Factbox: Central banks go negative - to what avail? Mortgage arrears near record lows as banks tighten lending

================================================================ Media Release Statement by Glenn Stevens, Governor: Monetary Policy Decision Number2016-10 Date3 May 2016 At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected. The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook. Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years. Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative. In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late. Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast. Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this. In reaching today's decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago. Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting. Enquiries Media and Communications Secretary's Department Reserve Bank of Australia SYDNEY Phone: +61 2 9551 9720 Fax: +61 2 9551 8033 E-mail: rbainfo@rba.gov.au Mortgage arrears near record lows as banks tighten lending By business reporter Michael Janda =========================================================== Tue May 3, 2016 | 4:04 AM EDT Australia cuts interest rates to turn back global deflation tide A woman delivering catering walks past Australia's Reserve Bank in Sydney, November 3, 2015. REUTERS/Jason Reed/File Photo A woman delivering catering walks past Australia's Reserve Bank in Sydney, November 3, 2015. Reuters/Jason Reed/File Photo Australia cuts interest rates to turn back global By Wayne Cole SYDNEY (Reuters) - Australia's central bank cut interest rates to an all-time low of 1.75 percent on Tuesday, the first easing in a year as it seeks to restrain a rising currency and stave off the creeping curse of deflation. The Reserve Bank of Australia's (RBA) quarter-point cut sent the local dollar down more than one U.S. cent to $0.7567 as markets wagered a further move to 1.5 percent was now likely. Australia is just the latest in the Asian region to feel the chill of deflation as too many goods chase too little demand. Singapore surprised many by easing last month, and it followed India, Taiwan, Indonesia, China, Japan and New Zealand. Speculation of a possible cut flared last week when Australian government data showed inflation had slowed far more than expected in the first quarter of the year. Underlying inflation dropped to a record low of 1.5 percent, taking it well under the RBA's long term target band of 2 percent to 3 percent and effectively pushing real rates higher. "Inflation has been quite low for some time and recent data were unexpectedly low," RBA Governor Glenn Stevens said in a brief statement after the bank's May policy meeting. "These results, together with ongoing very subdued growth in labor costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast." Eight central banks globally have embarked on entirely new stimulus cycles so far this year while the Bank of Japan and European Central Bank have embraced sub-zero rates and expanded their asset-buying campaigns. All this easing abroad has in turn boosted the Australian dollar further than the RBA desired, hurting exports and tourism while pushing down import prices and, hence, inflation. UNLIKELY TO BE "ONE AND DONE" All of which argued for at least one cut in rates to offset these tighter financial conditions, and markets were quick to price in the possibility of a further move <0#YIB:>. "It's hard to see how one cut by itself is going to do much," said Commonwealth Bank Chief Economist Michael Blythe. "So you'd have to think the odds on a follow-up have also increased, very much tied in with how the inflation outlook evolves from here. August would be the most obvious timing." The easing comes just hours before the conservative government of Prime Minister Malcolm Turnbull reveals a budget that is considered crucial for his chances in a likely July election. Normally a rate cut and lower mortgage rates would be considered a political positive in Australia. Yet this cut could also raise an awkward question - if the economy was doing as well as Turnbull claimed, why would it need lower rates? While Australia is still struggling with the unwinding of a massive mining boom, economic activity has been generally favorable. Growth was a surprisingly brisk 3 percent for 2015 and unemployment recently fell to a 30-month low of 5.7 percent. The RBA had also been reluctant to risk a debt-fueled bubble in the housing market, though tightened rules on investment lending has seen prices cool in recent months. "At present, the potential risks of lower interest rates in this area are less than they were a year ago," Stevens said on Tuesday, providing another reason to expect further cuts. National Australia Bank (NAB.AX) and Westpac Banking Corp (WBC.AX) were quick to pass on the full quarter point cut to home borrowers, which could provide a new lease on life into house building and employment. Banking stocks also took off on the prospect of increased demand for mortgages, lifting the benchmark share index 2.1 percent for its biggest daily rise in three months. (Reporting by Wayne Cole; Editing by Eric Meijer) =================================================== Posted 51 minutes ago Auction sign outside listed property Photo: Less than 1 per cent of Australians are more than 30 days behind in repayments. (ABC News: Ian Cutmore) Map: Australia Australian mortgage arrears were at their lowest fourth quarter level in more than a decade, as low rates and rising prices insulated borrowers. Credit rating agency Fitch's "Dinkum" residential mortgage-backed securities (RMBS) index tracks the performance of a large number of loans that have been bundled up and sold by lenders to other investors. It found the level of 30-plus-day arrears overall was just 0.95 per cent over the three months to December 2015, the lowest fourth quarter level in 11 years. Arrears were down 0.2 of a percentage point compared to the same period in 2014. "The level of arrears in the fourth quarter of 2015 reflected strong house price growth, low unemployment, low standard variable rates and low inflation," the report noted. The actual loss rate on loans remained even lower, at 0.02 per cent, as rising property prices in most of the big cities meant lenders could recoup the value of their loans in case of default by the borrower. While Fitch expects this loan loss rate to remain low, it is also forecasting a small uptick as property price growth moderates over 2016 from the double-digit national average levels witnessed at times last year. Regulator moves result in 'tougher line' for borrowers The ratings agency said last year's moves by the bank regulator, APRA, to tighten financial institutions' measures of borrowers' ability to repay their loans are likely to keep a lid on loan losses. "The introduction of measures, such as interest-rate floors, means borrowers should have more buffers to withstand increases in interest rates and unemployment, and a slowdown in the housing market," the report observed. "The changes to underwriting standards are positive for holders of newer vintage RMBS transactions, especially in the current low-interest-rate and high house price environment that has fuelled household borrowing." Financial comparison website finder.com.au said that Australia has seen the most dramatic three-month fall in average loan sizes since 2000. With regulators cracking down on how much banks can lend to home buyers relative to their incomes, the average amount borrowed fell more than 4 per cent in February to $357,200 and is down 7.7 per cent over the past three months. The analysis of ABS data reveals that New South Wales had the biggest drop of 10.15 per cent over the past quarter. "Banks are scrutinising new loan applications more closely, taking a tougher line when assessing borrowers income," said finder.com.au money expert Bessie Hassan. While the overall news was positive, Fitch also noted a steep rise in 30-plus-day arrears for self-employed borrowers with low-doc loans. The arrears for this group were 7.29 per cent, a 32-basis-point increase. ======================================== Thu Apr 14, 2016 | 4:09 AM EDT Factbox: Central banks go negative - to what avail. By Balazs Koranyi FRANKFURT (Reuters) - Central bankers gather this week in Washington for the International Monetary Fund's spring meetings amid continued questions about the global economy. Some of the world's biggest central banks have cut rates into negative territory, hoping to boost growth and lift anemic inflation. Even as the U.S. Federal Reserve is cautiously raising rates, central banks from the euro zone to Japan moved in the opposite direction, fuelling fears of a 'currency war' among countries trying to depreciate their currencies. The following are the details what big central banks have done, why and what have been the consequences. EUROPEAN CENTRAL BANK The ECB has kept its deposit rate in negative territory since mid-2014, hoping to boost ultra low inflation in the 19-member euro zone, spur lending and generate growth in a region still reeling from its sovereign debt crisis. Facing deflationary risks tumbling commodity prices, the ECB has also been buying assets, mostly sovereign debt, since March 2015 and cut rates several times and most recently in March, when it reduced the deposit rate to -0.4 percent. Still, low oil prices are keeping a lid on price growth and inflation sank back into negative territory, putting the pressure on the ECB to do more and more. BANK OF JAPAN Facing low inflation and a strong currency, the Bank of Japan cut its key rate to -0.1 percent in January, introduced a three-tier deposit rate system and said it was ready to cut rates further if necessary. The move unleashed a torrent of criticism at the bank and the yen, instead of weakening, has rallied to trade around an 18-month high against the dollar. The Japanese currency has gained more than 10 percent against dollar so far this year. SWISS NATIONAL BANK Since January 2015, both the of the SNB's key interest rates have been in negative territory and its deposit rate is the lowest of any central bank in the world. The three-month Libor range was set between –1.25 and –0.25 percent while the interest on sight deposits at the central bank is -0.75 percent. However, the SNB's most punitive rate had only been applied to just over a third of deposits as of the end of last year because the rest of the cash parked at the central bank was within its exemption threshold. The SNB earned 1.2 billion Swiss francs ($1.26 billion) from its negative interest rates in 2015. ($1 = 0.9557 Swiss francs) SWEDISH RIKSBANK Facing low inflation and a strong currency, Sweden's central bank cut rates to -0.5 percent in February from -0.35, despite a relatively strong economy and concerns that super low rates would further stoke a housing bubble. The bank is also buying government bonds to stoke inflation and said it was prepared to intervene on currency markets to stem the krone's rise, despite warnings from economists that it risked getting into a currency war. Critics say the latest rate cuts show a too narrow focus on inflation and that they are fuelling a rally in house prices and lending. Riksbank Deputy Governor Martin Floden questioned the effectiveness of the latest rate cut in February and voted against it, along with another board member. DANMARKS NATIONALBANK The Danish central bank cut its key deposit rate to -0.75 percent in early 2015 before a hike to -0.65 in January, fighting to keep the crown EURDKK=D3 currency from firming and keeping it pegged to the euro in a narrow range. Investors poured cash into Danish assets in January and February last year, betting that the country would abandon its three-decade-old currency peg but the central bank held steady, intervening in the currency markets when necessary. Banks have not passed the negative rates onto households, there has been no unusual increase in the demand for cash and the central bank made a profit of 2.2 billion Danish crowns ($336.60 million) in 2015, mostly as a result of pressure on the crown. ($1 = 6.5360 Danish crowns) NATIONAL BANK OF HUNGARY Hungary's central bank cut its overnight deposit rate to -0.05 percent in March, although its base rate, considered at the most important benchmark, is still 1.45 percent. For a preview of the meetings, click: (Reporting by Balazs Koranyi, Joshua Franklin, Ole Mikkelsen and Daniel Dickson; editing by Mark John) ================================ Glut or no glut, what exactly is happening with apartments in our major cities? April 19, 20165:17pm Melbourne under construction: are there too many apartments? Picture: Jay Town Kirsten Craze,news.com.au     Email a friend  IF YOU are an inner city apartment dweller, or the future owner of an off-the-plan unit waiting for the last brick to be laid, you’d be forgiven for feeling a little confused right now. On one hand we hear doom and gloom stories of too many units being built in our capital cities, while on the other we’re seeing data that shows unit prices are still rising — even if only slightly. While Sydney apartments shot up a whopping 11.9 per cent last year, they were only up 1.5 per cent in the three months to January according to CoreLogic data. The yearly figure in Melbourne shows the rise was 11.4 per cent, but during the quarter flats were flat at an increase of just 1 per cent. However, in Brisbane where there has been less development than the bigger cities, the overall median unit price increased by a very modest 1.3 per cent during the year, and has remained neutral at 0 per cent for the quarter. So as the major cities’ skylines rise, are unit prices going to fall? WHERE THE IS THE SO-CALLED GLUT? Anyone familiar with the landscape of our three east coast capitals knows there seems to be a growing number of cranes dotting the horizon. Cue the RBA and its biannual Financial Stability Review. The report basically warns developers and potential buyers about building and buying in these high-density neighbourhoods. ABS figures show that Sydney recently took over the mantle from Melbourne as the leading capital for apartment developments with 35,538 approvals recorded over 2015 compared to 33,023. Across Sydney, Melbourne and Brisbane almost 45,000 apartments are due for completion and settlement by the end of 2016 according to figures from planning consultancy MacroPlan Dimasi. The RBA singled out these various inner-city apartment booms as a significant risk to the country’s ­financial future by pointing out concerns that high-rise unit developers could struggle if buyers back off or are unable to fund settlements due to lenders’ reticence around residential towers. WARNING: BACK OFF OFF-THE-PLAN It’s not all units that are at risk, but the warning bells are ringing in relation to the copious off-the-plan developments in these three cities. Just last month Fairfax reported that an oversupply in apartments had lead major home loan lender AMP to “blacklist” off-the-plan purchases in certain inner-city suburbs in every state. The central bank said in its review that investors should carefully consider buying units in city-fringe suburbs of Sydney, Melbourne and Brisbane, pointing out that an oversupply in stock would place a downward pressure on rents and resale prices. “An ongoing risk comes from the significant and geographically concentrated growth in supply of new apartments in Sydney, Melbourne and Brisbane due for completion over the next few years,” the review said. “If that occurs, investors will need to service their mortgages while earning lower rental income and any households facing difficulties making repayments may not be able to resolve their situation easily by selling the property,” the bank said in its report. In other words, landlords face not getting the rent needed to pay the bills and owner occupiers who need to move on could struggle to get the price they want, when they want it. “This is one reason why it remains important to have prudent lending standards ahead of such a possibility,” the RBA said. WHY INDUSTRY INSIDERS DISAGREE Chris Johnson, CEO of the Urban Taskorce said the RBA’s statement would act as a “brake on bank loans” for new housing when in actual fact, more homes are needed, particularly in Sydney. “The NSW Department of Planning says that 33,200 new homes are needed each year for 20 years in Sydney but last financial year only 27,348 new homes were completed,” Mr Johnson said. “With a shortfall of nearly 6000 new homes during the boom times it is essential that more homes are built across Sydney. Our concern is that the RBA’s warnings will encourage banks to tighten up on lending for new homes particularly for apartments.” “Our members believe the market is still strong for new apartments in key parts of Sydney where cosmopolitan living is becoming the norm. They are concerned however that the market could be destabilised by a series of negative actions that combine to lower confidence in the industry,” he said. “My feeling is that the Melbourne market is a bit more stretched, with the potential for oversupply possibly more likely, and perhaps a bit more likely in Brisbane, but Sydney is quite secure, in terms of future markets,” he said. Mr Johnson said he saw an immediate future where apartment prices would plateau. “I think in the long term value will remain and that’s because of a fundamental shift in lifestyle. A lot of people are preferring a cosmopolitan lifestyle that’s close to public transport, shops and amenities and this is what’s going to keep prices up,” he said. “I don’t think there is going to be a fundamental drop in the price of apartments,” Mr Johnson said. WHAT’S THE WORST THAT COULD HAPPEN? A surge in apartment approvals and a subsequent rise in unit prices across these three cities in recent years all stemmed from an insatiable investor appetite for flats. But since late-2014 when the banking regulator stepped in to tighten lending standards for investors, apartment activity has noticeably quietened. These tighter credit standards could pose “near-term challenges” for some high-rise unit and office block developers, according to the RBA, particularly for those who have been targeting Chinese investors. “Any concerns over settlement risk and/or a slowdown in demand for Australian-located property by Chinese and other Asian residents could lead to difficulties for particular projects,” the RBA said. It’s speculation at this point from the RBA, but the report added that it would only take a hit to the global economy for investment in the Australian apartment sector to take a tumble. “There is some uncertainty about how these foreign buyers would react to a downturn in their home countries or in the Australian property market,” the report said. The RBA also referred to the state of affairs for the commercial property industry describing it as “adjusting with a lag to a slowing in demand”, particularly in cities that are heavily exposed to mining such as Perth. “This is most noticeable for office buildings in the resource-intensive states, where vacancy rates remain very high as further supply continues to come on line,” the review stated. ====================================== Apr 27 2016 at 5:47 PM Updated Apr 27 2016 at 6:07 PM Deflation has landlords rethinking CPI rents and leases Australia's first deflation reading has landlords rethinking CPI rents and leases. Australia's first deflation reading has landlords rethinking CPI rents and leases. Dominic Lorrimer by Matthew Cranston Robert Harley Landlords are bracing for lower rents and have been locking in new leases without consumer price indexed adjustments because of the prospect of deflation in Australia. A lower than expected CPI reading on Wednesday gave the first deflationary reading in eight years. Emil Ford Lawyers property partner Garry Pritchard said if the deflationary trend continued there would be pressure on rents in retail. "If over the next 12 months, the CPI declines, then retail rents will decline but for other properties it will depend on the wording of the lease," Mr Pritchard said. Other leading lawyers agreed that landlords and tenants would be reviewing their leases. Clayton Utz senior associate Carrie Rogers said those landlords stuck with leases drawn up from some time ago would be looking to renegotiate. She said there was a move away from CPI-indexed rents. "About six years ago it was quite common to have CPI-indexed rents but that has changed," Ms Rogers said, "I have done about five lease deals in the last few months and all have had fixed increases. I think this is the case because there is a level of uncertainty as to where CPI will go." King Wood Mallesons property partner Chris Wheeler said the likely place to see this problem was in smaller retail properties and that such reviews were annually, not quarterly. Norton Rose Fulbright partner Michael French said he expected some landlords would have leases where their rent will decrease unexpectedly if the CPI is negative over a 12-month period. Real estate groups such as JLL said the data was unlikely to represent the broader market demand pressure on rents. "For rents that are linked to the CPI a period of low inflation may imply potential for lower rents but supply/demand forces prevail for market rents," JLL managing director Stephen Conry said. Read more: http://www.afr.com/real-estate/deflation-has-landlords-rethinking-cpi-rents-and-leases-20160426-gofm1e?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-afr-o&campaign_code=nocode&promote_channel=social_twitter#ixzz472AUs8w6 Follow us: @FinancialReview on Twitter | financialreview on Facebook ================================ Tighter lending policies see a reduction in investor and riskier lending types Earlier today the Australian Prudential Regulation Authority (APRA) released its quarterly Authorised Deposit-taking Institution (ADI) property exposures data for the March 2016 quarter. This data is really valuable as it provides additional insight into the mortgage market, including data which is not available from the monthly housing finance statistics. Chart 1 The data initially focuses on outstanding total values and shows that at the end of the March 2016 quarter there was $906.7 billion outstanding to owner occupiers and $501.3 billion to investors. While total lending continued to rise, up 8.7% year-on-year, it is interesting to see how the tilt away from investment lending has progressed. Over the past 12 months, total investor lending has increased by just 0.1% with the total value of investor mortgage lending outstanding down -3.2% from its June 2015 quarter peak. The data also indicates that investor credit growth now sits significantly below the APRA imposed 10% pa speed limit. This could lead to a rebound in lending to investors over the coming quarters. Total lending to owner occupiers has continued to increase and is up 14.0% year-on-year. In terms of the total value of outstanding mortgages, owner occupiers account for 64.4% compared to 35.6% to investors. The proportion of outstanding mortgages to investors has fallen sharply from its recent peak of 39.0% in June 2015. Chart 2 Although the total value of outstanding mortgages is rising you can see that growth is generally slowing. Mortgages with offset facilities account for a record-high 43.0% of all outstanding mortgages and the value of these mortgages has increased 20.4% year-on-year. Interest-only mortgages account for 39.3% of total outstanding mortgages, with the value having increased by 9.6% year-on-year. Reverse mortgages account for just 0.5% of all outstanding mortgages with the value of outstanding mortgages up 1.4% year-on-year. Only 2.4% of the value of outstanding mortgages are for low-documentation loans and 0.1% are other non-standard loans. Year-on-year the value of outstanding low-documentation mortgages is -16.5% lower and other non-standard mortgages are -4.0% lower. In fact the total value of outstanding low-documentation and other non-standard mortgages is at a record low. Chart 3 The average outstanding mortgage balance was recorded at $251,900 in March 2016, having increased by 4.8% year-on-year. At the end of March 2016, the average outstanding balances across loan types were: $307,200 for loans with an offset, $334,400 for interest-only, $96,500 for reverse mortgages, $192,200 for low-documentation and $193,400 for other non-standard loans. All loan types except for low-documentation (-1.1%) and other non-standard (-7.0%) have seen the average balance increase over the past year: offset (6.3%), interest-only (5.0%), reverse mortgages (2.4%). To date, all data analysed has focused on total balances outstanding, the following data will focus specifically on quarterly new lending. Chart 4 Over the March 2016 quarter there was $81.7 billion in new mortgage lending, which was the lowest quarterly value of new lending since the March 2014 quarter. This figure comprises of $56.0 billion in lending to owner occupiers and $25.7 billion in lending to investors. The value of new lending to owner occupiers has increased by 16.1% year-on-year while the value of investor lending is -25.5% lower year-on-year. The value of new lending to investors is the lowest since the March 2013 quarter and is -37.7% lower from its peak over the June 2015 quarter. The data indicates that there has been a significant pull-back in new lending to investors over recent quarters. Chart 5 With the value of new mortgage lending falling, the value of most loan types is now also falling. Over the March 2016 quarter, 0.3% of new lending was for low documentation loans, 34.9% was for interest-only, 0.1% was for other non-standard loans, 46.5% was originated through third part channels and 3.8% of loans were approved outside of serviceability. The value of new lending for low documentation mortgages was at a record low. The value of new interest-only lending was the lowest since the March 2013 quarter. The value of other non-standard lending was the lowest since the same quarter last year as was loans approved outside of serviceability. The value of new mortgage lending by third parties was the lowest since the September 2014 quarter. Higher loan to value ratio (LVR) lending is reducing meaning that borrowers are typically using larger deposits. In fact, the value of new lending for LVRS above 90% in the March 2016 was the lowest since the March 2011 quarter and has fallen by -22.8% over the past year. Lending for LVRs between 80% and 90% has increased by 2.7% year-on-year however, it has fallen over each of the past four quarters. In fact, lending for LVRs above 80% represented 22.4% of all new lending in March 2016 which was its lowest proportion on record and well down from the peak in March 2009 where it accounted for 37.6% of all new lending. The value of lending to investors is falling sharply as assessment criteria is tightened and investors are typically now charged a higher interest rate than owner occupiers. Interest-only lending which APRA and the Reserve bank have previously sounded warnings about is also starting to fall and is now at its lowest level since March 2013. Higher LVR lending which is associated with smaller deposits are also trending lower which indicates less risky lending. The added benefit surrounding lower LVRs is that if a borrower has a deposit of more than 20% of the value of the property they can typically avoid lenders mortgage insurance (LMI). New lending to loans outside of serviceability, low documentation loans and other non-standard loans has also been falling over recent quarters which is reflective of less risky lending practices being undertaken. These emerging trends can only be positives for the stability and security of the Australian mortgage lending market. Based on the data presented, it is apparent that tighter lending policies by lenders is having a noticeable impact on the mortgage market. Source: www.blog.corelogic.com.au