Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Tuesday, 9 December 2014

APRA Fizzer

Fizzer

Unsurprisingly not a great deal of excitement from APRA's review of the mortgage market with no increases in bank capital requirements to be introduced and no caps on specific loan types to be introduced either.

Not that it ever seemed likely. 

Of course, APRA is keen to know that new borrowers have the ability to service a lending rate of 7 percent ("floor lending rate") and that they are able to cope with a full 2 percent of on interest rate increases on a loan product.

Economists have been taking a lot of time pontificating on loan assessments in recent months, but since most loans in Australia already comply with these sensible standards (as APRA well knows), APRA sees no cause for extraordinary action.

APRA will quite rightly continue to monitor higher risk mortgage lending and lending practices over the first quarter of 2015.

"At this point in time, APRA does not propose to introduce across-the-board increases in capital requirements, or caps on particular types of loans, to address current risks in the housing sector. 

However, APRA has flagged to ADIs that it will be paying particular attention to specific areas of prudential concern. These include:
  • higher risk mortgage lending — for example, high loan-to-income loans, high loan-to-valuation (LVR) loans, interest-only loans to owner occupiers, and loans with very long terms;
  • strong growth in lending to property investors — portfolio growth materially above a threshold of 10 per cent will be an important risk indicator for APRA supervisors in considering the need for further action;
  • loan affordability tests for new borrowers — in APRA’s view, these should incorporate an interest rate buffer of at least 2 per cent above the loan product rate, and a floor lending rate of at least 7 per cent, when assessing borrowers’ ability to service their loans. Good practice would be to maintain a buffer and floor rate comfortably above these levels.

In the first quarter of 2015, APRA supervisors will be reviewing ADIs’ lending practices and, where an ADI is not maintaining a prudent approach, may institute further supervisory action.
This could include increases in the level of capital that those individual ADIs are required to hold.
APRA Chairman Wayne Byres noted that while in many cases ADIs already operate in line with these expectations, the steps announced today will help guard against a relaxation of lending standards and, where relevant, prompt some ADIs to adopt a more prudent approach in the current environment."
There hasn't really be any indication (that I've seen anyway) that much more than this was ever on the cards.
However. this does take on an additional level of relevance since interest rate forecasters are finally dropping like flies. Better late than never!
NAB have been the latest to flip-flop, now predicting a twin salvo of interest rate cuts in 2015.
Many including now a Westpac expect that we could see cuts as early as February and March, providing yet further relief to existing homeowners, who in aggregate are already a long way ahead on their mortgage repayments.

Housing Finance - Data Incoming
We analysed the last round of Housing Finance data for the month of September 2014 here
The next round of Housing Finance data will be released tomorrow so stay tuned for further analysis thereof.
In particular keep an eye out for what happens to investor loans, since it is this category of lending that APRA will be most interested in.