saw that investors were still borrowing interest only home loans and hence stipulated rules around increasing servicing buffer and assessment rates to slow down lending. This has affected almost all lenders – but some specific ones who earlier assessed on actual rates like Westpac, Macquarie and NAB Broker.

The regulators are managing investment lending through different pricing structures not just for LVRs, but for investment vs owner occupied loans, sometimes even principal and interest vs interest only loans.

If you have seen interest rate changes for investors, beware that pricing changes are on the way for owner occupied loans as well, says the economist. This can be in the range of 25 bps to 50 bps.

It can be quite confusing with all these changes, so if you have any questions at all, feel free to touch base with us.

Bank Changes are here – June 2015

Home Buyer, Money

For those of you who have been following the news, what a way for APRA/ASIC to step in and control investor lending! These regulatory bodies wanted the lenders to tighten their investor lending and it has taken place with a shock to both lenders and investors alike.

As RBA kept reducing the interest rates, APRA realised they had to curb investor lending especially with the hot property market in Sydney and Melbourne.

Banks logos

 

One of the initial changes was the pulling back on additional rate discounts for investors. This was not a big deal in itself because even though investors had to pay slightly higher rate, they would have been able to borrow.

Some of the banks reduced the amount they wanted to lend to investors. For example Bankwest and Heritage Bank pulled back to 80% maximum lending for investors. The change came into effect immediately which means that many investors with existing pre-approvals at these institutions had to find another lender and also got hit with another credit check on their credit file.

The biggest hit to investors is the changes made to the way existing debts were serviced. What Westpac did was that they pulled out negative gearing from their calculators – this meant that investors had to be able to service existing and new debts without the benefit of negative gearing, in short – their salary/wages had to support new borrowing.  Another change was the increase to their buffer to cover debts with other lenders.

To explain the buffer concept with numbers – if your debt of $400,000 was interest only at 4.9%, serviceability was calculated on interest only repayments of $19,600 per annum. Post changes, servicing was calculated on an increased rate of 7.4%, not as interest only repayment, but as principal and interest repayment. This means that they calculated your repayment as $33,234 per annum. So, this one change greatly reduced borrowing capacity for investors.

Just today CBA has announced  similar changes to their investor lending – to include pulling back negative gearing for loans above 90% and increased buffer on existing debts.

Some of the unexpected changes included NAB, Macquarie, AMP and other NAB backed products reducing their investor lending to 90%.

Regardless of these changes, always spread your risk with different lenders minimising your risk of one lender’s policies and servicing.

Maybe this is one way of curtailing high borrowing by unsophisticated investors who can be caught out later when the interest rates actually increase.

What are your thoughts? Do you think it was wise for APRA/ASIC to control investor lending? Maybe they have avoided another GFC?