The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Joel Robinson

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
</section>
</section>

[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

National Australia Bank (NAB) has brought forward the timing of the first RBA cash rate cut by three months.

NAB is now expecting a cut in February, in line with ANZ and Westpac, having initially thought a cut wouldn't come until May.

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB changed its call following the August monthly inflation figures that were released at the end of September, showing it had dropped to 2.7 per cent.

"The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," NAB noted in its latest update.

They added that the cadence of the cuts may be faster than its central profile.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.

NAB believes the easing cycle will end at 3.1 per cent by early 2026, which is five cuts from the current 4.35 per cent cash rate.&nbsp;

CBA also thinks 3.1 per cent will mark the end of the cutting cycle, while Westpac is forecasting 3.35 per cent, and ANZ is the most pessimistic at 3.6 per cent, which would be just three interest rate cuts.

<h2>What would a rate cut in February look like for borrowers?</h2>

According to&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2vK2ujS77CHs9VRvSSXzLC" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG" target="_blank">Canstar</a>, if there is a cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.&nbsp;

<table border="1" cellpadding="0" cellspacing="0">
	<tbody>
		<tr>
			<td colspan="3">
			Impact of 0.25% pt cut in February 2025
			</td>
		</tr>
		<tr>
			<td>
			Current loan size
			</td>
			<td>
			Drop in monthly repayment
			</td>
			<td>
			New monthly repayment
			</td>
		</tr>
		<tr>
			<td>
			$600,000
			</td>
			<td>
			-$92
			</td>
			<td>
			$3,907
			</td>
		</tr>
		<tr>
			<td>
			$750,000
			</td>
			<td>
			-$114
			</td>
			<td>
			$4,884
			</td>
		</tr>
		<tr>
			<td>
			$1M
			</td>
			<td>
			-$153
			</td>
			<td>
			$6,512
			</td>
		</tr>
		<tr>
			<td colspan="3">
			Source:&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2qVnp6oqATgqDUi2Frm22q" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL" target="_blank">www.canstar.com.au</a>. Starting rate is the RBA existing average owner-occupier variable rate of 6.36%. Assumes banks pass the cash rate cut on in full the month after the meeting.
			</td>
		</tr>
	</tbody>
</table>

Canstar Data Insights Director, Sally Tindall, says if core inflation continues to track in the right direction, or unemployment starts to accelerate significantly, we could well see a cash rate cut as early as February of next year.

“All four big banks now believe the RBA will be ready to cut the cash rate in just over four months’ time, if not before, in the case of CBA.

“However, the outlook for both inflation and unemployment is still highly uncertain. A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady."

&nbsp;

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB bring forward first RBA cut to February 2025

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Last week we wrote about the potential impact on monetary policy of an independent move by Westpac to raise its variable mortgage rates by 0.2%.
We observed that the Reserve Bank has noted in the past that it moves its cash rate to target retail rates.
The issue was whether a move by one bank would trigger a response from the RBA.
We argued that it was too early to make such a prediction given that the extent of financial tightening was not known. A move by one bank was insufficient to make a significant impact on overall financial conditions.
Yesterday the CBA Group, which covers 25% of mortgages, raised their mortgage rates by 0.15%. Today the NAB (14.8%) moved by 0.17%. and ANZ (14.7%) moved by 0.18%.
Overall, those banks that have been subject to the increase in capital requirements, and are now raising their mortgage rates, cover around 77.5% of mortgages in the system. The rest is covered by the regional banks (16.9%) and non-bank lenders (5.5%).
However, only about 85% of mortgages are on variable rate terms. This means that the net effect across the economy of these changes to variable mortgage rates by the majors will be around 11bps.
When the RBA moves rates it can affect both mortgages and business loans. Mortgages represent around 60% of total loans in the system so this initiative by the banks roughly equates to a 6-8bp rate hike by the RBA that is fully passed on by all financial institutions to both mortgage and business borrowers (depending on the exact share of loans directly affected by an RBA move).
On this basis it seems unlikely that the RBA would move immediately to offset bank rate rises with a 0.25% rate cut.
However last week we noted the historical precedent of 2012 when the RBA cut by 0.5% in May following increases of only 0.10% in variable mortgage rates by the banks.
Points we made about that period were firstly that the RBA had a very strong easing bias at the time, giving clear guidance that “inflation outlook would provide scope for easier monetary policy”. Despite that bias there was an extended delay between the banks’ moves in February that year and the eventual RBA cut in May.
When it did finally make a cut it also revised down its growth forecasts for 2012 from 3.25% to 3.0% and for 2013 from 3.5% to 3.0%. The 2013 change was very significant, cutting the outlook from comfortably above trend to around trend.
So to recap: despite fully neutralising the banks’ move and delivering a cut over and above that and subsequent bank moves (the banks only passed on 0.35% of the RBA’s 0.50% cut by the RBA) the RBA still revised down its growth forecasts significantly. One can only imagine what the revision would have been without the rate cut.
This brings us to the conclusion that given the move by the banks tightens financial conditions by significantly less than 0.25%, a full 0.25% rate cut would result in a net easing in financial conditions (on the basis that banks pass on the full cut). Hence the case would need to be made that the RBA needs to provide a net easing of financial conditions to justify a rate cut in November.
There was nothing in the Board’s minutes from the October meeting to suggest that a net financial easing was going to be required in the near term. In fact the minutes indicated that the Board was a little more upbeat about the domestic outlook, in particular noting: “forward-looking indicators had generally been consistent with the unemployment rate being around its current level or possibly slightly lower in the months ahead”. Recall that six months ago the Board was forecasting the unemployment rate to continue to rise through to the first half of 2016.
However we must acknowledge that November has in the past been a very popular month for the Bank to move rates. That is because, like February, May and August it presents the Bank with the opportunity to review its forecasts.
A scenario that would see the Bank cutting rates in November would be associated with a significant downward revision in its growth forecasts for 2016. If that decision was based around the banks’ actions then it would mean that the expected tightening in financial conditions would be sufficient to lower the growth outlook.
Given the effective size of the tightening though it seems unlikely that this would be viewed as sufficient to sharply lower the growth outlook.
With the RBA currently forecasting growth in 2016 to be an above trend 3.0% it would be necessary for the Bank to be considering a below trend 2.5% for the 2016 view to trigger a rate cut in November.
That seems premature given that the key way in which the banks’ decisions would impact the economy would be through confidence. Even the cash flow effect is likely to be muted. For example, Westpac noted that 70% of its borrowers are ahead on repayments – the rate rise will mean that these borrowers will take a little longer to pay down their loans rather than take a cash flow ‘hit’.
Surely the RBA would need to see the confidence impact of the banks’ moves before it decided to cut rates and lower its growth forecasts. A clean measure of that response will not be available until the Westpac Melbourne Institute Index of Consumer Sentiment is released on November 11.
The minutes were also used to signal the RBA’s comfort with the decisions of the banks so far with the comment that: “members judged that there were signs that the response of the banks to supervisory measures implemented by APRA were helping to manage risks in the housing market”. 
While that statement is probably referring to the banks’ tightening in lending guidelines and increase in interest rates for investor loans (announced back in July) it could, arguably have been used as a way of signalling that it was also comfortable with the Westpac move given it was only targeted at the housing market which has been the area of ‘excess’ concerns for the RBA.
So we feel quite comfortable in ruling out a rate cut in November. A December move, triggered by a major slump in confidence, remains a possibility. But our core view that rates are on hold through 2015 and 2016 is much more at risk in the early months of 2016.
After all, markets have been pricing in a full 0.25% cut by March and a 50% chance of a second cut by June.
A slowdown in consumer spending associated with the banks’ tightening or adverse developments offshore are much more likely to be triggers for the sort of downward revision to growth that would be linked with a February rate cut.
The October minutes implied such concerns with a more downbeat assessment of the outlook for China; and a marked change in the assessment of the outlook for the Federal Funds rate, noting that some market participants did not expect a Fed hike for the foreseeable future.
That compared with the September minutes which commented that “a tightening of monetary policy in the United States could start at the September meeting of the Federal Open Market Committee”.
The heavy emphasis on global issues culminated in the minutes concluding: “information about economic and financial developments, both domestically and abroad, would continue to inform the Board’s assessment of the outlook”. [Westpac’s emphasis]
Conclusion
We see little chance of an RBA rate cut in November. December remains ‘live’ as it allows for the Bank to assess the impact of the moves by the banks on confidence.
A combination of a more lagged impact on spending from the banks’ moves and adverse global developments including an extended pause from the FOMC (meetings in December and January before the February meeting of the RBA) might trigger the cut which the market so confidently expects from the February meeting.
For our part, including our expectation of a Fed tightening in December, we retain our central view that rates will be on hold over the course of the remainder of 2015 and 2016. 
 
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Bill Evans is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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bevans-rYk9SxEa4r

RBA on hold in November despite banks’ rate hikes: Westpac's Bill Evans

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ANZ has increased variable interest rates for all Australian variable home and residential investment loans to partially offset rising regulatory capital requirements against home lending, chief executive officer Mark Whelan announced.
The standard variable rate for owner-occupier home loans will increase by 0.18%pa to 5.56%pa and the Residential Investment Property loan index will increase by 0.18%pa to 5.83%pa, with changes coming into effect 20 November.
The increase, a total of 18 basis points, will add $36 per month to the average home loan of $242,000, according to ANZ. 
Ashley Playsted, CEO of Wealthie, the mortgage brokering service, said he expected consumer confidence would take a hit, "but consumers need to proactively turn their attention to the less publicly-known lenders, who are actually putting their rates down." 
<div>"These non-major bank lenders may not have the branch networks that you can walk in to," he said.</div>
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<div>"People worry about the security of the small lender, however, this is slowly changing."</div>
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mick.cee-iDmgDDAmu8

ANZ to increase variable interest rates for all Australian variable home residential investment loans 

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<div class="column">Consumer sentiment predictably eased last week after a stellar gain in the previous week. </div>
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<div class="column">Concerns about higher interest rates and the outlook for the housing market together with a softer Aussie dollar led to the modest softening of sentiment. But consumers are still more upbeat than a year ago and sentiment is above the short- term average. Also, the Reserve Bank believes that the question on the outlook for family finances is most instructive and the latest result is still well above average levels.</div>
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 The Reserve Bank Board rationalised the soft economic growth figures in the June quarter: “The weakness in the June quarter had reflected temporary, weather-related disruptions to resource exports as well as the ongoing decline in mining investment.” The Board expects a pickup in the September quarter. If this fails to occur, then this could prompt the Board to assess the need for more stimulus.
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 Overall the RBA Board remains watchful – there are no indications that the neutral policy stance was likely to change any time soon.
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<div class="column">What do the figures show?</div>
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 Consumer sentiment
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 The weekly ANZ/Roy Morgan consumer confidence rating fell 2.0% to 113.3 in the week to October 18 from a 15-week high. Confidence is up 1.5% over the year and above the average of 111.4 since 2014.
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 Four of the five components of the index eased in the latest week:
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The estimate of family finances compared with a year ago was down from +9 to +8;
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The estimate of family finances over the next year was down from +30 to +25;
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Economic conditions over the next 12 months was steady at -1; 
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Economic conditions over the next 5 years was down from +13 to +11;
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The measure of whether it was a good time to buy a major household item was down from +27 points to +23 points. 
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The key quotes from the Board minutes:
Stronger growth expected: “Members noted that overall growth was expected to have strengthened in the September quarter, with indications of growth in resource exports and dwelling investment.”
Risks: “The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets.”
Job market: “Members also noted that conditions in the labour market had strengthened further over recent months and were somewhat better than had been expected earlier in the year. Nevertheless, spare capacity remained in the economy, domestic cost pressures were very low and inflation was expected to remain consistent with the target over the next one to two years.”
Bank lending: “Banks were also reportedly becoming increasingly wary of lending to property developers in markets that were thought to be at risk of becoming oversupplied.”
Housing data: “In relation to lending for housing, members noted that the data on the split of lending to owner-occupiers and investors were of questionable quality at present.”
Imports of goods
The Australian Bureau of Statistics noted the following. “Preliminary analysis shows that goods debits (imports) on a balance of payments basis in original terms rose $1,562m (7%) to $25,043m between August and September 2015.
In seasonally adjusted terms, goods debits rose $332m (1%) between August and September 2015 to $23,853m. This is the highest on record surpassing the revised August 2015 estimate of $23,521m. Consumption goods rose $264m (3%) and non-monetary gold rose $161m (47%). Intermediate and other merchandise goods fell $59m (1%) and capital goods fell $34m (1%).
What is the importance of the economic data?
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
What are the implications for interest rates and investors?
CommSec expects no change to interest rates over the coming year. 
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 Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>.  
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jchancellor-FAypfDUnLy

RBA tips firmer growth: CommSec's Savanth Sebastian

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When the RBA board decided to leave the cash rate unchanged at 2% in early October, the members finally noted growth in housing prices in Sydney appeared to have eased slightly in recent months.
It also noted auction clearance rates in Sydney and Melbourne had declined a little from their recent peaks.
"However, it was too early to be confident that these signs of slowing in housing price inflation would be sustained," they advised in their notes yesterday.
In relation to lending for housing, members noted that the data on the split of lending to owner-occupiers and investors were of questionable quality at present.
The available data suggested that there had been a modest decline in the growth of credit extended to investors in housing of late, which was consistent with the tightening in banks' lending standards in response to actions of the Australian Prudential Regulation Authority (APRA).
With housing credit growth overall remaining steady over the past year, there had reportedly been a slight pick-up in the growth of housing credit to owner-occupiers.
Dwelling investment had increased strongly over the year to June, despite recording a decline in the June quarter.
Building approvals had declined a little from their recent peak, but remained at levels that implied further growth in dwelling investment, albeit at a gradually declining rate.
Loan approvals for construction of new dwellings had also fallen over the past year. 
Members noted that domestic sources of risk to financial stability in Australia continued to revolve mainly around developments in local property markets.
"In the context of recent developments in the housing market and household credit, members discussed the findings from the enhanced scrutiny of housing lending practices undertaken by APRA and the Australian Securities and Investments Commission since the end of 2014.
"This scrutiny and related work had shown that investor activity was considerably higher – and lending standards in some parts of the market weaker – than had originally been thought."
Members further observed that the risks in commercial property and the property development sector were rising.
"Building approvals for new apartments remained very strong over 2015, even though rental markets appeared soft in some areas.
"The divergence between commercial property valuations and rents had widened further, with strong domestic and foreign investor interest for new and existing office buildings in particular, even though vacancy rates were quite high.
It acknowledged while Australian banks continued to perform well, they were taking steps to enhance their resilience.
"Banks' asset performance continued to improve, profitability remained high, and the large banks had raised substantial amounts of capital in advance of forthcoming prudential requirements.
"Most banks had strengthened the serviceability metrics used in their mortgage lending and taken steps to slow the pace of growth in investor lending towards the prudential regulator's expectations.
"Banks were also reportedly becoming increasingly wary of lending to property developers in markets that were thought to be at risk of becoming oversupplied.
"Nonetheless, competition among lenders had intensified in the owner-occupied segment of the housing market and had continued to do so in parts of the business lending market.
"Members observed that a key challenge would be to ensure that lending standards at both Australian and foreign-owned banks did not weaken from this point."
Members noted that reductions in the cash rate earlier in the year continued to provide support to aggregate demand, particularly dwelling investment and household consumption.
Members also noted that conditions in the labour market had strengthened further over recent months and were somewhat better than had been expected earlier in the year.
Nevertheless, spare capacity remained in the economy, domestic cost pressures were very low and inflation was expected to remain consistent with the target over the next one to two years.
The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets.
"Members noted that growth in lending for housing had been steady over recent months and that there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney, in particular, although trends had been more varied in a number of other cities.
"At the same time, members judged that there were signs that the response of the banks to supervisory measures implemented by APRA were helping to manage risks in the housing market."
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Too early to conclude housing price inflation tamed: October RBA minutes

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Members commenced their discussion of the global economy by noting that growth in output had continued at around the average pace of recent years.
Members noted that growth in global trade was subdued, although it had picked up a little recently. They discussed the implications of the general slowdown in trade and industrial production growth, notably in Asia, including for commodity prices. In particular, iron ore prices had declined slightly over September but remained higher than earlier in the year, while oil prices had edged higher from their recent lows. Globally, core inflation had generally remained low and at rates below the targets of most central banks.
In China, indicators of activity for July and August had suggested further moderation in growth. Members noted that growth in fixed asset investment and industrial production had eased over 2015. This had been particularly noticeable in the north-eastern provinces of China where activity was more concentrated in heavy industry and mining. The output of key industrial products, including steel, was lower than in late 2014, partly as a result of weak residential construction activity, even though both residential property prices and sales had been higher than earlier in the year. Members observed that the services sector in China had performed more strongly than the industrial sector in recent quarters.
Recent data on economic activity in Japan had been mixed. Real GDP had declined in the June quarter, while conditions in the labour market had remained tight and nominal wages had continued to increase modestly. Inflation remained low, although the Bank of Japan continued to forecast that it would reach the 2 per cent target by mid 2016. Elsewhere in east Asia, below-average growth appeared to have continued into the second half of 2015 and remained a source of concern for the strength of the global economy. A slowdown in industrial production growth in the region had become increasingly apparent over recent months and exports had declined in Korea, Singapore and Taiwan in August. In India, growth in the June quarter had been driven by robust domestic demand and inflation had remained relatively low in August.
In contrast to the situation in much of Asia, growth in the US economy had picked up to an above-average pace in mid 2015. Recent indicators pointed to further consumption-led strength in the September quarter. Labour market conditions had improved and the unemployment rate had edged lower in August to be close to most estimates of full employment.
In the euro area, timely indicators suggested that the gradual recovery in the economy had continued in the second half of 2015, supported by both external and domestic demand. Unemployment had drifted lower, although the unemployment rate remained high. Inflation remained subdued.
<h3>Domestic Economic Conditions</h3>
Members began their discussion of the domestic economy by reviewing the national accounts for the June quarter, which had been released the day after the previous meeting. They noted that, as expected, GDP had increased only slightly following the strong growth recorded in the March quarter. The weakness in the June quarter had reflected temporary, weather-related disruptions to resource exports as well as the ongoing decline in mining investment. Members noted that overall growth was expected to have strengthened in the September quarter, with indications of growth in resource exports and dwelling investment. Members also observed that employment growth had strengthened despite GDP growth over the year having been at the lower end of the forecast range of a year earlier.
Consumption growth had been relatively steady at a below-average pace for the past year, although this was stronger than in 2013. Household income was estimated to have increased by a little less than consumption over the past year, with a modest decline in the household saving ratio. Members noted that the strength of wealth effects on consumption behaviour would affect whether the saving ratio would continue to trend down over the next year or so. While the year-ended growth in retail sales had been little changed in recent months, surveys of households' perceptions of their personal financial situation compared with a year earlier remained above average.
Dwelling investment had increased strongly over the year to June, despite recording a decline in the June quarter. Building approvals had declined a little from their recent peak, but remained at levels that implied further growth in dwelling investment, albeit at a gradually declining rate. Loan approvals for construction of new dwellings had also fallen over the past year. Growth in housing prices in Sydney appeared to have eased slightly in recent months and auction clearance rates in Sydney and Melbourne had declined a little from their recent peaks. However, it was too early to be confident that these signs of slowing in housing price inflation would be sustained.
In relation to lending for housing, members noted that the data on the split of lending to owner-occupiers and investors were of questionable quality at present. The available data suggested that there had been a modest decline in the growth of credit extended to investors in housing of late, which was consistent with the tightening in banks' lending standards in response to actions of the Australian Prudential Regulation Authority (APRA). With housing credit growth overall remaining steady over the past year, there had reportedly been a slight pick-up in the growth of housing credit to owner-occupiers.
Mining investment had continued to fall in the June quarter and now accounted for around 5 per cent of nominal GDP, down from a peak of around 8 per cent. Members noted that there had been a correspondingly significant decline in capital imports. In addition, profits of mining firms had fallen sharply over the past year, in line with lower commodity prices. Mining investment was expected to continue to fall over the next couple of years as the current pipeline of work was completed, but resource export volumes, particularly for liquefied natural gas, were expected to increase substantially over the same period.
Non-mining investment was estimated to have picked up a little in the June quarter and had risen modestly over the past year. Over the same period, profits of non-mining companies had kept pace with nominal GDP. Survey measures of business conditions had increased to be further above their long-run averages, notably in the household and business services sectors. Conditions in the goods production and distribution sectors, though weaker than in some other sectors, had also shown improvement of late. Members noted that the depreciation of the exchange rate had led to an increase in exports of services, including tourism, as well as a noticeable decline in imports of services.
Employment growth had strengthened to be 2 per cent over the year to August and the participation rate had increased. The unemployment rate had remained in its 6–6¼ per cent range over recent months. Forward-looking indicators had generally been consistent with the unemployment rate being around its current level or possibly slightly lower in the months ahead. Measures of earnings and productivity growth from the national accounts had remained soft in the June quarter, with negligible growth in either measure over the past year. Overall, unit labour costs had been little changed for around four years, which members saw as helping to explain the stronger-than-expected growth in employment.
Members noted that the improvement in labour demand had been concentrated in the household and business service sectors of the economy. This was consistent with the data on business conditions and output growth by industry. In contrast, employment in goods-related sectors had been little changed for some time. Members discussed the differences in the nature of the investment and employment required in the services sector relative to goods-related industries.
<h3>Financial Markets</h3>
The discussion of financial markets commenced with the observation that the two major drivers of markets over the past month continued to be concerns about Chinese growth, and the implications for the global economy, as well as the timing of the first increase in the federal funds rate in the United States.
While the Federal Open Market Committee (FOMC) left monetary policy unchanged at its September meeting, citing concerns about global growth, a majority of FOMC members had indicated nonetheless that they still expect to start raising the federal funds rate before the end of this year. Market expectations immediately prior to the FOMC meeting implied a one-in-three chance of a rate rise occurring at the September meeting and a very high probability of a rate rise by the end of the year. Following the meeting, however, market expectations changed significantly, with an increase in the federal funds rate by the end of this year given only a 50 per cent chance of occurring and markets not fully pricing in a rate rise until April next year at the earliest. Members noted that some market participants did not expect an increase in the policy rate for the foreseeable future.
Bond yields in the major markets had declined in net terms over September. In the United States and Germany, 10-year government bond yields had risen in the first half of the month, mainly in response to some better-than-expected US economic data, before declining following the Fed's decision to leave the federal funds rate unchanged. Yields on Australian Government Securities had moved broadly in line with global yields over the past month.
The changed exchange rate arrangements in China in August had initially led to a depreciation of the renminbi, but the exchange rate had appreciated slightly over the course of September. Members noted that there had been a significant decline in Chinese foreign currency reserves since mid 2014, with apparent sizeable sales or non-reinvestment of maturities of US bonds. Following the depreciation of the renminbi in August, sales of reserves were likely to have continued in response to net private capital outflows. A significant share of private capital outflows over the past year appeared to have been in the form of increased foreign currency bank deposits. The Chinese authorities had announced that existing restrictions on private capital outflows would be more rigorously enforced.
Financial market conditions in a number of emerging market economies had deteriorated further in recent months, reflecting lower commodity prices and country-specific risks, especially for Brazil, Russia and Turkey, where yields on local currency denominated sovereign bonds had increased noticeably. In contrast, developments in some other emerging markets, notably India and Mexico, continued to be relatively benign. Corporate bond issuance in emerging markets in aggregate had fallen sharply in the September quarter. This had been accompanied with significant outflows from both emerging market bond and equity investment funds since the middle of the year. The currencies of some emerging market economies had depreciated further over the past month and some Asian currencies were back to the lows recorded around the time of the financial crisis in the late 1990s.
The US dollar was unchanged on a trade-weighted basis over the past month, while the exchange rates of most other advanced economies had been little changed. The Australian dollar had depreciated marginally to be around its recent lows against the US dollar and on a trade-weighted basis.
Equity prices had fluctuated around the lower levels reached in late August in many advanced economies as well as in China, with some large daily movements in both directions. News of the Volkswagen emissions scandal in late September adversely affected European equities, while equity prices in emerging markets had partly recovered from their falls in late August, although they remained lower than at the start of the year. Australian equity prices continued to decline in September, led by the resources sector.
Financial market pricing indicated an expectation that the cash rate would remain unchanged at this meeting.
<h3>Financial Stability</h3>
Members were briefed on the Bank's half-yearly assessment of the financial system.
Global financial stability risks had been shifting from advanced country banking systems to China and other emerging market economies. Partly in reaction to this, financial market volatility had picked up following a lengthy period of low volatility and compressed risk premia. Members noted the possibility of a sharp repricing in markets where investors for years had been ‘searching for yield’.
Members noted that domestic sources of risk to financial stability in Australia continued to revolve mainly around developments in local property markets. In the context of recent developments in the housing market and household credit, members discussed the findings from the enhanced scrutiny of housing lending practices undertaken by APRA and the Australian Securities and Investments Commission since the end of 2014. This scrutiny and related work had shown that investor activity was considerably higher – and lending standards in some parts of the market weaker – than had originally been thought.
Members further observed that the risks in commercial property and the property development sector were rising. Building approvals for new apartments remained very strong over 2015, even though rental markets appeared soft in some areas. The divergence between commercial property valuations and rents had widened further, with strong domestic and foreign investor interest for new and existing office buildings in particular, even though vacancy rates were quite high. At the same time, falling commodity prices were weighing on the profitability of many resource-related companies. The rest of the business sector seemed to be in relatively good shape, in contrast, with both gearing and failure rates at relatively low levels.
Members were also briefed on the risks in the New Zealand housing market and dairy sector, given the sizeable exposures of Australian banks through their New Zealand subsidiaries.
While Australian banks continued to perform well, they were taking steps to enhance their resilience. Banks' asset performance continued to improve, profitability remained high, and the large banks had raised substantial amounts of capital in advance of forthcoming prudential requirements. Most banks had strengthened the serviceability metrics used in their mortgage lending and taken steps to slow the pace of growth in investor lending towards the prudential regulator's expectations. Banks were also reportedly becoming increasingly wary of lending to property developers in markets that were thought to be at risk of becoming oversupplied. Nonetheless, competition among lenders had intensified in the owner-occupied segment of the housing market and had continued to do so in parts of the business lending market. Members observed that a key challenge would be to ensure that lending standards at both Australian and foreign-owned banks did not weaken from this point.
<h3>Considerations for Monetary Policy</h3>
Members noted that recent data continued to raise concerns about the outlook for economic growth in China in particular and east Asia more generally, while economic activity in the United States and euro area continued to recover. Below-average growth in the Asian region had been most evident in weak growth in industrial production, which had been mirrored in lower export volumes. While global commodity prices had fallen over the past year, they had been little changed over recent months. Global financial conditions remained very accommodative and low oil prices were expected to continue to provide a measure of support to growth in Australia's major trading partners.
Domestically, the moderate expansion of the economy had continued, although GDP growth in the June quarter was low, in line with expectations, reflecting what appeared to be temporary weakness in resource exports as well as further falls in mining investment. GDP growth had been below average over the past year, but there had been further evidence of rebalancing from the resources sector towards non-mining activity. This rebalancing was being increasingly supported by the depreciation of the Australian dollar, which had led to a noticeable increase in net service exports over the past year.
Members noted that reductions in the cash rate earlier in the year continued to provide support to aggregate demand, particularly dwelling investment and household consumption. Members also noted that conditions in the labour market had strengthened further over recent months and were somewhat better than had been expected earlier in the year. Nevertheless, spare capacity remained in the economy, domestic cost pressures were very low and inflation was expected to remain consistent with the target over the next one to two years.
The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets. Members noted that growth in lending for housing had been steady over recent months and that there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney, in particular, although trends had been more varied in a number of other cities. At the same time, members judged that there were signs that the response of the banks to supervisory measures implemented by APRA were helping to manage risks in the housing market. Credit growth overall had been moderate.
Given these considerations, the Board judged that it was appropriate to leave the cash rate unchanged at this meeting. Information about economic and financial developments, both domestically and abroad, would continue to inform the Board's assessment of the outlook and whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with the target.
<h3>The Decision</h3>
The Board decided to leave the cash rate unchanged at 2.0%.
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jonathanchancellor-7SQnKwU6yx

Minutes of the Monetary Policy meeting of the Reserve Bank Board

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GUEST OBSERVER
Last week, Westpac hoisted its lending rate by 20 basis points in a bid to recover the costs of recent capital raisings. There is speculation other banks will follow. Australia’s non-bank lenders could be winners from such a scenario - but the choice may not be as simple as the lowest interest rate.
The outcome of the Financial Systems Inquiry
The background to Westpac’s move lies in recommendations by the Financial System Inquiry that the capital base of Australian banks should be increased to an “unquestionably strong” level and that there should be a narrower gap in different mortgage lending requirements between institutions.
As a result Australian banks have considerably increased capital levels this year by approximately $16 billion.
However, higher capital levels and bank stability may come at additional costs, even if trade-off theory suggests greater bank and system resilience would normally equal lower funding costs. That’s because bank investors have high dividend expectations, so this means the costs of boosting capital may be passed onto borrowers.
Capital levels are likely to increase further as regulators seek to narrow the gap between the practices of the big banks and smaller lenders, and amid their increasing concern at Australia’s house prices. In particular, large banks are expected to increase capital required under their internal risk weighting models for mortgages.
Will non-bank lenders grow their mortgage books?
Non-bank lenders provide mortgage loans with comparable features but unlike banks are exclusively funded from wholesale markets and not from consumer deposits.
As a result, banks face minimum capital requirements enforced by the Australian Prudential and Regulation Authority to protect depositors, while non-bank lenders are unregulated and may more freely choose their funding mix and hence have lower funding costs.
This often implies lower capital ratios for non-banks than banks. Raising capital levels for banks only may have an impact on the balance between bank and non-bank competitors.
The following chart shows the counts and total assets of banks and non-bank lenders in Australia over time:
<a href="/images/2015/10/19/image-20151018-25135-1sqzbqr.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/19/image-20151018-25135-1sqzbqr.jpg" alt="">
 
The size of non-bank lenders ($120 billion) is much smaller than the size for bank lenders ($3.8 trillion) and has shrunk in relative terms over the past years. This may suggest that Australians fail to really consider this sector to finance their homes despite competitive mortgage rates from non-bank lenders.
There are many reasons for this – convenience may be one of them as banks are able to offer a larger product range and cover most financial needs of consumers, and consumers prefer to bank with a single institution.
The small size is a great disadvantage as relative fixed costs are higher for small firms than for the major banks.
Should you choose a bank or non-bank to finance your home?
Consumers seeking mortgage finance for a property – either a new borrowing or refinancing of an existing loan – can choose between a large number of banks and non-bank lenders, along with hundreds of loan products.
Comparison websites generally rank lenders and products according to the most obvious criterion – the interest rate. Non-bank lender often provide the cheapest terms. But the lowest rate loan is not necessarily the best loan.
The choice between bank and non-bank lender can be important if you want to use an offset facility. Offset facilities are not always included and they can expose borrowers to lender risk.
Having savings in an offset facility means that in effect the lender owes you money. Banks are much less risky in this regard because they benefit from government guarantees as well as greater scrutiny that are tied to the bank status.
Non-bank lenders are excluded from such guarantees and furthermore may have a greater exposure to market instability.
During the global financial crisis non-bank lenders (especially overseas firms) that were funded through capital markets, rather than customer deposits, were challenged as wholesale funding markets dried up. Some failed and total volumes shrank between 2009 and 2013 (see chart above).
Still, it is likely that more Australians change to non-bank lenders in the future. Changing a lender is easy as mortgage brokers often provide the legwork, plus exit fees have been considerably reduced since new laws came into effect on 1 July 2010 limiting mortgage exit fees to the lender’s losses directly connected to the borrower exiting the loan early.
Are non-bank lenders dangerous to our system?
Low volumes mean non-bank lenders are currently of no systemic concern to the economy and regulators. However this may change in the future as volumes shift and grow for non-bank lenders.
New market participants enter as new non-bank loan platforms are developed. One example is internet-based peer-to-peer lending.
Australians may adapt to this new regime and take on new technologies offered and seek the lenders providing the cheapest funding. Consumers generally do not care about the lenders’ own funding and may arbitrage the differences in mortgage rates by shifting the business from regulated banks to unregulated non-banks.
A concern may arise if non-bank lending is successful and to become a large player that is systemically important. In such a scenario the government would be well advised to consider regulating the industry.
Such regulations may include minimum lending and funding standards with the mission to protect de facto consumer deposits via offset accounts and to ensure the credit supply in economic downturns when wholesale funding markets are constrained.
We may be some time away from such a scenario in light of the increasing dominance of bank lenders.
 
Harry Scheule is associate professor, Finance, UTS Business School, University of Technology Sydney and author for <a href="https://theconversation.com/profiles/harry-scheule-3573" target="_blank">The Conversation</a>.
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Rising mortgage rates - is it time to refinance your home loan?

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ME Bank has cut its two-year Flexible Home Loan fixed rate for owner-occupiers to 3.89% or 40 basis points.
Head of ME home loans, Patrick Nolan, said the cut comes about following cheaper fixed rate funding.
“Savvy borrowers also have the option to split both ourtwo2-year fixed rate with our competitive Flexible Home Loan with Member Package variable rate for new loans of 4.19% p.a,” he said.
For more information from ME, <a href="https://www.mebank.com.au" target="_blank">click here</a>.
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ME Bank cuts flexible home loan fixed rate

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GUEST OBSERVER
New research by comparison website finder.com.au has found that Australians could be preparing for the worst, with preference for people borrowing money for a home against saving money is at its lowest level since the Global Financial Crisis (GFC).
According to the finder.com.au research of the past decade of data from the Australian Prudential Regulation Authority (APRA), the amount of money borrowed from banks for owner-occupied home loans has grown at a slower pace than the amount of money in household bank deposits. In fact, owner-occupied home loan lending by banks has grown by 7.5% – significantly less than household deposits (10.4%) in the past year.
This is despite total owner-occupied home loans across all banks is sitting at an all-time high of $843 billion and total deposits from households is also at a record high of $737 billion.
<a href="/images/2015/10/19/Screen%20Shot%202015-10-19%20at%2011.34.28%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/19/Screen%20Shot%202015-10-19%20at%2011.34.28%20AM.png" alt="" width="685" height="459">
Graham Cooke, finder.com.au insights analyst says the trend could indicate consumers are preparing for tougher financial conditions.
“Before the GFC, we saw the gap between household bank deposits and owner-occupier home loans widening, which saw a peak of $128 billion more home loans funded than what was being saved by households in bank deposits in early 2008. When the GFC hit by the end of 2008, this gap shrunk to $95 billion," he says.
“From that low point the gap steadily increased again and hit a high of $193 billion in mid-2012.
“While total household deposits has been more consistent in growth, we’ve seen the amount of money banks are lending for owner-occupied home loans take a dive and the gap is currently at $106 billion – close to where it was at the peak of the global financial crisis.
“This narrowing indicates an increasing preference for holding money in savings and reducing outstanding mortgages over borrowing for owner-occupied property.
<a href="/images/2015/10/19/Screen%20Shot%202015-10-19%20at%2011.35.55%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/10/19/Screen%20Shot%202015-10-19%20at%2011.35.55%20AM.png" alt="" width="662" height="424">
“This pattern of a slowdown in borrowing for a home and rise in savings could also be an early indicator of a cooling property market.
“Australians are clearly concerned about their financial futures and property owners and prospective buyers should be cautious of over-capitalising in the current conditions. And with Westpac the latest to announce an increase in variable home loan rates, now is the time for existing borrowers to examine their current home loan and consider refinancing.”
MICHELLE HUTCHISON is spokesperson for comparison website <a href="https://finder.com.au/" target="_blank">finder.com.au</a>. 
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mhutchison-SWt6qigzDX

Consumer sentiment falls to GFC level: finder.com.au's Michelle Hutchison

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GUEST OBSERVER
Markets are on alert for an unexpected near term rate cut from the RBA in response to Westpac’s decision to raise the variable mortgage rate by 20 basis points. 
Markets are asking the question as to whether the RBA will move to offset that tightening by cutting rates as early as the next Board meeting on November 3. The market probability for a cut in November has increased from 25% to 40% since the Westpac announcement. 
Below we assess the history of the Reserve Bank’s policy in relation to banks’ pricing. We conclude that based purely on history the most likely outcome is that financial conditions are likely to tighten further, although the exact degree of tightening and its timing is uncertain. 
We expect that the RBA will await this information on the effective change in financial conditions before making a decision as well as assessing any early signs of the impact of this tightening on the economic outlook. 
When this information becomes clearer we will reassess our current view, which, at this stage is for no policy change in 2015 or 2016. 
2008 
During 2008 the banks were severely impacted by the rise in funding costs as the cost of wholesale funding blew out sharply. 
In January 2008 all four majors raised mortgage rates independently of any move by the RBA. First to move was BANK 3 with 12 basis points followed by the others in a 5–7 day window with a range of 10 – 20 basis points. 
The RBA tightened by 25 basis points in both February and March with the banks raising rates by 55 – 65 basis points. 
Later in March and then again in April and July all banks raised rates independently in tranches of around 10 – 15 basis points and by 26 – 34 basis points overall. 
Over that January to July period the banks raised mortgage rates by 101 (BANK 1); 104 (BANK 2); 104 (BANK 3) and 114 (BANK 4) basis points respectively while the RBA raised the cash rate by 50 basis points. 
Observations from that period were that all banks moved closely in step and their moves were in the same direction as the RBA’s moves. Arguably because the banks were supporting the RBA’s policy of tightening there was no move by the RBA to offset any of these bank moves. 
Later in 2008 when the RBA reacted to the GFC with cuts of 25 basis points (September); 100 basis points (October); 75 basis points (November); and 100 basis points (December) the banks clawed back some of these cuts reducing the mortgage rates by 259 (BANK 1); 271 (BANK 4); 272 (BANK 2) and 287 (BANK 3). 
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2009 
In 2009 the RBA cut by 100 basis points in February which was fully passed on by the banks and 25 basis points in April, where BANK 3 who had cut more aggressively through 2008 passed on nothing and the other 3 banks only passed on 10 basis points. 
When rates started to rise, the banks once again supported the RBA’s tightening by raising rates by more than the RBA tightening. From October to December the RBA raised rates by 75 basis points and the banks tightened by 95 (BANK 2); 87 basis points (BANK 1); 85 basis points (BANK 4); and 75 basis points (BANK 3). 
2010 
In March; April and May the RBA tightened by 75 basis points and the banks raised their mortgage rates accordingly. 
With funding conditions still oppressive the banks raised rates in November by 35 (BANK 2); 39 (BANK 4); 43 (BANK 3); and 45 (BANK 1) basis points respectively in response to an RBA rate increase of 25 basis points. 
2011 
In the early stages of the easing cycle the banks passed on the full 25 basis points in RBA cuts in November and December. 
2012 
Tight funding was still pressuring the banks and in February 2012 BANK 4 raised their mortgage rates by 6 basis points to be followed three days later by BANK 3 (9); BANK 1 (10); and BANK 2 (10). 
In April BANK 4 “caught up” with a further 6 basis points increase. 
In May the RBA surprised markets by cutting the cash rate by 50 basis points. BANK 1 (40); BANK 2 (37); BANK 4 (36); and BANK 3 (32), passed on some of the cut. 
The net effect between December 2011 and June 2012 was for the mortgage rate to fall by around 25 basis points despite a 50 basis point cut by the RBA. 
Following 25 basis point cuts by the RBA in October and December the banks passed on an average of 20 basis points on each occasion. 
2013 
In 2013 the RBA continued its easing cycle with cuts in May and August with the banks cutting the mortgage rates by 25 basis points on each occasion. 
2014 
RBA and mortgage rates held steady throughout the year. 
2015 
RBA eased by 25 basis points in both February and May. Banks passed on an average of 30 basis points in February and 20 basis points in May. 
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In July one bank raised its rates on investment property loans by 0.27%; the other banks quickly followed although one restricted the move to “interest only” loans (0.29%). 
With investment property loans representing around 38% of total mortgages this lift could be equated with a 10 basis point increase in across the board in mortgage rates. 
Some Observations 
The historical evidence is that the banks have tended to move in similar, although not identical tranches. 
Most of these moves have been at the time of an RBA interest rate adjustment although there have been 2 periods – 2008 (H1) and 2012 (H1) when the banks have moved independently of an RBA move. 
Overall the banks tightened by a little over 100 basis points in 2008 ( H1) while the RBA tightened by only 50 basis points. However there was no apparent move by the RBA to offset any of that tightening. That was probably because the Reserve Bank favoured tightening policy. As late as June 2008 the Governor noted, “Inflation appears to be in the upper half of the target zone over the next year”. Arguably this could be interpreted as a tightening bias. 
The second period of banks moving out of step with the RBA was in 2012 (H1). After easing by 25 basis points in November and December with the banks passing the cut on fully we saw independent increases by the banks in February: BANK 4 (6) and three days later BANK 3 (9); BANK 2 (10) and BANK 1 (10). 
In February; March; and April the Bank had an explicit easing bias. Each statement from the Governor included, “Inflation outlook would provide scope for easier monetary policy”. Yet the board did not decide to cut rates until May when it cut by 50 basis points noting “In considering the appropriate size of adjustment to the cash rate at today’s meeting the Board judged it desirable that financial conditions be easier than those that prevailed in December”. 
The Banks duly “delivered” 40 (BANK 1); 32 (BANK 3); 36 (BANK 4); and 37 (BANK 2) in mortgage cuts. The net result over 2012 H1 was that the RBA cut by 50 basis points with mortgage rates falling by around a net 25 basis points. 
Arguably, without the banks’ independent tightening, a 25 basis point easing would have been delivered by the Bank in May given its clear easing bias. 
How do those previous periods compare with today? 
Firstly only one bank ( around 12% of total mortgages) has moved (by 20 basis points). History (2008 and 2012) would point to all the majors eventually moving but certainly not by exactly the same amount. 
Secondly, in 2008 the RBA’s bias was in the same direction as the banks’ moves so there was no action from the RBA to offset their independent moves. 
Thirdly, in 2012 the Bank had an explicit easing bias yet it waited for two meetings to respond to a tightening by the banks. Eventually it moved to not only offset the banks’ moves but provide a net easing of policy, consistent with the bias. 
This time the RBA does not have an explicit easing bias. The stance could be described as a “soft” easing bias with various officials’ statements supporting the view that if rates do move further it will be down rather than up although the central position appears to be “rates on hold”. It has been our view that the current policy settings and associated financial conditions are “about right”. 
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If there was a marked across the board increase in retail interest rates , indicating a sharp tightening in financial conditions, then the Bank may see the need to offset that move. 
It will be mindful that a cut in the overnight cash rate is likely to impact a broader spectrum of interest rates including business rates and deposit rates and the AUD. All these factors can be expected to ease financial conditions by more than the tightening represented by the rise in the mortgage rate. However, the Bank will have another degree of uncertainty associated with the degree to which the banks pass on any rate cut. These issues will be weighed by the RBA in making its policy decision. 
Were it to occur,the timing of such a decision is unclear. In 2012, despite an explicit easing bias, the Bank waited nearly three months before easing. But on that occasion it moved not only to offset the banks’ tightening but also provide a net easing consistent with the bias. Presumably, this time it would be seeking to return financial conditions to those that prevailed at the time of the October Board meeting. 
If, for instance, it opted for November when it will produce its Statement on Monetary Policy and will review its forecasts it would also have to indicate that the tightening of financial conditions prompted a downward revision to its growth forecast in 2016. 
At present the Bank is forecasting growth in 2016 of 3.0% (around 0.25 percentage points above its estimated trend growth rate).We expect that it is likely to cut its growth forecast for 2016 to 2.75% before taking into account the impact of a tightening in financial conditions. The implication might be that without an offset to these tighter financial conditions growth was at risk of falling back to a below trend 2.5% in 2016 . An offsetting easing in conditions would allow the growth forecast to be restored to 2.75% – around trend. 
Conclusion 
History has showed us that banks tend to move close in time, but in differing amounts, when operating out of cycle with the Reserve Bank. This reflects the common nature of the funding and regulatory shocks that drive such decisions. However it is by no means certain that history will necessarily repeat itself. 
History also showed us that even when the banks tightened and the Reserve Bank had an explicit easing bias it still took 3 board meetings to decide to offset the effect of the banks’ moves. 
Our position is that the case for the type of net easing we saw in 2012 is not strong but the Reserve Bank, which targets retail interest rates, may decide at some point to offset any tightening by the banks to restore retail rates to those prevailing at the time of the October Board meeting when the Bank was comfortable with financial conditions and policy settings. 
If we are to predict a near term rate cut on the basis of an unexpected tightening of financial conditions then we need to assess the full extent of that tightening and signs of its impact on the real economy. To date that information is not yet available. 
For now, we retain our call for rates to remain on hold in both 2015 and 2016. 
Bill Evans is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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RBA may react to tighter financial conditions: Westpac's Bill Evans

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<img src="/images/2015/10/16/Holdencapital_banner.jpg" alt="" width="593" height="125">
SPONSORED POST
Banks will fund a deal if it fits their parameters
We often hear people say, “we can just go to our local bank and get this funded, it ticks all the boxes”.  Really!
Recently the big banks tightened up their criteria such as pre-sale requirements, sponsor experience/balance sheet strength and other general criteria required to be satisfied by property investors and developers. They are doing this for a number of reasons but the principal driver is a requirement to reduce their total investor loan growth to below the Australian Prudential Regulation Authorities requirement of 10% p.a.. As a result we are now seeing that they are very selective in which projects they will fund.
Even if a project does “tick all the boxes”, the bank might still not be interested in funding it, with factors such as existing exposure to the sector/local market/client and a preference to improve their risk profile by applying a “best of breed” approach, means that your deal may not measure up even if you are dealing with your long term house bank. 
Knowing what the banks appetite is for various types of project is a key advantage and in some instances we have actually re-packaged a deal and presented it back to the client’s existing bank in a way we KNOW they would like to see it and successfully obtained an approval after it was previously turned down.
In our experience it is all about presenting the deal in the right way, knowing who in the bank is the decision maker and how far to push the boundaries or not as the case may be.
Banks guide valuers in their instructions to engineer an outcome
We see no evidence of this in the market place. In fact we always get the bank to give us a list of their preferred valuers and we then encourage our clients to contact these valuers and engage with them to get a feel for the valuer’s understanding of the specific location and product. 
Yes, some valuers might be better to deal with than others, but overall we see no influence from the banks when they instruct the valuers. They simply want to know if the project works and want to use a valuer who they know will give them an honest no nonsense opinion.
Getting Pre-Sales will be a quick process 
This is probably the single most unpredictable component of any Development Project at the moment, particularly in terms of the time required.  Many of our clients see the market appearing to accept similar product and are confident that they too can quickly achieve the required pre-sale hurdle.  However, in practice we see that the process of securing the sales is only half the battle, with the time and resources required to get those sales to conform to the bank’s pre-sale requirements often grossly underestimated. 
Some of the key bank requirements we are seeing at the moment are:
<ul>
<li>
Sales need to be unconditional in all respects
</li>
<li>NO more than 10% to 15% foreign sales</li>
<li>NO more than 10% sales to related parties</li>
<li>Minimum of 10% deposit strictly applied</li>
<li>A cap on interstate investor sales</li>
<li>A requirement for local sales to prove demand and pricing acceptance rather than a reliance on interstate investors.</li>
</ul>
All banks are the same 
This is a very interesting point of view; all banks are certainly not the same.  Even between the 4 major banks the differences are significant, with some of the more interesting ones being:
<ul>
<li>One major bank has for the present significantly reduced its appetite for Construction Finance and is currently not taking on new to bank projects/developers limiting its lending to its established existing clients.</li>
<li>Official pre-sale requirements are ranging from 110% to as low as 60% debt cover between the remaining major banks</li>
<li>Only one of the major banks will still entertain a Loan to Cost Ratio of up to 80%.  If you want to get the others to do this, then you will need to understand what other criteria they will want to see before they will consider this.</li>
<li>Only two of the majors have any appetite for syndicated deals, where the major sponsor has less that 5% of the equity in the deal. So again, if you are looking at making your equity work efficiently across a number of projects, you will need help to secure the right major bank funding.</li>
</ul>
It will cost me more to use a broker
At first glance this might be appear to be the case, but our experience is that our clients almost always save money by using our services. 
A well-positioned broker who deals with many different lenders on a daily basis will be able to advise you on which lender has the best appetite for your style of project. 
More importantly, by knowing who to speak to within the bank and where to push and where not to push the their lending parameters, a well informed broker will help you get your project out of the ground sooner and will save the relevant opportunity cost that goes hand in hand with ‘getting started and moving on to the next one’ sooner.
Just like the best Developers use the best town planners to negotiate the best possible planning outcome on their behalf, so the best Developers also use the best brokers to structure their construction finance to secure the best possible financial outcome.
This article was written by Dan Holden of HoldenCAPITAL, who are Queensland’s largest project finance firm.
To discuss your project finance requirement please call (07) 3171 4200 or <a href="https://www.holdencapital.com.au/" target="_blank">click here.</a>
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