RBA May 2022 rate decision

The RBA has finally pulled the trigger and put an end to all the noise around whether it wait until after the Federal election before hiking interest rates.

The central bank announced a rise of 0.25%, larger than what many anticipated, which means the official rate now sits at 0.35%.

Despite telling the media for a long time that there would be no rate rises until 2024 at least, the RBA found its hand was forced by soaring inflation, which hit 5.1% last week at a headline level.

The underlying inflation rate hit 3.7%, rising past the RBA’s long held target range of 2-3%.

The lift of 0.15% was the first official rise since 2010.

RBA Governor Philip Lowe said “now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”


Where to for inflation?

The RBA expects more inflation in the short term, but believes the resolution of supply side issues will see it decline back towards the target range of 2-3%. However, Lowe flagged more rate rises ahead.

“The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4.75 per cent; by mid-2024, headline and underlying inflation are forecast to have moderated to around 3 per cent. These forecasts are based on an assumption of further increases in interest rates,” Lowe said.


What rate rises can mean for property?

Banks always seem to pass rate rises on in full, so you’d have to expect mortgage payments to go up as soon as possible.

As people pay more on their mortgage, they are likely to spend less money on other things, which may mean some of the shortages that are driving cost of living prices up may ease.

Also, rate rises tend to take some heat out of the property market, but it will be a while yet, and a few more hikes, before any real difference flows through to property values.

The RBA has shown it is reluctant to move aggressively and a lot of people have also fixed rates in recent times, meaning it will be two or three years until they begin paying higher variable rates.

There have been predictions of property value declines of 10% or more, but these would likely be the result of the cash rate passing 2%, which may take years and may not happen at all.

Large scale forced sales or defaults are also very unlikely as banks factor in a 3% rate rise buffer when assessing loan applications. So anyone with a mortgage now, even those who bought during the price surge of the pandemic, should be able to handle further rate rises for some time.


What rate rises mean for investors?

Investors already pay higher rates than owner-occupiers and most investors pay interest only on their loans.

Rate increases may see some portfolios that are positively geared be threatened by the possibility of going negative. However, tightening vacancy rates and soaring rents around the country will likely offset any extra repayment pain, as investors will be able to pass the costs onto their tenants.

RBA’s April 2022 decision

The RBA opted to hold the official cash rate at 0.1% at today’s monthly meeting, which came as little surprise as Australia waits for an election to be called.

However, the central bank boss again flagged that changing economic conditions could see an interest rate hike in the near future.

“Inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia’s invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices,” RBA governor Philip Lowe said in his statement. “In response, bond yields have risen and expectations of future policy interest rates have increased.”

Lowe noted that the Australian economy is continuing to perform well, with household and business balance sheets in good shape, an increase in business investment and a large amount of construction work in the pipeline, while national income is being boosted by higher commodity prices.

But he did concede that rising prices and hardships from natural disasters such as the recent floods are putting pressure on household budgets.

Unemployment falls again

Another improvement to the unemployment rate had it sitting at 4% at the end of February, while underemployment was also at a new low.

“The RBA’s central forecast is for the unemployment rate to fall below 4% this year and remain below 4% next year,” Lowe said. “Wages growth has picked up, but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic.”

On inflation

Lowe noted that while inflation has increased in Australia, it is at 2.6% in underlying terms, despite being 3.5% in headline terms.

This meant we were lower in inflation terms than many other countries, but “higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters, with an updated set of forecasts to be published in May”.

So will the RBA raise rates?

Lowe reaffirmed that RBA policy was to wait for evidence that inflation is sustainably within the 2 to 3% target range before increasing rates.

“Inflation has picked up and a further increase is expected, but growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target,” he said, adding that the board would continue to monitor various conditions in coming months.

And the observers say?

A Finder survey of 34 economists and financial experts found that while none were expecting a rate rise today, a significant 88 per cent expected the RBA to hike this year, with some forecasting the first movement as early as June.

AMP economist Shane Oliver said the conditions were right for a rate rise in the coming months.

“The RBA’s objective of full employment has been reached,” Mr Oliver said.

“Wages growth is picking up and inflation is pushing well above target with a rising risk that inflation expectations will start to rise, in which case it will become self-feeding, and the Budget will add in more stimulus this year. So the conditions for a rate hike will be in place by June.”

But Leanne Pilkington of Laing+Simmons said there was “a case to be made” for the RBA to keep rates on hold “given the delicate cost of living factors and global uncertainty.”

Aussies ready to tighten belts

 A separate survey by Canstar found that 56% of Australians were worried about being able to pay their bills if the RBA did raise rates in an environment of skyrocketing costs. Many of the survey respondents said their mortgages were their biggest concern, ahead of rising rents and petrol prices.

Canstar’s Steve Mickenbecker said a cash rate rise would make the situation much worse for a lot of Australians.

Costs keep rising for households with petrol prices reaching an eight-year high and supermarket shoppers reporting higher grocery bills, but the sting is about to get worse for some,” he said.

“Anyone with a mortgage will likely feel financial pain when the Reserve Bank raises the cash rate this year as predicted by some of the major banks.”



Please visit the following sites for more information:

Statement by Philip Lowe, Governor: Monetary Policy Decision – 5 April 2022


Apra’s demand for mortgages

As property markets soared and so did debt levels last year, it was the Australian Prudential Regulation Authority (APRA)- rather than the RBA- that stepped in with regulatory measures aimed at cooling the market and removing some of the risk exposure that had been taken on by households that may have been over leveraged.

APRA did this by raising the repayment buffer on mortgage applications from 2.5% to 3%…and also by sounding the warning bells on Debt-To-Income (DTR) ratios.

What was so concerning?

For many years there had been this unofficial messaging that a borrower could generally expect to be granted a loan of up to around five times that borrower’s annual income.

However, APRA was concerned to note that the level of debt exposure by Australian borrowers was starting to creep up.

Specifically, it estimated around 20 per cent of recent loans actually had a DTI of more than six… ie a household was borrowing more than six times its annual income.

It sounds like a marginal increase, but in some households, the difference between that amount and the old one/fifth yardstick was more than $150,000, which is considerable added exposure. And the concern was that if there was no agreed standard in place, this could keep slipping higher.

What did they do about it?

After the issue was flagged by APRA, a number of banks took action and now have caps on their DTI limits of six times the income. The fallout of this could mean that if you are a would-be borrower, you may no longer be eligible for a loan that you thought you were.

This affects owner occupiers especially, as they are more likely than investors to be borrowing at their full capacity in order to purchase a single property.

And combining that hurdle with the 3% repayment buffer that we mentioned earlier, owner occupiers receive somewhat of a double whammy.

That buffer is in place so that lenders can see if you would still be able to service a loan if interest repayments went up, which a lot of people are expecting them to do.

And if you are one of the borrowers that locked in a fixed rate for a certain period, you are also likely to get a nasty surprise when the fixed period ends and the loan rolls over into a much higher variable rate than you had originally expected.

How do these changes benefit investors?

The situation will be more prohibitive for investors than it used to be, but things are looking peachy when compared to owner occupiers.

This is because investors often use equity as a deposit and are able to borrow at a more favourable Loan to Value Ratio than owner occupiers (eg they may only need to borrow 50% of the property’s value). They also have the advantage of rental income to help service the loan; rental income which has been on the rise across the country as vacancy rates fall and will only increase further as inflation takes off in Australia.

Then there’s the fact investors usually borrow interest only (at least to begin with), which means they won’t be as stretched by the repayment buffers in place.

So what does it all mean for me?

If you have questions about your own situation, you can reach out to Zinger Finance and speak to our team of strategists, who can help you map out the best way to reach your goals by structuring your finances correctly, click here.


Please visit the following sites for more information:

APRA cracks down on DTI and buffers

Rule changes to strengthen debt situation: Fitch Ratings

Settlement & beyond

Settlement & beyond

First time investors often sign on to a loan to purchase a property, without realising they are hampering their future investment opportunities. Later on, they realise they have made fast equity and want to withdraw some for their next investment, but find they can’t because their mortgage broker has signed them onto a deal which doesn’t allow them to refinance for two years. This can be because some lenders don’t pay broker commission unless there is a guaranteed period in which the borrower can’t jump ship for a better deal. It’s understandable as mortgage brokers work hard for their commission and they need to earn a living. However, this doesn’t mean you don’t have better options as a borrower.

Not your average broker

Zinger Finance does things differently. The company was set up by top property investor Nathan Birch, with the purpose of looking at finance from an investor’s side. Zinger is all about helping clients get the best finance available to them, which will also be agile enough to allow them to withdraw equity quickly and keep building their portfolios. One of the main ways Zinger does this is by viewing finance settlement as an early part of a borrower’s journey, rather than the end point. Once settlement has occurred, Zinger keeps checking in on their client, making sure everything is going well, plus keeping them informed of what is happening in the market and what opportunities are available to them.

One week in

Zinger makes a courtesy call to the client to make sure they have all their basic requirements ticked off. They’re ready to settle, but have they sorted out their electricity, water and other things? Have they got the right date for their repayments to start and enough money in the right account to cover it? At this point, Zinger reminds the customer that help and support is there if they need it. The client will have been given a discharge authority form so that they can choose whether or not to give Zinger permission to monitor their property’s value.

After three months

Provided they have the client’s permission, Zinger will keep them in the know on what the local property market is doing and whether they may have already accrued equity they could use by refinancing. At this stage Zinger asks how the client is finding everything, how their loan arrangement is working for them, whether they are happy with their lender and the interest rate they are paying and whether they were already considering their next investment. If Zinger’s market research shows potential capital growth, they will offer the client a new valuation and then help them get started with the next investment.

Accessing fast equity

Most major banks will only value a property at its purchase price and some will not be willing to re-value within three months because that time period is still regarded as current. This can cause a problem for serious investors because if they can’t access their equity as soon as an opportunity arises, they can miss out on a deal and lose thousands of dollars in immediate further growth, plus valuable time in the market. Zinger knows how to structure finance to avoid scenarios like that. One example would be to organise the first loan through a second tier lender and then refinance to a major lender three months later. That major lender then performs a fresh valuation.

Knowing the banks

Zinger has relationships with many lenders and knows which ones will be most beneficial for the holistic goals of their investor client. They know which ones accept JobKeeper payments as revenue and which ones don’t. They know which banks face such long delays due to backlogs on loan applications that there’s no point applying with them because the deal can’t be done on time. They know business development managers at various lenders, who regard them as a good company to deal with. If you need help structuring your finance or need more information on how it all works and what might be the best options for you, reach out to Zinger Finance and speak to one of their strategists.  


RBA’s First Meeting of 2022

The RBA board voted to leave the official cash rate on hold today, at its first meeting for the year.

The decision failed to surprise experts, though a growing number of economists are firming in the belief that the central bank will be forced to hike rates at least once this year; well earlier than its predicted 2024 timeframe.

Most commentators are making conservative forecasts, but Westpac’s Bill Evans went out on a limb last week, predicting a 15 basis point rise as early as August this year, followed by another 25 basis point hike just two months later, bringing the official rate to 0.5 per cent before the year was out.

Westpac also predicted further hikes in following years, until the rate hits 1.75 per cent by March 2024 (a date that the RBA has been telling us we would likely be at no more than 0.25 per cent by).

What does that add up to?

If you had a $1 million mortgage, you’d be looking at paying about $1000 extra a month on your home loan. This sort of rate increase would come as a massive shock to most mortgage holders, thanks to a decade or more of falling rates making historic low repayments “the new normal”.

And spare a thought for borrowers trying to get into the market. If Bill Evans is right about this year and we hit 0.5% by October, someone earning $100,000 a year would be able to borrow about $30,000 less than what they currently can. Further rate rises would make the situation catastrophic for borrowing power.

Take control of your own finances

RateCity research director Sally Tindall said that APRA data shows average Australian borrowers are nearly four years ahead on their home loan repayments, which is promising.

But being in control of your finances also means making sure you’re on the best rate. Tindall says borrowers should get ready to switch to a different lender or at least ask their bank for a better deal.

“RBA data shows the average existing variable rate customer is on a rate of 2.98 per cent, while the average new customer is on a variable rate of 2.59 per cent – that’s a 0.39 per cent difference worth haggling for,” she told News Corp. “If you do manage to move on to a lower rate, consider putting any savings back into your loan, which will also help minimise the impact of future rate rises.”

RBA puts end to bond stimulus

One big decision the RBA made at the February meeting was to put an end to its $350 billion bond purchase program, as it upgraded its economic forecasts.
Recently, core annual inflation hit 2.6%, which places it within the RBA’s 2-3 per cent target range.
And unemployment is now at a 13 year low of 4.2 per cent. These suggest a rate rise could happen in the short term, but the RBA has repeatedly said it wants these two measurables to be “sustainably” within their target bands, which means inflation will need to stay put for a while.
Wage growth is another factor and the central bank will want to see it rise from its current 2.2% to 3%.

RBA Governor Philip Lowe said in his statement that “while inflation has picked up, it’s too early to conclude that it is sustainably within the target band” and that “it is likely to be some time before aggregate wages growth is at a rate consistent with inflation being sustainably at target”.

He is no longer putting an “earliest” date on potential rate rises, but says the board “is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”.
So the coming months will be interesting, but in the meantime, speculation from commentators will continue to be rife.



Please visit the following site for more information:

Homebuyers warned to ‘batten down hatches’ ahead of sooner than expected interest rate hikes

RBA to end stimulus and retire its ultra-dovish bias

The lending year that was in 2021

The Lending Year That Was In 2021

The lending year that was in 2021

2021 was another crazy year in every sense of the word. Of course there was the pandemic, which put a stamp on us all for the second year running, with the Delta variant first becoming the dominant strain of Covid, followed by Omicron at the end of the year.

But economically speaking, it has been a year of trade sanctions and stand-offs, political uncertainty, continuing rock bottom interest rates and, importantly, the first shoots of inflation beginning to be apparent.

The lending space was especially marked by uncertainty. Here are some key moments in lending that marked 2021.

Fixed rate rises

Early in the year, it seemed as if the banks were racing towards negative interest rates in their bid to attract customers. Variable loan percentages beginning with a ‘1’ were beginning to seem common, while attractive fixed rates tempted borrowers into locking in loans for three to five years.

On top of this, a number of lenders were offering cashback deals for customers to switch from another bank via a refinance.

Then, around the end of the March quarter, talk began to emerge about future rate rises. The RBA had committed to keeping rates on hold until 2024, but economists and the media began to apply pressure, suggesting the central bank must move earlier than that.

Around this time, lenders began to increase the interest rates on their long term fixed rate loan products, mostly for four and five-year terms. Throughout the year, the trend gathered pace and by the end of 2021, lenders were hiking fixed rates repeatedly, even on one, two and three-year products. Some big four banks were increasing rates more than once a month.

Variable rates, however, continued to come down as the fight for customers continued. It will be interesting to see what transpires in this space in 2022, though you can only assume lenders will increase rates wherever they are able.

Family home guarantee

The Federal government introduced 2% deposit home loans for single parents in a bid to help them provide a home for their dependants.

With saving for a deposit a major hurdle, the family home guarantee saw 10,000 spaces made available over the next four financial years, beginning on July 1. Those eligible could obtain a home loan from one of 27 participating lenders, with a deposit of just 2% of the property’s value. The government would then guarantee the other 18% of the deposit so that the borrower would not be subject to lenders mortgage insurance (LMI).

APRA intervenes

The RBA has repeatedly stated that it would not seek to control the nation’s housing markets through decisions made at its monthly meetings. However, the Australian Prudential Regulation Authority (APRA), has been known to step in when it deems values to be headed towards bubble territory.

And in October, APRA did just that, instructing banks to now assess a borrower’s serviceability, using a mortgage repayment buffer of 3% rather than 2.5%. Basically, this means that formerly, when you applied for a loan, a lender would need to assess that you could handle a 2.5% increase to the interest on your repayments, in order to mitigate risk. From October onwards however, it would be assessed at 3%. And something that people on fixed rates might need to consider: the 3% is added to the rate that their loan reverts to at the end of the fixed rate period, which is generally higher in this kind of environment.

The move was designed to stop people from overstretching themselves and also take a bit of competition out of the market. By year’s end, there were more listings and property prices had settled somewhat, but it’s not certain how much APRA had to do with this.

Technology rethink

A huge couple of years of borrower demand have exposed some shortcomings in the turnaround times for loan applications through some of the major lenders.

A number of loans with attractive interest rates and great features actually missed out on business because the lenders were unable to process loan applications in time. Approval time is something that mortgage brokers monitor. They can then let their customers know which banks are actually likely to settle their finance in time.

And the stakes are high for borrowers, because there’s nothing worse than getting a deposit, getting finance approved, house hunting for months, finally winning a bid on a property and then the bank’s slow administration process means you miss settlement, can’t buy your property and in some cases, lose your deposit.

As a result, a lot of smaller lenders with better technology for loan processing won a lot of business. Already, some of the biggest banks have recognised their shortcomings here and begun to unveil new tech to fix the glitches.

This coming year will be an interesting one to watch.

To find out more on how you can take advantage of what’s been mentioned, book an appointment with our Zinger Finance Mortgage Strategists to see how we can help you.



RBA Announcement December 2021

There were no Christmas surprises today as the RBA elected to leave the cash rate unchanged at 0.1% at its last meeting until February next year.

After RBA Governor Philip Lowe sought to hose down rate rise speculation following the November board meeting, a movement today was never going to be on the cards.

Bank movements fly in face of central policy

While the RBA has not moved the official cash rate for more than a year, individual lenders in Australia have been anything but static during 2021.

New research from RateCity shows that banks across the board have slashed variable rates and hiked fixed rates during the year as they set themselves up to deal with potential rate rises in the future and tighter lending restrictions from APRA.

Big cuts on variables

The Ratecity data shows 86% of the lenders on its database have cut variable rates during the year. That’s 107 loan products being discounted to attract borrowers. The big four banks cut their basic variable rates by an average of 0.43% since the end of 2020.

Since that time, the number of loans available with rates below 2% has grown from 15 to 65.

So what’s the catch? Well, odds are that you don’t fit the criteria for these loans. The reason being that they are the basic variables for most banks (or loans lacking in flexible features), aimed largely at first time borrowers and new customers.

RateCity research director Sally Tindall said the fact that banks had neglected to pass on rate reductions in 2020 meant they had room to move to lower them this year in a bid to attract new customers.

Competition in the marketplace has brought these rates down to where they should be,” she said. “However, these ultra-low variable rate cuts are primarily for new customers. Existing variable customers who haven’t haggled with their bank recently are likely to be paying the same rate they were on in March last year.”

A number of economists predict the RBA to begin to increase the cash rate before the end of 2022 and then make further hikes during 2023. If this does happen, rest assured that lenders will be upping their variable rates too.

Of course, it is a big ‘IF’. There are a number of contrarian types out there that think rates may still go down before they go up and potentially even into negative territory.

If it ain’t broke, should you fix it?

Fixed rate products have been moving in the opposite direction recently, after starting the year also on a downward trajectory.

Reductions were par for the course in the first quarter of the calendar year, before fixed rate products below 2% peaked in April at 180. As that happened, 4 and 5-year fixed rates began to be increased by banks as talk gathered of rate rises in the near future.

Improving economic forecasts since July have seen further rate hikes across the board, leaving us with just 73 fixed rates under 2% as we end 2021. Those are predicted to wind down quickly in the new year.

“Fixed rates are likely to keep rising across 2022 as global economies continue to recover from the pandemic and central banks around the world start to lift official interest rates,” Sally Tindall said. “By this time next year, there could be no fixed rates under 2 per cent. In fact, the majority of fixed rates for owner-occupiers are likely to start with a ‘3’.

“Anyone currently on a fixed rate needs to prepare to pay significantly more when their term ends.”

Crypto arrives in big bank world

Another significant occurrence this year was an announcement by Commonwealth Bank that it would allow its customers to hold and trade Bitcoin and other cryptocurrencies via its banking app.

This was the first time the major lenders had actually acknowledged the future of cryptocurrencies by changing the way they operate to meet customer demand to make them more accessible.

And a recent survey of economists by Finder revealed that three quarters expect the other major banks to follow suit.

Finder’s head of consumer research Graham Cooke said Australia has the third-highest rate of cryptocurrency ownership, which shows that the trend is likely to increase going forward.



Buying in 2022 - get organised

Buying Properties In 2022 – Get Organised

Here we are at the pointy end of the year already. And 2021 was a crazy one. Just as people spent the year going in and out of lockdowns, worrying about vaccines and facing financial uncertainty, property markets boomed all around the country.

If you were looking to buy, the year may have gotten away from you, and it’s too late to buy now if you want to settle before Christmas.

But don’t treat the end of year holiday period as the off season. Think about what you can do for the rest of this year, to make sure you’re ready to come out firing in 2022.

Your own personal stocktake

Take some time to look back at your year. Have you lived your best financial life? Giving yourself a financial health check can be a great way to prepare to start the new year on the front foot.

Start by auditing your bank accounts, loans, insurance cover, superannuation, credit cards, energy deals and anything else that may be affecting your borrowing power.

Within each of these products and services, ask yourself if you are paying unnecessary fees, or interest rates that are too high.

Chances are that if you have been with the same bank, energy company, or insurer for more than a year, you are not on their best deal. These guys are notorious for giving the best prices to new customers to win them over and leaving loyal customers to pay a “lazy tax” by just continually renewing without doing any due diligence.

Once you’ve identified wastage, you need to take action to fix the leaks. Demand better deals from your providers or threaten to leave them for a competitor. It’s amazing how many lenders and energy companies are able to magically come up with a better deal for you once they believe you will walk. Customer retention is as important to them as recruitment of new customers.

Credit where it’s due

Credit scores are all the rage nowadays for lenders looking to spot a bad borrower from a safe bet.
Is it possible you’ve defaulted on a payment in the past? Even just been late on a phone bill? Or someone else could have screwed you over…maybe a flatmate didn’t pay their rent on time. If you were both on the lease, this may have affected your credit rating too.

Your credit score will usually range between 0 and 1200. The higher your score, the better when applying for a loan. Your credit score is calculated by matching your basic personal details with the type of credit providers you’ve used in the past, the number of credit enquiries (such as loan applications) that you’ve made, the amount of credit you’ve borrowed and any blemishes on your repayment history.

You can access your credit report for free from reporting agencies such as Experion, Equifax and illion; or from certain comparison providers such as CreditSimple, Finder and Canstar.

If your score needs improvement (you want to be above 600 to be average, 700 to be good, 800 to be very good and 850 plus to be excellent), you can improve your score over time by getting rid of credit card debt (and preferably the card too) and making all existing repayments on time.

Start the conversation early

You need to be up to date with the latest intel when it comes to borrowing for a property.

What are the rates on offer now? What are the turnaround times on loan applications? Is it worth getting conditional pre-approval now rather than waiting until it’s time to buy?

The Australian Prudential Regulation Authority (APRA) recently intervened in the house market to slow what it saw as a concerning level of debt exposure by Australian borrowers. APRA expressed concern that around 1/5 of recent loans had a debt to income ratio (DTI) of more than six… i.e. a household was borrowing more than six times its annual income.

As a result, a number of banks now have caps on their DTI limits of six or seven, which may mean you are no longer eligible for a loan that you thought you were.

APRA also informed lenders that they must assess loan applications with a 3% repayment buffer, increased from the previous 2.5% buffer. The buffer is in place so that lenders can see if you would still be able to service a loan if interest repayments went up. So now the required buffer is bigger, are you still eligible to borrow as much as you thought?

You can get answers to these questions by speaking to Zinger Finance Mortgage Strategists and getting your finances sorted so that when real estate agents and solicitors are back from their holidays early next year, you’ve got the jump on the competition.

Please visit the following sites for more information:

  • https://www.ratecity.com.au/bank-accounts/news/perform-financial-health-check-new-financial-year
  • https://www.loans.com.au/blog/buying-your-first-home-how-to-get-your-finances-in-order
  • https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports
  • https://www.loans.com.au/blog/what-is-a-credit-score


RBA Announcement November 2021

It’s all about the number ‘1’ this month for the RBA, after it left rates on hold yet again at its November meeting.

It’s now 1 year since the official cash rate was last changed…and 11 years since the rate was last increased. Meanwhile, there are now more than 200 home loan product rates that begin with a 1, but more about that later.

What the RBA said

RBA governor Philip Lowe said Australia’s economic recovery from Covid was underway and that the central forecast for GDP was growth of 3% over 2021, followed by 5.5% and 2.5% over 2022 and 2023 and an improvement in employment levels provided there were no further setbacks on the health front.

The Delta outbreak caused hours worked in Australia to fall sharply, but a bounce-back is now underway,” Lowe said in a statement. “The Bank’s business liaison and the data on job ads suggest that many firms are now hiring, which will boost employment over coming months. The central forecast is for the unemployment rate to trend lower over the next couple of years, reaching 4.25% at the end of 2022 and 4% at the end of 2023.

A number of analysts are now starting to mention that inflation, currently at 2.1%, has hit the RBA’s target range for a rate rise earlier than expected, but Lowe remains cautious.

“Inflation has picked up, but in underlying terms is still low, at 2.1 per cent,” he said. “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time.”

Lowe noted that housing prices continue to rise in most markets and said he “welcomes APRA’s recent decision to increase the interest rate serviceability buffer on home loans.”

This time last year

When the RBA made the choice in November last year to slash the cash rate from 0.25 to 0.1%, there were just 19 home loan products with an interest rate below 2%. Of these, 6 were variable, 9 were 1-year fixed, 1 was 2-year fixed and 3 were 3-year fixed, according to research from RateCity.

Now, there are 202 home loans with interest rates starting with a 1. Of these, 62 are variable, 54 are 1-year fixed, 70 are 2-year fixed and 16 are 3-year fixed.

Today, just like 1 year ago, there are zero 4-year or 5-year fixed rate products with rates below 2%.

The property market has seen very strong value growth in the year since the last rate movement and RateCity research director Sally Tindall believes the spike is a direct result.

“The surge in home loan rates under 2 per cent since last November helped set the property market alight and in doing so, has widened the gap between those already in the market, and those priced out,” Tindall said. “In the last 12 months, the average house price has jumped $350,505 in Sydney and $162,138 nationally.

Where does it all end?

Tindall believes the potential for a rise in rates, plus the effect of recent APRA changes to serviceability buffers will see the property market eventually run out of steam.

The eye-popping property price rises over the last 12 months aren’t likely to continue into 2022 at the same pace, with fixed rates already on the rise and renewed speculation a cash rate hike will come earlier than 2024,” she said. “APRA is also at the ready to reign in the number of households head over heels in debt, with its new 3% serviceability buffer due to kick in … along with a threat to take further action if needed.”

Meanwhile, AMP’s Shane Oliver says the second half of 2022 is when he believes the market will hit is ceiling, followed by potential value falls in 2023.

“By the end of next year, I think the upswing will come to an end, and we’ll start to see price falls as higher interest rates feed through,” he told the Australian Financial Review this week. “I think later next year, we’ll start to see higher variable rates, and the combination of higher interest rates, poor affordability and increased listings, I think will start to weigh on the property market.”




The Switch To A Different Loan Product

Banks have relied on Aussies paying the ‘lazy tax’ for generations. We think all banks are as bad as each other so there’s no point going through the hassle of switching loans.

But if you’ve been with the same bank for a long time, or even more than one year, you’re almost certainly not on their best deal.

In fact, while we think loyalty should be rewarded by lenders, the opposite is mostly true. They offer the best rates and features to new clients, while hoping their existing clients won’t notice.

But if we do notice, we can put the pressure on our banks to match a better deal or we will take our business elsewhere.

Meanwhile, the market for lenders trying to attract new business has become very competitive. Many have been slashing variable interest rates and throwing in sweet loan features to get borrowers interested and you may find that some of the new products out there are better suited to your situation than your existing deal.

So, with all this in mind, should you make the switch?

Before you take the plunge

Most people want to switch for a better interest rate. It’s an obvious benefit and it seems like the most important thing. But there are a number of things to consider before switching.

First, check out what else is out there on the market. Are the rates a lot better? Are the loan features flexible enough? Or will the fine print on a new product end up costing you the money you would have saved… and then some?

Last chance saloon

When you’ve found a better deal somewhere, wait one second. Here’s the opportunity to get your lender to match it, or beat it. You’ll be amazed how quickly your existing bank can magic up a deal out of thin air once you are serious about leaving.

All of a sudden, you’re getting the same deals, or even better, as those new customers you were jealous of not that long ago.

And you can avoid any fees, hurdles and forensic serviceability tests that come with switching.

Fees, fees, fees

We’ve already covered the lazy tax, so here’s the go-getter’s tax. If you do go ahead and switch, you’d better believe you’re going to have to pay someone for something.

Changing loans can set you back a multitude of charges, including fees for breaking a fixed loan contract (if you’re on a fixed loan); discharge or termination fee for closing your current loan; application fee (upfront) when applying for your new loan; and even a switching fee (charged by some lenders for when you stay with the same bank but take up a new offer).

Cold hard cash

While there are a number of fees or costs involved, a number of lenders are offering cashback rebates to entice borrowers to join them. Some major banks are offering up to $3000 cash back on some of their loan products, which can make up for switching costs and then some. Though it’s important to make sure the loan is right for you as it otherwise may cost you more over the long term than the cash you get back now.

For the longest time

Whether you switch or stick, one thing to bear in mind is the length of the loan term.

If you have 15 years left on a loan, you might think you would be disadvantaged by jumping ship to a 30 year mortgage term with another lender. However, paying it off over the longer period can improve cash flow because the repayments will be amortized over the 30 years. Your improved servicing capacity will also be beneficial for your investment strategy. 

Lenders Mortgage Insurance

LMI is something you need to consider when you first borrow, but it should also be on your radar when you refinance, because there’s a chance you may not have 20% in equity, depending on what’s happened in the market. If that’s the case, switching might cost you more.

You are unique

If you have dreams of having six or more investment properties, you’re in a rare group that consists of just 1% of the population. And because you’re different from 99% of the others, chances are that 99% of the home loan products out there may not suit you.

You may need professional help from financial strategists that understand your goals. Zinger was set up to be a finance firm tailored to the needs of property investors.

Zinger always endeavours to structure finance so you can meet your investment goals. This means being able to access and release equity as it happens due to flexible valuation and refinancing arrangements, so you can keep acquiring properties and keep the cashflow coming in.

If you need help or educational tools, reach out to Zinger’s team of expert finance strategists.