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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

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.

 

 

As-A-First-Home-Buyer-Whats-Available-To-You?

First Home Buyers – What’s Available To You?

First home buyer grants, concessions and benefits chop and change, but in recent years, they have mostly been aligned to the construction of new homes. By helping first home buyers (FHB) buy new properties, governments are also stimulating the building industry and incentivizing the supply of extra homes.

FHB grants have been around since 2000, when they were introduced to ease any slowing in home ownership caused by the GST. More recent benefits to come out of Covid and in response to low interest rates and rising house prices include the New Home Guarantee and First Home Loan Deposit Scheme, which allow 5% deposits instead of the usual 20%. And then there’s the Family Home Guarantee, which allows 2% deposits for single parents.

So what do they all mean and are you eligible?

New Home Guarantee

The New Home Guarantee is a federal initiative, recently extended for an additional 10,000 borrowers from 1 July 2021 to 30 June 2022.

Usually, FHBs need a 20% deposit or must pay lenders mortgage insurance (LMI).

This scheme allows a 5% deposit, while the remaining 15% (maximum) is guaranteed by the government. Note, it’s a ‘guarantee’, not a cash payment.

If you are covered by this Scheme, you can also access other government benefits for FHBs, that may be offered through states and territories.

Eligible New Home Guarantee properties include:

  • newly-constructed dwellings
  • off-the-plan dwellings
  • house and land packages
  • land and a separate contract to build a new home

For all types of eligible properties, a contract of sale and/or an eligible building contract must be entered into prior to the expiry of the 90 day pre-approval period.

First Home Loan Deposit Scheme

This scheme has also had 10,000 extra places added through to June 2022. The same 5% deposit is required as the New Home Guarantee, with a maximum of 15% of the property’s value guaranteed by the government. You can also still access state and territory FHB concessions.

The main difference is that existing properties are included in this scheme, not just new ones.

Eligible First Home Loan Scheme properties include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and a separate contract to build a home
  • an off-the-plan apartment or townhouse

Which scheme is for me?

To apply, you must be:

  • an individual or couple (married / de facto)
  • Australian citizen(s)
  • at least 18 years of age
  • earning up to $125,000 for individuals or $200,000 for couples
  • intending to be owner-occupiers of the purchased property
  • first home buyers who have not previously owned, or had an interest in a property in Australia

Family home guarantee (for single parents)

This scheme supports single parents with at least one child, by allowing a deposit as low as 2% to be used to buy a family home. The remaining 18% is guaranteed by the government and parents don’t have to be a first home buyer.

There are 10,000 guarantees available until 30 June, 2025 and applicants can also access other state and territory grants they may be eligible for.

You are eligible if you:

  1. are single (no spouse or de facto partner),
  2. have at least one dependent child (as defined by the Social Security Act 1991)

You must be able to show you are legally responsible for the day-to-day care, welfare and development of the dependent child and the dependent child is in your care.

Eligible Family Home Guarantee properties include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and separate contract to build a home
  • an off-the-plan apartment or townhouse

If you are purchasing an existing dwelling, the property must be purchased under a contract of sale dated on or after 1 July 2021.

Where do I apply?

All the above schemes are available through a number of participating lenders, a list of which can be found at: https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home/new-home-guarantee/how-to-apply/

All applications need to be made directly with a participating lender (or an authorised representative such as a mortgage broker). Speak to the Zinger Finance Mortgage Brokers to help you through the application process.

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What-The-New-APRA-Restrictions-Mean

What The New APRA Restrictions Mean

This week the Australian Prudential Regulation Authority (APRA) intervened in the property market by tightening some of its rules around borrowing and loan serviceability.

APRA wrote to banks and told them they had until the end of this month to increase the rates at which they calculate a borrower’s servicing power from 2.5% to 3%. What this means is that banks will now stress test loan applicants by calculating whether they can pay 3% higher than their current interest rate, rather than the previous 2.5%. So if you are applying for a loan with a 2% interest rate for example, you’ll have to demonstrate you were able to service a 5% loan in order to be approved. The reason they do this is to make sure individual borrowers can handle future interest rate rises without going bust.

What APRA hopes will happen as a result is that some of the steam will come out of the housing market.

They made the call after their latest data revealed more than a fifth of new loans have people borrowing six times or higher their annual income, something they regard as a level of concern. In the meantime, national property values have increased by more than 20%.

What does this mean money wise?

In a nutshell, APRA believes the change will result in a 5% reduction in a household’s maximum borrowing power.

So if your borrowing capacity was $1 million previously, it will now be $950,000. If it was $500,000, it will now be $475,000.

The numbers are significant enough to knock a bit of buyer competition out of the market and also stop those close to full capacity from biting off more than they can chew. However, those who borrow well within themselves won’t necessarily be negatively affected.

The fix is in

For variable rates, the 3% buffer is added to the rate that you are offered.

However, if you’re wanting to apply for a fixed rate loan, beware, you may be in for more of a shock under the new rules. This is because banks will calculate your 3% buffer based on the revert rate, rather than the fixed rate. The revert rate is the rate the loan will roll over into once the fixed period is up. So, if you are applying for a fixed loan with a 1.99% rate in the fixed period, but that rate reverts to 3.5% afterwards, the bank will calculate your serviceability at 6.5%, rather than 4.99%.

Seems like APRA always targets investors

Investors are often seen as cashed up magnates who swoop in and whisk properties away from the first home buyers and families who so desperately need them.

This is why APRA restrictions in property booms are usually set up in a way that investors are deterred by higher rates or more taxes, so that owner-occupiers can buy homes with less competition from people who may already own multiple properties.

APRA believes investors tend to borrow at higher levels of leverage than owner-occupiers and also have existing debt already, which may expose them to more risk. This is why investor loans always have higher interest rates than owner-occupier homes. Because the rates are already higher, the new buffer will affect investors even more. Not only that, but the buffer will be applied to their existing debt too.

Is this temporary?

It might be temporary, but if the measures don’t have APRA’s desired effect, things might get even tougher before they get better, so it’s important to adapt and evolve if you’re looking to build the kind of property portfolio that will help you live life on your own terms.

Things just got harder for investors, but there are always options out there and value to be found.

If you need help making sense of the new rules, what it means for you and how to tailor you strategy going forward, reach out to the Zinger Finance team.

 

 

RBA Announcement October 2021

There were no surprises today as the RBA voted to keep rates on hold at 0.1% at its October meeting.

The central bank also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue purchasing government securities at $4 billion a week until at least February next year.

RBA governor Philip Lowe noted that the Delta outbreak of Coronavirus continued to disrupt the recovery of the Australian economy, but maintained it was still just a temporary setback.

“Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well,” he said in a statement. “There is, however, uncertainty about the timing and pace of the bounceback and it is likely to be slower than earlier in the year…In our central scenario, the economy will be growing again in the December quarter.”

For AMP economist Shane Oliver, it was a case of another month having passed, rate movements no closer than before.

“The RBA’s stated conditions for a rate hike, i.e. actual inflation sustainably in the 2% to 3% target zone, are far from being met,” he said. “This will require sustained employment of around 4% and wage growth of 3% or more and that’s a fair way off.”

Rate expectations

But while the RBA reaffirms its promise not to raise interest rates until at least 2024, there is gathering talk among analysts that major banks will take their own action and raise variable rates out of cycle.

An October survey of 28 economists by comparison platform Finder found that 50% expected Big Four lenders would lift their standard rates within the next year.

Stability in the official cash rate did not mean lenders would follow suit, according to Finder head of consumer research Graham Cooke.

“Data from the RBA shows banks changed their rates seven times during the last stable period. Four of those changes were rate increases,” he said. “Those who aren’t on a fixed mortgage rate should stay alert to any changes from their banks as it could mean substantially higher monthly repayments.”

Pressure on home buyers

Any rate rises would have to be managed carefully, with borrowers stretching themselves to keep up with rising property values. In fact the research revealed first home buyers are borrowing over $53,000 more mortgage debt this year than they did last year, exposing them to more pressure should rates rise.

Because of this, 55% of the experts in the survey said they expected the Australian Prudential Regulation Authority (APRA) to intervene with lending restrictions in order to stem market growth.

“APRA recently confirmed they were looking closely at income to price ratios,” Cooke said. “This could be an early indication that lending restrictions are coming.”

APRA restrictions usually target investors to deter them from taking affordable stock off the hands of first home buyers, so watch this space to see how your portfolio might be affected.

Not so fast

Before we start to panic about lenders going rogue and hiking rates, current trends show they are still reducing their variable rates in order to compete for borrowers.

The latest RateCity research found 27 lenders cut at least one variable rate during September.

RateCity research director Sally Tindall suggested variable cuts were where lenders could compete in the short term, while adopting a “wait and see approach” on most fixed rates “as they work out what impact Australia’s Covid recovery plan will have on the economy”.

“However, this hasn’t stopped many lenders from taking the scissors to their more malleable variable rates, which were lagging well behind fixed rates,” she said. “When the RBA cut the cash rate last November there were just six variable rates under 2%. Today there are 48, including five investor rates. After the last two cash rate cuts, variable rates barely moved as most lenders opted to drop fixed rates instead. If anything, these cuts are overdue.”

Rush to refinance

It’s easy to see why banks are cutting variable rates at the moment, because borrowers are in a refinancing frenzy and there is plenty of new business to be acquired.

The last two months have seen record highs with refinanced loans valued at $17.8 billion in August.

With all the deals out there, it’s a great time to score a better rate or more flexible loan features. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy, with the deals that suit you best.

 

 

When-was-the-last-time-you-had-your-loan-reviewed?

When Was The Last Time You Had Your Loan Reviewed?

The lending environment is changing all the time, so it’s important to regularly review your loan or loans and make sure you’re getting the best deal you can.

Say you’ve had a loan for the last 2 years for example, chances are that you’ve missed one or more potential interest rate reductions. On top of this, your life may have changed. Have you accrued some equity? Got a promotion at work? Had children? Any changes mean your current loan may not be the most suitable for you.

Rate expectations

One of the major reasons to review your loan is that there may be a better deal on interest rates available.

If you are paying more than you need to on interest, you are essentially donating money to the bank. 

Interest rates have been trending downwards for the past decade. In fact, multiple banks have cut rates on their variable loan offerings in the past month, so it’s well worth testing the market.

There are variable rate loans out there for owner-occupiers for below 2% and investment loan rates below 3%. On the flipside, some rates are above 5%. If you have a $300,000 loan and swap a 5% interest rate for a 2.5% one, that’s $7500 a year you are taking back from the bank and using elsewhere.

Once compound interest is factored in, you save even more money because you take years off your loan.

Flexible features

Loans are complex beasts these days with a raft of features that can be tailored to the diverse needs of borrowers.

A couple of years out of the market could mean you are unaware that lenders are offering extra repayment options on fixed loans, better offset facilities or waiving certain fees. All of these changes can add up to money and time saved.

The flipside of this is that if you sign up to a loan with more bells and whistles than you need, you may find you are paying for the privilege of features that you never use.

And sometimes you can be trapped by a loan’s fine print…ie, the rates are great, the features are great, but you’re locked in for 2 years and can’t revalue to access your equity.

So, always look further than just interest rates, when choosing a loan.

Introducing…a better deal

If it’s been some time since your last loan review, you’d better believe you’re not on the best deal that bank can offer you.

See, banks count on you paying the “lazy tax”. Why do you think the bank sent people to your primary school when you were a kid to “educate” you about saving money and using deposit and withdrawal books?

It’s because they know that once people sign up with a certain bank, the vast majority never bother to leave.

Once you are on their books and have been for years, do you think they are offering you the kind of deals they are offering potential new customers?

Of course not. They don’t need to. But go online and you might find they are offering customers of other banks a $3000 cashback deal to jump ship to them. That’s because their business models are based on recruitment and retention.

But what about you? You’ve been a loyal customer for years, shouldn’t they reward you for your loyalty? The reality is that if you want access to those deals, it’s all on you.

Research what is out there at other banks. Are there lower rates, cashback offers, better features, introductory deals? If there are, you should be fully prepared to switch.

And if you like your bank and want to stay, simply go back to them and threaten to leave if they don’t match the deals. That’s where the retention part of their business model kicks in and you might just find they have something a little better up their sleeve for you.

 

 

RBA Announcement September 2021

The RBA left the cash rate on hold at 0.1% at its September meeting, surprising no one..

The central bank has been telling everyone for some time now that it won’t consider a rate rise until at least 2024, even though some analysts are predicting it will hike earlier than this. And it also remains determined not to cut again and risk going into negative territory, though other analysts think negative interest rates are far more likely than an increase anytime soon.

“Prior to the Delta outbreak the Australian economy had considerable momentum,” RBA governor Philip Lowe said. “GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year. Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”

Lowe said Australia’s economic recovery had been “interrupted by the Delta outbreak and the associated restrictions on activity” and that he expected a decline in GDP in the next quarter and a rise in unemployment.

However he said some areas are “continuing to grow strongly” and the setback to the economic expansion “is expected to be only temporary.”

Taper the talk of the town

Much of the contention and anticipation in the lead up to the meeting had all been about whether the RBA would taper down its buying of bonds from $5 billion a week to $4 billion a week.

September was the month it planned to make that reduction, but there had been widespread debate from forecasters and major lenders about whether it would actually happen.

On one side of the coin, NAB was predicting it would continue with the reduction as planned. On the other side, ANZ anticipated a month’s delay to get a better idea of when and what lockdown restrictions might be lifted or eased in major cities. Most analysts expect a strong post-lockdown economic rebound, which could come this year or next year.

So what was the call?

Spoiler alert, the RBA surprised quite a few when it decided to stick to its plan.

The Board’s decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak,” Lowe said. “These bond purchases, together with the low level of the cash rate, the yield target and the funding that has been provided under the Term Funding Facility, are providing substantial and ongoing support to the Australian economy.

Banks battle for borrowers

Continued uncertainty is a win for would-be borrowers, with banks dropping variable rates in a bid to attract new customers.

Fixed home loan rates may continue to rise, but in a further show that we won’t have to worry about higher variable mortgage payments for a long time yet, RateCity research found the number of variable rates under 2% in the market has leapt from 28 products to 46 in just 2 months.

The 68% increase has happened in spite of there being no official rate movement since November last year.

“Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates,” RateCity research director Sally Tindall said, adding that ABS data showed refinancing hit another record high in July with $17.22 billion in loans settled for the month. “The latest surge in refinancing is putting pressure on the banks to keep their rates competitive.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

Reach out for a better deal

Each month, regardless of what the RBA decides to do, there are deals out there to be made. It’s a great time to be a borrower and it’s rare that your current deal is the best one available to you. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy for structuring your finance and find the deals that suit you best.

 

 

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