I ask you, is a loan to an owner occupier FTB more stable than a FTB who lives at home with family support PLUS the rental on the home that he has just bought? In my view if the borrower can service the loan as an owner occupier, then they are more stable living with mum and dad as well as receiving a healthy rental.
Now can you point out where this big picture Macroprudential risk is if we see this behavioural change?
What exactly is APRA fixing here, or are they just rearranging the deck chairs to tidy up their stats to keep everyone happy?
Note first my "One might quibble about any number of issues about their approach" caveat.
But to take APRA's side...
They're looking at the longterm risk of sectoral allocations of credit across the entire lending sector. And (fortunately, in one sense) they're reacting to recent offshore banking crises (rather than Australian ones), and international banking norms, in designing the newest set of risk-weighted capital rules for Australian lenders.
APRA *probably* doesn't know or care whether a FTB couple sleeping on a parent's couch (and renting out their purchased home) is a safer bet, or not, than a FTB couple sleeping in their own recently-purchased bed, *unless* FTB couples in each context prove to have meaningful differences in mortgage default levels.
APRA cares about sectoral allocations of RE lender credit--and corresponding allocations of lender capital--at the tens or hundreds of billions level, allotted between investors and O/Os and FTBs, and between interstate geographies. They may also choose to care if they find distinct misallocation of risk possibilities for lenders at any level below that, e.g. those involving SMSF borrowers.
But to do their job at a macro level, APRA needs to be sure that micro-level reporting from their stable of managed lenders is accurate. In any regulatory environment, there are rewards for silently gaming the system, and APRA needs to shut those gaming opportunities down, by auditing reporting compliance, and penalising misbehaviour.
I understand your point Peter, I'm just saying that FTB investors are a small minority of the overall market, so, whatever happens, they won't influence much. While its hard to get a clear story, my reading of ABS stats (I will stand corrected if necessary) is that PI and OO are currently running about 50/50 in number of purchases, of which the FTB "investors" are only 15 out of the 50. So, what I'm saying, is that the majority of investors will be hit by the APRA changes, and won't avoid it.
No, the FTB investor numbers in Sydney are huge, and to a lesser extent Melbourne.
I quote -
Quote:
In NSW, the rise of investors has been running for some time, and as a result, more than 50% of loans are First Time Buyer investors. Note the growth thorough 2013.
It would be foolish to think that these younger GenY buyers won't quickly sus out the rule change and use it to their advantage. They are the most switched on generation of buyers the world has ever seen and the internet is their world. It's like when the rules of football are changed, the players have most of it worked out before they take the field, and if they can find an advantage by taking a dive they will.
I would expect to see some wild changes in FTB stats before this Christmas.
stubby
29 Jul 2015, 03:17 PM
Note first my "One might quibble about any number of issues about their approach" caveat.
But to take APRA's side...
They're looking at the longterm risk of sectoral allocations of credit across the entire lending sector. And (fortunately, in one sense) they're reacting to recent offshore banking crises (rather than Australian ones), and international banking norms, in designing the newest set of risk-weighted capital rules for Australian lenders.
APRA *probably* doesn't know or care whether a FTB couple sleeping on a parent's couch (and renting out their purchased home) is a safer bet, or not, than a FTB couple sleeping in their own recently-purchased bed, *unless* FTB couples in each context prove to have meaningful differences in mortgage default levels.
APRA cares about sectoral allocations of RE lender credit--and corresponding allocations of lender capital--at the tens or hundreds of billions level, allotted between investors and O/Os and FTBs, and between interstate geographies. They may also choose to care if they find distinct misallocation of risk possibilities for lenders at any level below that, e.g. those involving SMSF borrowers.
But to do their job at a macro level, APRA needs to be sure that micro-level reporting from their stable of managed lenders is accurate. In any regulatory environment, there are rewards for silently gaming the system, and APRA needs to shut those gaming opportunities down, by auditing reporting compliance, and penalising misbehaviour.
I agree, but how do you make a criminal act out of someone changing their mind.
If they do that we will all do jail time, and my wife can expect to get about 3000 years.
It would be foolish to think that these younger GenY buyers won't quickly sus out the rule change and use it to their advantage. They are the most switched on generation of buyers the world has ever seen and the internet is their world. It's like when the rules of football are changed, the players have most of it worked out before they take the field, and if they can find an advantage by taking a dive they will.
I
Perhaps they've seen the light and are learning from their elders. That should be a good boost to the ego of the old farts as it suggests that the system can be tailored to encompass the young uns and get them firmly entrenched into the program.
I agree, but how do you make a criminal act out of someone changing their mind.
You fine them for not updating their details and convert the loan to the investment rate maybe?
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
You fine them for not updating their details and convert the loan to the investment rate maybe?
Indeed. And you find them by looking for addresses where the utility bills are in different names than the mortgage accounts.
And yes, you'll get some false hits to be sorted out, and the system overall will never be up-to-date perfect. But neither is the "didn't vote" process, yet it still manages to collect fines from the electorally lazy.
0.27% isn't a huge mortgage rate differential--a lot more people would be with the online lenders rather than the major banks if they cared that much--and the prospect of being fined or criminally convicted would bring the rest across if enforced.
Indeed. And you find them by looking for addresses where the utility bills are in different names than the mortgage accounts.
And yes, you'll get some false hits to be sorted out, and the system overall will never be up-to-date perfect. But neither is the "didn't vote" process, yet it still manages to collect fines from the electorally lazy.
0.27% isn't a huge mortgage rate differential--a lot more people would be with the online lenders rather than the major banks if they cared that much--and the prospect of being fined or criminally convicted would bring the rest across if enforced.
I think that the biggest inspiration for a change of tactic will be the LVR differences available to PPOR home buyers. Investors can still get high LVR loans but those avenues are being shut down one by one, and that affects the FTB investor much more than a seasoned investor with equity in other properties.
As for the banks becoming policemen, well that isn't going to happen.
Any expressed market opinion is my own and is not to be taken as financial advice
This graph is only a graph of FTBs. It is not a graph of FTBs versus other investors. IP FTBs are 60% of total, we are agreed. But this tells us nothing about the overall number of investors. FTB investors are dwarfed by non-FTB investors, but the latter are not on this graph.
I think that the biggest inspiration for a change of tactic will be the LVR differences available to PPOR home buyers. Investors can still get high LVR loans but those avenues are being shut down one by one, and that affects the FTB investor much more than a seasoned investor with equity in other properties.
So the system is working then...
Quote:
As for the banks becoming policemen, well that isn't going to happen.
I think you just described how they already are policemen.
Many investors are undeterred by lenders making it harder for them to get a property loan although some off-the-plan buyers may end up unable to complete their purchase.
A Mortgage Choice survey shows that 54 per cent of potential investors would still go ahead with their plans despite lenders making sweeping changes to their lending policy and pricing.
Many lenders, including most of the major banks, have hiked interest rates on investment property loans in the past week but Mortgage Choice chief executive John Flavell says the majority of investors still view property as a lucrative investment strategy.
"When we asked potential investors whether or not now was a good time to invest, more than 70 per cent said yes, which goes some way to explaining why so many potential investors are not deterred by the spate of pricing and policy changes being made by many of Australia's lenders," he said on Thursday.
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