Fi­nan­cial by San­dra Dig­nam

Hills to Hawkesbury Living Magazine - - In this Issue - by San­dra Dig­nam

Over the last few months I have re­ceived phone calls from per­plexed in­vestor clients who had re­ceived let­ters from their lenders, in­di­cat­ing that the in­ter­est rates on their loans were be­ing in­creased. This was not the first in­crease these clients had re­ceived and they were not happy. They had all heard that The Re­serve Bank of Aus­tralia was leav­ing rates on hold - What is go­ing on?

Some owner oc­cu­pier loan rates have also in­creased, but it is the in­vestor who is re­ally be­ing tar­geted. It has be­come ap­par­ent that banks and other lenders are cre­at­ing dis­par­ity be­tween the owner oc­cu­pier loan and the in­vestor loan. This is most ob­vi­ous when look­ing at the rates for new loans where dif­fer­ent rates are spec­i­fied for each cat­e­gory.

At first the rates were in­creased by small amounts around 0.10% to 0.15% but the lat­est in­creases have been more like 0.22% to 0.25%. The banks are claim­ing that the cost of new funds has gone up but then one would as­sume the in­creases would only ap­ply to new loans. In fact, it seems that the new loans have the best rates and the loans al­ready set­tled are the loans that are tar­geted with heftier in­creases.

The banks don’t look af­ter their ex­ist­ing cus­tomers!

Their job is to in­crease prof­its to the lender and their share­hold­ers. Once the lender has se­cured a cus­tomer and the loan is se­cured, those cus­tomers’ loan rates are tar­geted for in­creases while very at­trac­tive rates are of­fered to new cus­tomers. When the Re­serve Bank of Aus­tralia cuts in­ter­est rates, the lenders only pass on part of the cut to ex­ist­ing cus­tomers and in this way lenders ratchet up the rates of their ex­ist­ing cus­tomers’ loans.

It is so im­por­tant to use a com­pe­tent Fi­nance Bro­ker who will keep an eye on your loan, re­assess it at reg­u­lar in­ter­vals and sug­gest changes as nec­es­sary. A good bro­ker will save you thou­sands of dol­lars and help you pay of your home loan faster and en­ter the in­vest­ment mar­ket if that is what you de­sire and most of their services don’t cost you a cent. So just what is go­ing on here? The Australian Gov­ern­ment Rep­re­sen­ta­tives say they are con­cerned that prop­erty prices have been pushed too high and first home buy­ers can’t get into the mar­ket. There is con­cern that when the in­ter­est rates in­crease over­all as they will, there will be those peo­ple who will not be able to af­ford their mort­gage pay­ments. Talk in the press prof­fers the be­lief that the prop­erty mar­ket is in a bub­ble and we must ex­pect a cor­rec­tion some­time, and per­haps sooner rather than later. The lat­est dis­cus­sion fo­cuses on in­ter­est only loans where none of the prin­ci­ple is be­ing paid and re­liance on con­tin­ued cap­i­tal growth is all that keeps these bor­row­ers fi­nan­cially afloat.

Dis­cus­sion on var­i­ous news and cur­rent af­fairs pro­grams lately is on the in­crease and the main ar­gu­ments seem to be cen­tered around Neg­a­tive Gear­ing and Cap­i­tal Gains Tax (i.e. let’s get those mid­dle-class ci­ti­zens who are try­ing to get ahead), in­ter­est only re­pay­ments, and of course the prop­erty mar­ket bub­ble. These are the top­ics the po­lit­i­cal par­ties and the jour­nal­ists are pre­pared to dis­cuss. One topic they seem to avoid is the ac­tual num­ber of prop­er­ties pur­chased by for­eign­ers, i.e. ci­ti­zens of other coun­tries who are not le­gal res­i­dents.

All this talk but are they re­ally con­cerned? I per­son­ally be­lieve that if the po­lit­i­cal bod­ies in this coun­try re­ally cared about its ci­ti­zens first and fore­most, they would stop all pur­chases by any­one who is not a per­ma­nent res­i­dent or ci­ti­zen of Aus­tralia. That is what I would like to see hap­pen at least in the hot mar­kets along the East­ern seaboard and all farm land. If these pol­lies be­lieve Aus­tralia “needs” for­eign­ers to buy prop­erty then let them buy in re­gional cen­ters where there is not a short­age and lit­tle spec­u­la­tive in­vestor de­mand.

I be­lieve that Aus­tralia wide, prop­erty is not in a bub­ble.

Even though all I hear from the TV jour­nal­ists and Gov­ern­ment rep­re­sen­ta­tives is that the econ­omy is re­ally go­ing well, I don’t be­lieve that. It is hard to fig­ure it out, isn’t it? It ap­pears to me that Syd­ney and Mel­bourne and Can­berra have ris­ing prices while other places such as Perth and Dar­win have sig­nif­i­cant de­clin­ing prices. If the reg­u­la­tory bod­ies mess with things too much how can it work Aus­tralia wide with such di­verse mar­kets?

So, this is what is hap­pen­ing with in­ter­est rates so far. The Re­serve Bank is leav­ing rates on hold fear­ing a fur­ther drop in in­ter­est rates will fur­ther stim­u­late the Syd­ney and Mel­bourne mar­kets. ASIC, the Australian Se­cu­ri­ties and In­vest­ments Com­mis­sion, along with APRA, The Australian Pru­den­tial Reg­u­la­tory Au­thor­ity, are forc­ing the banks to limit lend­ing to in­vestors.

At the end of 2014 lenders were in­structed to limit the in­crease of in­vestor loans dol­lar vale to a max­i­mum of 10% over their pre­vi­ous year’s in­vestor loans. Some lenders stopped lend­ing to in­vestors for a time as they had al­ready grown more than 10%. Others raised in­ter­est rates to limit the loans they would at­tract and ap­prove. What a wind fall for the banks to in­crease their profit mar­gins with­out the wrath of the reg­u­la­tory bod­ies.

These mea­sures have failed to curb in­vestor in­ter­est in prop­erty, so APRA re­cently in­tro­duced a fur­ther re­stric­tion on lenders, lim­it­ing the total of in­tere­stonly loans to 30% of total new res­i­den­tial mort­gages. As a re­sult, many lenders in­tro­duced in­ter­est rate in­creases for in­ter­est only loans. For many lenders now, there are dif­fer­ent prices for Owner Oc­cu­pied in­ter­est only, owner oc­cu­pied prin­ci­ple and in­ter­est, in­vestor in­ter­est only and in­vestor prin­ci­ple and in­ter­est as well as rates based on loan amount and LVR (loan to value ra­tio).

It can be quite con­fus­ing to have so many dif­fer­ent cri­te­ria de­ter­min­ing what in­ter­est rate will be of­fered to a cus­tomer. For this rea­son, ev­ery­one who has one or more mort­gages should de­velop a good work­ing re­la­tion­ship with a fi­nance bro­ker who can nav­i­gate this maze and make sure the best out­come is se­cured ini­tially, and that on­go­ing scru­tiny of rate changes en­sures your in­ter­ests are be­ing pro­tected over your bor­row­ing life.

To have your cur­rent bor­row­ing as­sessed and op­tions out­lined please call San­dra Dig­nam from Ev­ery Loan on 9653 2034.

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