What the *heck* is going on with interest rates at the moment?
Oh my, what a mess!
I’m hearing so many complaints that interest rates are going up outside of RBA movements, and you’re right. They are. In certain circumstances.
In defence of the seemingly indefensible, its part of government measures to curb property price growth, and it’s a multi part puzzle that is particularly hard on the big 4 lenders. In essence, APRA (government regulators) are forcing a few things:
Cut investment lending– most of the big guys are being given a target of not more than X% of investment lending in their total lending book; too close to the limit and they have shut their doors (as seen by AMP last year) or dramatically increased the pricing to stop business coming in & hopefully balance up their portfolio.
Curb investment lending growth – additionally, they have a speed limit on the amount of new to bank investment lending they can take on – the biggest guys are capped at not more than 10% growth on the same month in the previous calendar year – so not over 10% more this July than they did in July 2016. This has seen rolling changes in policy as they open or close the tap on an almost monthly basis.
Reduce the overall percentage of interest only lending – we are hearing figures like 53% of a particular major is currently interest only (not paying the loan off) and they have to drop to 30%. To do so – we’re seeing interest only rates jump up and up and up. In some instances we have seen multiple increases outside of RBA
On top of previous measures to really dramatically reign in borrowing levels by tightening up affordability across the board. Don’t be surprised if you no longer “afford” the lending you’ve got based on the banks new tight criteria.
Finally, force borrowers who are borrowing high percentages of the property value to start paying it off from the beginning, ie: don’t offer them interest only terms at all.
(Oh and the usual funding pressures, concerns about international markets...blah blah blah)
So in other words – it’s not the banks fault (entirely, I have an argument that increasing prices on interest only existing facilities does nothing to affect inflows and therefore when point 4 rolled out I argue we didn’t need to impact existing lending, but I digress), it is pressure from other sources.
But here is where it gets interesting. The criteria for each ‘type’ of lender is very different, the pressure on the likes of CBA and Westpac who traditionally have the largest investment books has meant much larger increases to their investment rates than other lenders, and there are plenty of smaller or nonbank or second tier lenders who are still open for business of every type. Even some of the ‘majors’ are obviously well under their caps and still looking for business
What does it mean?
PLENTY OF LENDERS WANT YOUR BUSINESS
Which includes some really awesome fixed and variable rates on offer.
It means if you have an owner occupied loan and you are paying it off, and are under 80% of your property value you are everyone’s favourite right now and a great opportunity for you to shop around.
And if you're prepared to start paying P&I on your investment loan, you will be sought after too (hint, after the rate rises the difference between extra interest and P&I isn't actually very much anymore).
Even if this is NOT you, there are lenders who want you. All it takes to find out is a call. You should review your loan at least every two years - when did you last review?
My role has never been more in demand than right now, when its so stressful and confusing to work out who is competitive, stable, and happy to approve you!
(Now is the time to mention we don’t charge you anything for our service -banks see us as a cheaper option that training a staff member to sit and wait for your business, it’s a huge win win win! Additionally we have access to lenders you’d probably never think of & who would love to look after you. Hey, I couldn’t not put in a tiny plug for my business :) )