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:

  1. 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.

  2. 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.

  3. 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

  4. 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.

  5. 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.