CBA tightens on interest-only again, again, again

From the CBA:

Effective from Monday 22 May, the bank will offer the following reduced discounts for new owner occupied and investor home loans with interest only payments:

  • A reduced discount offered through the Home Loan Pricing Tool (HLPT) for new home loan and investment home loans with IO payments
  • The elimination of any discount for those who submit a pricing request for new home loan and investment home loans with P&I repayments who later switch to an IO repayment type

CBA’s $1,250 Refinance Rebate for select interest only owner occupier home loans will also end. This rebate will only be available for owner occupier principal and interest home loans via the HLPT.

The bank has also made further LVR changes which will be effective from Saturday 10 July:

  • Reducing the maximum LVR from 95% to 80% for new owner occupier interest only home loans
  • Reducing the maximum LVR from 90% to 80% for new investment interest only home loans

Changes have also been made to repayment types for building and construction loans. These will be effective from 10 July.

  • CBA will no longer accept IO payments for home loan and investment home loans which are construction or building loans. Instead, the loans must have P&I repayments after construction is complete and the loan has been fully funded
  • CBA will permit construction loan applications submitted for full assessment by COB 9 June with IO payments to proceed to funding

They also remind brokers that repayments on P&I construction loans are interest only until building is completed and the loan is fully funded. At this point, payments switch to P&I. This means the bank will apply the lower P&I reference rate to the interest charged during the construction period.

“In March, the Australian Prudential Regulation Authority (APRA) announced the introduction of a new measure to limit the flow of new Interest Only (IO) residential mortgage lending to 30%. Commonwealth Bank is committed to ensuring we meet our customer’s needs while maintaining our prudent lending standards and meeting our regulatory requirements,” the bank wrote in a statement to brokers.

“To help meet these commitments, we are introducing changes that encourage customers to choose principal and interest repayments, where this meets their needs. We are also increasing our already robust monitoring and reporting activities to ensure that where Interest Only payments are selected, they are suitable for customers’ needs.”

Craaaack….

Comments

  1. haroldusMEMBER

    these announcements are becoming routine!

    When do we start seeing the failed attempts at refinancing?

      • These measures only kick in on 6 July – might see a little rush before that.

        “The bank has also made further LVR changes which will be effective from Saturday 10 July:
        •Reducing the maximum LVR from 95% to 80% for new owner occupier interest only home loans
        •Reducing the maximum LVR from 90% to 80% for new investment interest only home loans”

  2. treibs@bigpond.net.au

    An “investment” for the truly intellectually challenged, ah? Funny what happens to a bubble when you restrict the flow of gas.

  3. the member Virus shared a discussion on another post earlier this week. If I recall correctly, he said he’d been told by big bank risk manager that refinancing would become ‘unicorns for investors with >2 IPs from 1st July; and very tough to get for investors with 1 IP

    • As long as they have the equity and right LVR , anyone will still be able to borrow. Also, 80% of investors have only 1 IP and around 10% have 2 IPs and the rest have more than that. So not many will suffer.

      • Reusa aka paulF – do you have the same break up based on value, how much value those 10% have with more than 2 properties?

      • Do your own research. The data is on the ABS’s site.
        Don’t insult Reusa by comparing me to him. I am not beautiful, I’m only a realist 😉

      • Banks don’t check how many IPs a borrower has. That’s how they currently borrow for so many IPs, way over their credit limit.

  4. Obviously hitting the 30% yearly threshold. Nothing would stop them from UN-tightening moving forward once their loan books look better to APRA.

    • CURIOUS OLD FART

      Unless, of course, when the market takes its inevitable dive and the lenders pants start gettin’ browner and wetter, there’ll be even lower LVR’s and more and more blacklisted postcodes so the loop keeps tightening around its own axis.

      • Same old banter that we’ve been hearing of for years now. Yes the banks are tightening and they will be tightening a lot more soon no doubt about that(APRA/basel IV/US fed rates…) but i doubt this hopeful correction/crash that some are waiting for will ever happen. Even if things crash,we had growth of almost 40% across the major cities in the country in just the past two years. so anyone that bought in Melbourne/Sydney will barely be affected.
        I would be more worried about servicing loans in case rates start sharply rising but that will affect investors and home owners alike and keep in mind, speculators sill have Negative gearing to ease their fall while home owners don’t.

      • Paul, negative gearing doesn’t ease the fall. It stops being useful once prices fall. It’s a strategy that relies on constant price rises (capital gains) being greater than the day to day losses (interest, fees, land tax and maintenance). The negative gearing tax benefits simply diminish the pain of the day to day losses.

        If we see prices fall, a lot of negative gearers will realise they are losing money day to day in order to to hold an asset that is no longer rising in value to cover those losses.

        At that point, they have a choice between selling on the spot and taking whatever profit they have (which could be quite a lot) or holding on and watching their profits diminish every day until they go into the red.

      • Good point Arrow but i don’t agree that people would sell if their IP’s go down in value. Perth might be a good example to look at; their median house price has been going down since 2014 but so has their sales volumes too.

        Let’s say in the next two years property falls down 40% or even further. Why would you sell if you can still service your loan?
        You are simply back to point zero growth wise but haven’t really lost anything yet.
        I think the biggest catalyst for investors selling will be sharp interest rate rises or rent drops hence not being able to service their loans. Not an unlikely scenario considering the 40ish % IO loans that most of the big 4 hold but keep in mind that IO loans are usually a 5 year term and then they convert to P/I and lots of these loans will be converting to P/I in the next 3 or so years so 2019-2020 will be an interesting phase to watch …

      • paulF – in all this you are forgetting a 40% fall will bring a nasty shock to economy and jobs. And several of those jobs are held by those “mums & dads” who wont have a salary to NG. And to make things worse if job growth is negative then they wont find new jobs either forcing them to sell in a falling market.

        To correct your statement this will continue as far as interest rates stay low and employment catches up population growth. And definitely dont wish for 40% fall, at just 10% you will see panic creeping in big time.

      • “Let’s say in the next two years property falls down 40% or even further. Why would you sell if you can still service your loan?”

        The people with IP may not be able to service their loans. At the most basic level the employment market may be bad. Then they have have pushed themselves to their limit by using IO loans, and must continuously refinance their loan as IO so that they could afford it. At the top level, they may rely on continuously refinance capital gains in order to pay off existing loans and use the borrow fund for deposit for new properties. These people will be dead as soon as they can’t refinance their properties for a bigger loan. Finally those people are the ones with multiple IPs, so when one of them go under, you will see 5, 10, or even 100+ properties hit the market simultaneously.

    • Arrow, this is what has happened in my home city: 2008-2010 initial drop 20%-blame GFC.Investors still cool. Next four years slow grind 3-4% down a year. Banks kept thousands of properties on their book unsold and empty waiting for “recovery”. 2015 another 20% down. I assume that banksters repaired their books and started selling empty properties. Last year another 2-3% down. I think that I will be buying soon, but the thing is, there is no urgency. No one is talking about property anymore. At the moment it is cheaper to buy than rent but fear of further falls killed demand.
      Hopefully, the same thing will happen in your home city.

    • jelmech@bigpond.comMEMBER

      eeerrrmm….why sell?….what choice if fen you can’t refinance??

      • Wilbur,
        it’s not the Kabul. It is in Europe. Weather is unchanged, people are calmer and more human like. Houses are same like before just cost half price. Drop in price is not armageddon. It’s a good thing after the initial shock.

      • Houses are places where people eat, shit, make love and sleep. When there are there not there , they meet another people.

  5. Strange I haven’t seen our mate reusachtige in this thread, probably out there looking for another job to raise the extra 10% deposit he needs for his next investment property.

    • reusachtigeMEMBER

      Had a big relations party last night and didn’t get to sleep until mid morning. We were celebrating how we’ve doubled our money over the last year or so investing in Sydney property and that the boom keeps getting bigger. Fell asleep lining up across some perkies and woke up with a dusty white streak down the side of my face! Anyway, what were you saying?

    • TailorTrashMEMBER

      yes ……..given how overvalued houses now are it seems entirely sensible for the banks to have their hands on more of the “owners ” equity to allow for a drop in prices ….which they may feel is coming …..

      • jelmech@bigpond.comMEMBER

        aaaawww dunno…..bankster dude might think different… Who gets the biggest bonus when? Hot potato

    • McPaddyMEMBER

      Yep. At 80% the banks will still get hosed, but the drop will remove a serious whack of demand from the market. They’ve quadrupled or doubled the deposit requirement!

  6. armchair economist

    I think there is a perspective issue and a sense of entitlement….look at japan folks…..One does not “buy” a house…merely swap one landlord for another(the bank)….multi-generational loans are here to stay and IO loans are like leasing a house from the bank for a super long period or until they decide to move elsewhere at which time the bank gets an opportunity to revalue the house upwards and re-lease it to someone else. That’s it.

    • treibs@bigpond.net.au

      Basically it AE, you’re not renting a house, you’re renting a loan with a bet on the movement in the capital value of the house. Feelin’ lucky, punk? Do ya?

  7. FART THE PESSIMIST

    What must be really distressing to the Propertology Church is the fear that interest only loans will NOT be refinanced without conversion to P&I and hence much higher repayments. Unless one can jack up the rent without losing a paying customer, the only other alternative is to sell…….. together with thousands of other sellers in a market saturated with new unsold stock.
    You true believers better hope for a “soft” landing….. on a runway full of broken glass?

  8. Even StevenMEMBER

    I’m amazed the banks are showing such restraint by reducing LVRs. Is this indicating they are somewhat sensible after all?

    • They are not sensible. APRA is actively working behind the scenes. I have access to a tier-2 bank and they are scrambling because APRA is coming up “new and ridiculous regulations every week” (verbatim from the finance dept head). These regulations for some reason are not publicised, may be to keep the sheeple calm.

      By the way, not sure how many know this. APRA has mandated that home loans should be assessed at 7.5%+servicaebaility for ALL loans held by customer not just the ones they are applying for! Consequently, I asked the risk dept head “how the hell would you know whether someone applying to this bank has another property loan elsewhere”. His response “VEDA have been collecting this information so upon request we will have access to their TOTAL LIABILITIES!” Not sure if this is correct i.e. VEDA collecting “loan amounts at banks” but dont see a reason why a risk-head will lie to me!

      • Thanks for sharing. Used to use VEDA for Lvl 1 checks at previous company but there are several levels you can pay extra for so maybe it’s true.
        My bro in law who works for NAB and is a weekend property dev/investor warrior just bought another property 2 weeks ago in Melb and although all of his past loans over the last couple years have gone fine, he’s having trouble with this this finance. He has 10% dep from equity I think and his mort broker has been saying yes, yes finance is coming every day up until contract date which was a few days ago where finance still wasn’t sorted! He signed unconditional even without finance sorted and just said he will find a way some how through equity refi on another property or something. I’m sure he will, but it was still very interesting to see finance tighten on what I thought would be a fairly straight forward owner occupier P & I loan. My bro in law is also about to go into mortgage broking with a friend and has inside ties but is still having finance issues. Very interesting!!!!