Mortgages

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<p><span>John Symond, the founder and chairman of Aussie Home Loans, believes the Sydney residential market was peaking.</span></p>
<p><span>"She's topped out," he suggests.</span></p>
<p>"I really can see, I am feeling it already..that the market is just starting to come off the boil," he told Ross Greenwood on the <em>2GB Money News</em> program tonight.</p>
<p>"By Christmas I reckon instead of going up in the hot areas by 15%, I reckon it will be like half of that."</p>
<p>"Into next year, I think they'll (prices growth) will settle right down to four or five percent. It will be a more healthy market, than the fears that are around at the moment.</p>
<p>"Ross I have been telling friends of mine… who ask me that question all the time … and I reckon that the prices are so high at the moment, my suggestion is wait six to 12 months the chances are, all going well, there will be opportunities out there that you will probably buy better in some areas than what you can buy today."</p>
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jchancellor-FAypfDUnLy

Patience John Symond advises Sydney first home buyers: the market is coming off the boil

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<p>GUEST OBSERVER</p>
<p>The cash rate has been left at a record low of 2 percent for a 9th month (10 months of rates at 2 per cent).</p>
<p>The Reserve Bank Board noted that the "expansion in the non-mining parts of the economy strengthened during 2015.</p>
<p><strong>What does it all mean?</strong> </p>
<p><span>The Reserve Bank adopted a ‘conditional easing bias’ in November. That is, the Reserve Bank indicated at the time that scope existed for lower interest rates “should that be appropriate to lend support to demand.” The Reserve Bank Board didn’t feel the need to act on that bias in December, and nor did it decide to take action at the latest meeting.</span></p>
<p><span>And if anything, the Reserve Bank has watered down the ‘easing bias’. It may not have become more hawkish (removed the bias or moved in favour of higher rates) but it certainly hasn’t become more dovish as some commentators expected it would.</span></p>
<p><span>The Reserve Bank has clearly become more upbeat on the Australian economy, highlighting lower unemployment, stronger business lending, and above-average business conditions.</span></p>
<p><span>However, at the same time the RBA upgraded commentary on the Australian economy, it became a touch more downbeat on the global economy. Not markedly mind you, but clearly if rates were to be cut in Australia, it would be because the global economy had deteriorated: “Recent information suggests the global economy is continuing to grow, though at a slightly lower pace than earlier expected.”</span></p>
<p><span>Is the Reserve Bank worried about the recent lift in the Australian dollar? Not in the least. The commentary on the Aussie was brief: “The exchange rate has continued its adjustment to the evolving economic outlook.”</span></p>
<p><span>On the housing market, RBA noted: “The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities. “ In other words, scrub out one of the issues that was on the wall of worry in 2015 – the housing market has become more balanced.</span></p>
<p><span><strong>Perspectives on interest rates</strong></span></p>
<p><span style="line-height: 1.3em;">The previous rate cut was in May 2015 (25 basis points), taking the cash rate to a record low of 2.00 per cent.</span></p>
<p><span>There have been 10 rate cuts since November 2011.</span></p>
<p><span>The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3.00 per cent to 4.75 per cent.</span></p>
<p><span><strong>What are the implications?</strong></span></p>
<p><span>CommSec doesn’t expect any change in the cash rate for the foreseeable future. Underlying inflation remains at the bottom of the 2-3 per cent target band but should lift over 2016 as import prices gradually lift in response to a weaker exchange rate.</span></p>
<p><span>If the Reserve Bank was to cut rates it would be because of global factors – certainly not domestic considerations.</span></p>
<p><span>With interest rates poised to stay low or potentially move even lower, investors will need to remain pro-active in embracing the best deals on online bank accounts. Borrowers also need to be on guard as fixed-term rates could move either way in coming months. While the US Federal Reserve is seeking to ‘normalise’ interest rates, lower oil prices, sharemarket volatility and uncertainty on the Chinese economy may stay the Fed’s hand.</span></p>
<p><span><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em></span></p>
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The RBA February 2016 hold decision, what it means: CommSec's Craig James

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<p>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".</p>
<p>"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.</p>
<p>But he added that the use of macroprudential tools can only be pushed so far.</p>
<p>"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.</p>
<p>"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.</p>
<p>"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."</p>
<p>He said Australia has not experienced rapid growth in non-bank loans yet, but any tougher regulations would make that far more likely.</p>
<p>"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.</p>
<p>"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."</p>
<p><span>"My conversations with a number of banks around the country [suggest] the various APRA measures are having an effect," he said. </span></p>
<p><span>"The measures so far seem to be having a positive albeit modest effect and it is worthwhile seeing how those play out.</span></p>
<p><span>"My subjective assessment would be the level of risk in bank mortgage portfolios has risen over the past couple of years."</span></p>
<p><span style="line-height: 1.3em;">Dr Lowe said the RBA was watching the steps taken in New Zealand.</span></p>
<p>"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.</p>
<p>"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."</p>
<p>"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.</p>
<p><span>"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.</span></p>
<p>"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."</p>
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RBA warns on heightened level of property investment risk

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<p><span>ANZ Banking Group is raising interest rates on home loans held by property investors. </span></p>
<p><span>The rate change will add $48 to the monthly repayments on a $300,000 mortgage, up by 0.27 percentage points, the most dramatic decision of the current clampdown on lending to restrain the current investor frenzy.</span></p>
<p><span>ANZ on Thursday said its index rate for investor property loans would rise to 5.65%, as part of a move to shift the mix in its loan book towards owner-occupiers. </span></p>
<p><span>ANZ's changes come seven months after the Australian Prudential Regulation Authority forced the big banks to cap their loan growth among housing investors to less than 10% growth a year.</span></p>
</div>
<div>
<p>Chief executive of ANZ's Australian operations, Mark Whelan said the bank was trying to reach an "appropriate" mix between its investor and owner-occupied loan book, which with around $65 billion of housing investor loans is the smallest of the big four banks.</p>
<p>"It is very hot," was how Mark Whelan described the investor market when speaking with <em>Ross Greenwood's 2GB Money News</em> today.</p>
<p>The decision re-instated differential price which had existed pre-1998, he advised.</p>
<p>"It's a bit back-to-the-future for the current hot market."</p>
<p>He said it was not related to the <a href="/expert-insights/financing/interest-rates/44202-july-20-home-loan-borrowing-rates-set-to-rise-after-apra-s-latest-decision" target="_blank">recent risk adverse requirements sought by APRA</a>, announced earlier this week to take effect mid-2016 .</p>
<p>He described recent investor loans as "very good risk." </p>
<p>ANZ cut various fixed rates for owner-occupiers by between 0.10 and 0.4 percentage points.</p>
<p>Effective Monday, 10 August 2015, <span id="0.38809601520188153">ANZ</span>’s variable Residential Investment Property Loan (RIPL) Index Rate will rise by 0.27% to 5.65%pa (5.76%pa comparison rate).</p>
<p>Fixed rates for new Residential Investment Lending will also increase by up to 0.30%.</p>
<p>Mark Whelan said although interest rates for residential property investors are at very low levels historically, "the decision to raise interest rates for residential investment lending has been difficult but necessary in the current environment.</p>
<p>“It allows us to balance the mix of our lending between owner-occupied and investment lending as well as the impact of changing market conditions.</p>
<p>"This includes a decision to cut fixed rates for new owner-occupied home lending.</p>
<p>“This is a considered decision that takes into account our customers’ position and the criteria we look at when setting rates including our competitive position, our regulatory obligations and the state of the residential property market,” Mr Whelan said.</p>
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ANZ raises property investor loan interest rate by 0.27 percentage points

Banking on housing: APRA's Wayne Byres

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<p>GUEST OBSERVER</p>
<p>For prospective buyers of property many understand that they require at least a 5 to 10 percent deposit to purchase a property.</p>
<p>However, what I generally find upon sitting down with a new client is that most aren’t aware that ALL lenders look at the various types of property (also referred to as ‘security’) and rate them with different LVRs. Now what exactly is an LVR? It stands for ‘Loan to Value Ratio’. In a nutshell the way you get a LVR rating is to divide the loan amount by the property’s value. So for example if you have a loan for $800,000 secured by a property worth $1,000,000, then the LVR is 80 percent.</p>
<p>For most standard residential suburban homes/ apartments, banks will generally lend on LVRs anywhere from 90 to 97 percent (inclusive of any Lenders Mortgage insurance). However, there are many properties that are regarded as being of more risk to the bank and are referred to as non-standard securities. Consequently, the maximum LVR the bank wants to be exposed to is less. Below is an example of just some of the restrictions on LVRs for different property types:</p>
<p><strong>Small Apartments/ Bedsit/ Studio</strong></p>
<p>An apartment greater than 40 sqm but less than 50sqm of internal space (and this excludes the balcony and car spot), will see many lenders refuse to lend on these properties altogether. However, those that do, range diversely in the maximum LVR they’ll go to.</p>
<p>Some will go to a maximum of 60 percent whereas there are few that will go up to 95 percent. If you do find a property that has less than 40 sqm, there are only a handful that will consider the deal and often it is assessed on a ‘case by case’ basis with a low LVR applied.</p>
<p><strong>Serviced Apartments/ Student Accommodation</strong></p>
<p>Of the lenders that will consider these securities, the maximum is normally around an LVR of 60 percent to 70 percent regardless of the size of the property.</p>
<p><strong>Over-55 Complexes</strong></p>
<p>At the moment, it’s hard to find lenders out there that will consider these properties due to the fact that if the bank had to sell the property because of a borrower’s default on repayments, then the bank is heavily restricted in who they can sell it to recoup their money. Areas such as the Northern Beaches of Sydney are getting more and more of these complexes so it will be interesting to see if banks change their thinking on this form of security as the Australian populace ages.</p>
<p><strong>Rural Properties</strong></p>
<p>Lenders have varying LVRs when it comes to the assortment of property types available in rural/regional areas. For example if the residential property is 10 hectares or less, is located in a serviced rural/ country town, is connected to power, a landline, sewage, and road access then you can possibly go up to an LVR of 95 percent.</p>
<p>If you are looking at a hobby farm that is between 10 to 50 hectares then some lenders will go to LVRs between 60 to 90 percent. Over 50 hectares and less than 200 hectares is limited to only a few lenders who may go as low as 50 percent on the LVR. In most, if not all cases, the rural property cannot be used for commercial income purposes other than renting out the residence to a tenant.</p>
<p><strong>Company Title</strong></p>
<p>These forms of title are generally restricted to older styled apartments which predate 1961 when strata title was introduced. Since 1961 most apartments have been registered as strata title. It’s in Sydney’s eastern suburbs where the majority of company titled properties are located in NSW. Whilst many lenders won’t lend to these sorts of properties, those that normally do, lend to a maximum LVR between 70 and 85 percent.</p>
<p><strong>In Conclusion</strong></p>
<p>When it comes to financing a property purchase it is always best to engage the services of a qualified mortgage broker who is able to help advise you on what you need to know when it comes to selecting a non-standard security.</p>
<p><em>Reuben Brown is lending manager of Horizon Mortgages and can be contacted <a href="https://www.horizonmortgages.com.au" target="_blank">here</a>.</em></p>
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Property 101: What is an LVR Loan to Value Ratio?

Some innovative mortgage data: RBA assistant governor 

Booms, busts, cycles and risk appetite: RBA's Luci Ellis

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<div>Another data series which doesn't really fit the narrative of tight or stretched household budgets, as trend new car sales moved to their highest ever level in July 2015. </div>
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<div>This follows on from recently compiled Reserve Bank data which shows that mortgage redraw buffers and offset account balances are also at their highest ever level as household enjoy low interest rates and cheaper repayments.</div>
<div> </div>
<div>Of course, it often doesn't feel this way at the individual household level - interviews with the world's wealthiest people have shown that financial stress never entirely goes away whatever the true state of one's personal finances.</div>
<div> </div>
<div><span>The Reserve Bank itself has mused<span>:</span></span></div>
<div><span> </span></div>
<div><em>"The continued concern about living cost pressures might arise because the standard of living that can be sustainably afforded by households’ incomes remains lower than many would like."</em></div>
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<div>Certainly although wages growth is soft at +2.3 per cent, this has to date at least remained well in excess of the increase in the cost of living for employee households.</div>
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<div><strong><span style="text-decoration: underline;">Record new motor sales </span></strong></div>
<div> </div>
<div>In any event it was another monster month for new motor vehicle sales at a seasonaly adjusted 96,388 which saw trend sales reach an all-time record high in July 2015, having increased by 3.7 per cent over the past year. </div>
<div> </div>
<div>The result was all the remarkable given the weak data evident in the resources states, a slowing rate of population growth, as well as the fact that the Aussie dollar has depreciated sharply in recent times. </div>
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<div><a href="/images/2015/08/19/MV1.jpg" target="_blank">Click to enlarge</a></div>
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<div><img src="/images/2015/08/19/MV1.jpg" alt=""></div>
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<div><span>Looking at the "original" data on a rolling annual basis we can see that more than 1.13 million new vehicle sales have been recorded over the past year, while the 588,619 units sold over the past six months is a record for any half year period in Australia's history.</span></div>
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<div><a href="/images/2015/08/19/MV6.jpg" target="_blank"><span>Click to enlarge</span></a></div>
<div><span><img src="/images/2015/08/19/MV6.jpg" alt=""></span></div>
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<div><span>It was another prodigious month for Sports Utitlity (SUV) sales at more than 34,000 seasonally adjusted from fewer than 30,000 one year ago (a +14 per cent year-on-yearincrease), the annualised number of SUV sales climbing inexorably to beyond 380,000.</span></div>
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<div><a href="/images/2015/08/19/MV3.jpg" target="_blank"><span>Click to enlarge</span></a></div>
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<div><span><img src="/images/2015/08/19/MV3.jpg" alt=""></span></div>
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<div> </div>
<div>
<div><strong><span style="text-decoration: underline;">State versus state</span></strong></div>
<div> </div>
<div>New South Wales has been recording a number of king-sized seasonally adjusted results in recent months, firing total new motor vehicle sales to their highest ever level in the Premier State. </div>
<div> </div>
<div>On a rolling annual basis new motor vehicle sales are rising in Queensland too, but are now looking somewhat peaky in Victoria after a fine run. </div>
<div> </div>
<div>Sales have declined moderately in South Australia over the past year, and fairly sharply in Western Australia as the mining construction boom comes undone. </div>
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<div><a href="/images/2015/08/19/MV4.jpg" target="_blank">Click to enlarge</a></div>
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<div><img src="/images/2015/08/19/MV4.jpg" alt=""></div>
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<div>
<div><strong><span style="text-decoration: underline;">State trends</span></strong></div>
<div> </div>
<div>The trend year-on-year increase in sales was particular strong in each of the most populous states, those being New South Wales (+8.1 per cent), Victoria (+3.4 per cent) and Queensland (+6.6 per cent).</div>
<div> </div>
<div>While somewhat immaterial at the national level, the surprise package is Tasmania with a trend +13 per cent year-on-year increase in units sold. </div>
<div> </div>
<div>The strength of the data in the three most largest states has more than offset the weakness in South Australia (-4.2 per cent) and the resources-impacted Western Australia (-11 per cent) and Northern Territory (-1.4 per cent).</div>
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<div><a href="/images/2015/08/19/MV7.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2015/08/19/MV7.jpg" alt=""></div>
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<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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pwargent-M4siyDbqQY

Stretched household budgets or not? Pete Wargent

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<div>GUEST OBSERVER</div>
<div> </div>
<div>Australian Finance Group (AFG) released its index for the final quarter of 2016, reporting more than $15 billion in mortgage lodgement volume.</div>
<p><span>The index, which is not seasonally adjusted, rose by 9.9 percent over the year to December.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/12/AFG5.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/12/AFG5.jpg" alt=""><br><br><span>Nationally, the average mortgage size of $488,875 was up from $475,083 from the prior year.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/13/AFG2.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/13/AFG2.jpg" alt=""><br><strong><span style="text-decoration: underline;"><br></span></strong></p>
<div><strong><span style="text-decoration: underline;">"Tale of two seaboards"</span></strong></div>
<div class="separator"> </div>
<div class="separator">Over the year there was strong growth in lodgement volumes in both New South Wales (up 10 per cent) and Queensland (18 per cent), but the real driver of growth was Victoria with a substantial 23 percent rise. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/13/AFG3.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/13/AFG3.jpg" alt=""></div>
<p><br><span>Offsetting this, investors have backed off from Western Australia and the Northern Territory.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/13/AFG4.jpg" target="_blank">Click to enlarge</a><br><br><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/13/AFG4.jpg" alt=""><br><br></p>
<div>In the December quarter the average mortgage size scaled fresh heights in each of the three most populous states. </div>
<div> </div>
<div><a href="https://www.propertyobserver.com.au/images/2017/01/13/AFG1.jpg" target="_blank">Click to enlarge</a></div>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/13/AFG1.jpg" alt=""><br><br><strong><span style="text-decoration: underline;">Investor rebound</span></strong><br><br><span>Finally, the share of AFG's market relating to investors ticked back up to 34 percent.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2017/01/13/AFG6.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/13/AFG6.jpg" alt=""></div>
<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
<div> </div>
<div>While activity in South Australia was flat, the weakness of the WA market in 2016 was evident, with the recent introduction of a new first home owners grant in the state designed to combat this. </div>
<div> </div>
<div>Loan to value ratios across the year were fairly consistent at around 69 percent, about 0.7 percent lower than in 2015.</div>
<div> </div>
<div>Over the year non-major lenders have been pinching market share away from the main players, a trend that AFG expects to continue into the new year as consumers increasingly recognise the potential benefits of using a broker.</div>
<div> </div>
<div><em><span>PETE WARGENT </span>is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. </em></div>
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