Interesting Times In Banking!
We predict that Turnbull’s hope of a populist bank-bashing tax hike will prove a political limp squid.
The NAB Chairman is screaming for an enquiry into the government’s 6 basis points budget levy, a tax which should have been pitched as a means to discourage banks from increasing more risky ‘Tier Two’ capital activities given their heavy exposure to a super hot property market.
After all it only amounts to $1.5 billion of $33 billion of annual profits. The problem is that any tax that reduces the banks profits also reduces their Tier 1 capital reserves (retained earnings) which must be kept at 6% of total capital.
The government might have felt that its levy would also discourage the banks from increasing tier 2 capital assets, in a manner that helps reduce the flow of loans to the investor pool and thereby reduces heat in the property market. If so, clever but perhaps misguided.
The banks will take their lending to the limits as prescribed by APRA, no matter what. But what they won’t do is take this tax on the chin. They certainly won’t ‘absorb’ it as has been suggested.
If it gets up they will pass the cost on, or rather recover the cost, perhaps by increases to transaction costs (though less likely as this will disadvantage Tier 1 deposits etc.) or by increasing loan margins with further rate hikes out-of-cycle with the RBA. This will prove unpopular with voters, but luckily only with those least likely to put Turnbull back in office at the next election in any case.
The Bridge Conundrum
Bridging finance is still a product that is a little misunderstood.
Short-term funding is still largely the domain of the non-bank market simply because it requires a lot of short-term attention and does not provide a predictable volume opportunity.
Bridging is simply the provision of property-secured credit pending an identifiable event of repayment. : this may be the sale of an asset, refinance, or from an alternate income source. Rates are a matter of opportunity versus risk. At Semper we bridge loans from $250,000 to $50,000,000 and if there is a fixed term the rate is 12% per annum, or 1% per month.
Admin fees vary from 1-2% depending on complexity. Interest can be built into the loan to reduce servicing obligations. Variable terms attract a range of rates because of they are tougher to manage from a volume perspective. But we remain among the cheapest in the market.
We provide bridging or short-term finance for commercial purposes only. Here are a few cases that may sound familiar to you:
- Developer needing funds to secure the next site pending conclusion of an existing development
- Company in external administration needing to deleverage
- Buy and sell completions mismatch requiring a loan to complete on one property before the sale of another
Commercial Term Loans
Banks and other non-banks are shying away increasingly from owner occupier commercial loans. At Semper we will take an asset approach or a serviceability approach to funding these opportunities. That is to say we will take a lower doc approach if the LVR is lower or look for the client’s serviceability factor if they need a higher than average LVR. Rates from 7.5% per annum.
There are many small businesses owners who cannot obtain flexible lines of credit from their bank. Semper provides property secured lines of credit that can be drawn and paid back without incurring penalties, and interest is only applied on sums drawn. There is a 1% annual facility fee but other than that it remains a cost and admin lite product.
Finally…see Semper quoted in the latest edition of Mortgage Business magazine