Black and White Finance 'Winter' update - June 2017
Hope you’ve had a top week, welcoming winter and enjoying the fresh cool air on your face each day. As you know, there have been a few changes in the last few months, not just the weather!
If you’ve missed the changes, we’ve summarised them below for you to keep you up to speed. So, pour yourself another tea or coffee, or save the article for tomorrow morning as we want you to really enjoy the Black and White Finance update. We cover property and finance news/updates/events you absolutely should know about going into June 2017.
1. INTEREST ONLY RESTRICTIONS: If you want to make interest only repayments and the home loan you’re after is for owner occupier, investment, or equity access purposes, many banks will prevent you from borrowing more than 80% of the property value. Not all banks have applied this restriction yet - which is good news for some. Remember back in March when we wrote about Home Loans for doctors and medical practitioners? Well, this change now impacts them too, affecting Medico, Professional and Industry Specialisation packages by also reducing their maximum LVRs on interest only loans to 80%. Some banks won’t even accept a refinance of an owner occupier loan if the repayment type is to be interest only.
Why are the banks doing this?
APRA (Australian Prudential Regulation Authority) expects authorised deposit taking institutions (ADIs, which are our banks) to limit the flow of interest only home loans to 30% each year. Banks already, and will continue to, price principal and interest paying loans much cheaper than those interest only offers to ensure that the growth of each is controlled. Each bank has until the 1st of July to get this type of lending under control.
2. BANK LEVY ON HOLD: The controversial bank levy bill that Treasurer Scott Morrison introduced in the Federal Budget, which banks can pass onto every day Australians, will be postponed by three months with the first payment now occurring on 21 March 2018. Most Australians, myself included, expect that this new cost to the banks , will flow on to consumers in the form of bank fees or higher rates. The government has directed the ACCC to watch and report on how the banks respond to the introduction of the levy. The banks and our government don’t have this levy finalised, it’s still a work in progress.
3. INVESTMENT HOME LOANS MORE EXPENSIVE: APRA is continuing to monitor investment home loans. APRA have a 10% year on year growth benchmark that each bank must not exceed. It’s a challenge for the banks to ensure they manage the new business that comes in the door, with the investment business that they lose. You will notice that all investment home loan rates are already much higher than owner occupier home loan rates. There are still a few lenders allowing you to apply for cheaper owner-occupied rates to both owner-occupied and investment loans, meaning you can get owner occupied rates for your entire portfolio of residential home loans. For these lenders, it is not about the purpose but the security that determines the product and therefore, the rate.
APRA are essentially taking action to ensure that banks do not take on excessive risk, exposing the property market and our broader economy to unnecessary systematic risks. “Prices are high, household debt is high, interest rates are at historical lows, interest rates are low and competitive pressure is strong in the housing market. So everyone needs to be fairly careful about how they operate”, Wayne Byres, APRA chairman said last night in Canberra when he faced the Senate Economics Legislation Committee.
4. NSW GOVERNMENT ABOLISHING STAMP DUTY: The NSW Government has abolished stamp duty entirely for first home buyers purchasing new and established property up to $650,000. They've also introduced stamp duty discounts for new and established property purchases up to $800,000. This new initiative comes into place on 1 July 2017. As we stated yesterday on Facebook, it looks like the NSW Origin win last night spurred some confidence into our state government. The NSW Government did a bit more for builders and to the duty charged on lenders mortgage insurance. A first homeowners’ grant of $10,000 will be available to builders of new properties worth up to $750,000, and if you’re buying a new property worth up to $600,000, you’ll be eligible for the $10,000 too. The stamp duty charged on lenders’ mortgage insurance, which is often required by banks to lend to first homebuyers with minimal deposits, has also been removed. In addition, for foreign buyers, the government has doubled the foreign investor surcharge from 4 to 8 percent on stamp duty and increased the land tax surcharge for foreign investors from 0.75 per cent to 2 per cent.
5. REDUCTION IN HIGH LVR HOME LOANS: There’s been a significant fall in the amount of high loan to valuation ratio type lending. Lending above 90% of the property value has dropped by $4.2bn in 12 months, new statistics from APRA showed.
From March 2016 to March 2017, APRA’s Quarterly ADI Property Exposure data showed the volume of 90%+ LVR loans decreasing by 12%, year on year. The banks are expensive as well in this space, well most are anyway. For example, on a loan of which you have an LVR of 80%, paying principal and interest and for owner occupier purposes, you’re looking at 3.79-3.99% with most lenders. If the LVR is above 90%, the rates are starting at 5%. You can see why we’ve had a subsequent increase in the sub-80% LVR space and a reduction in the high LVR space.
You can see, going into winter, there are a few changes for us to understand, presenting a huge window of opportunity for those on the front foot. For us brokers, there’s a huge opportunity in understanding how each lender with their different policies can support each customer’s different needs. Our ability to really add value in the market now, in the words of famous millennial philosopher Drake, "has gone way up".
If you want to know more about these changes, please feel free to drop us a line. We’d also like to know what you think, so please feel free to comment. Thanks so much for reading, for your support and the fact you’ve made it all the way down to here is truly appreciated.
Peter Vassilis
Black and White Finance