THE BANKS, APRA, INTEREST RATE MOVEMENTS AND WHAT IT ALL MEANS TO YOU!
The lending environment is changing weekly and is often poorly communicated in the mainstream press. I will attempt to explain recent developments to you in plain English.
As you know we are experiencing the lowest interest rates in a generation. For property investors this has meant that in many cases the cost of servicing a property investment loan is less than rental income, creating positive cash-flow.
This has created a spike in investor borrowing over the past few years as investors take advantage of these circumstances. In some cases, lenders reported investor lending growing at 14-15% per annum.
The Australian Prudential Regulatory Authority (APRA), who regulate the banks, have got nervous about this growth and have told the banks to reign in investor lending growth to under 10% per annum.
The banks and now other lenders have embraced this direction and have increased rates to investors across all loans with the intention of slowing investor lending.
As I have mentioned in my blogs and our newsletters I’m not sure how increasing interest rates on investment loans that have already settled and are in place and in some cases for many years, actually slows future growth, but that’s an issue for another day.
Surely it wouldn’t be the banks profiteering where they can and conveniently adding billions to their bottom line!
Further to this we have an anomaly; although we have record low rates it is actually more difficult to borrow. You are most probably aware that when you borrow the lender will stress test the loan by checking if the borrower can afford the loan at a higher rate than what the loan is being approved and settled at. This is called the qualifying rate. Quite correctly this is to make sure any future increase in interest rates can be afforded by the borrower.
However, this stress testing is more onerous than ever and as an example, Australia’s largest bank’s qualifying rate currently is 7.25% and furthermore it is applied to all of the borrower’s loans. This can be confusing to borrowers as although interest rates are lower it is harder to borrow right now than at any time in the last few years.
The third part of the story is the most exciting for borrowers and that is that competition is very fierce in recent times, particularly for owner-occupier borrowers. The reason for this is because lenders are enthusiastically chasing this business to make up for the decline in investor lending.
But surprise, surprise they’re not going to hand this to owner-occupiers without being asked.
There has never been a more appropriate time to have all of your loans health checked!
I urge you to take a keen interest in your own financial structure and arrangements.
You may be surprised how much you could save by spending as little as one hour on looking after yourself. In this dynamic and rapidly changing landscape it would be unlikely that any borrower has the perfect structure.
Mortgage Brokers like Onyx represent over 52% of all new loans settled and their market share continues to grow.
Why is this? Simple!
Onyx can review all of your loans and provide solutions after reviewing a spread of lenders without risk or obligation to you.
Let me ask you a few questions to determine whether you could be saving thousands.
1. Do you know all of the interest rates you are paying on your loans?
2. Do you know if the rates you are paying are the most competitive for
3. Do you have long term, hard core personal debt (e.g. credit cards, Personal Loans)?
4. Do you believe your property has increased in value since you took out your last loan?
5. Do you have commercial loans or asset loans that you haven’t reviewed recently?
6. Do you review all of your insurance policies regularly for currency and competitiveness?
If your answers to the above questions have created an interest in you potentially saving yourself thousands of dollars then we are here to help you.
Onyx provides consultative, informative and free advice that will, without obligation, provide you suggestions to improve your finance structure.
We are here for you so if you would like to chat at any time please call me on 0409 02 99 22 or email firstname.lastname@example.org .
You still have time to reward yourself before Christmas with a finance structure that will leave more dollars in your pocket in 2016 and beyond.