Property Interest Rates On The Rise?

There are a lot of changes taking place in order to help banks make more money (not that they need to). And even though the RBA isn’t moving their interest rates, property interest rates are on the rise after the banks decided they’ll do so independently.

The first change to take place was announced last week by Westpac, and discussed by Nathan in his recent Facebook Live seen above. Westpac have stated that, as of the 19th of September 2018, their home loan interest rates will increase by 0.14% independently of the RBA.

 

What sort of changes do we expect to see in the future?

In short, we are expecting other banks to follow suit.

The APRA restrictions have caused all banks to bleed. To compensate for that loss, banks now must raise their rates to get back some of that money.

Depending on what their needs are, they will play around with their interest rates accordingly.

 

So what does this mean for Australians?

The cost of money is going up all around the world. However, in Australia it hasn’t. This will cause 2 things:

  • The Australian dollar will suffer because of it, as all other countries around the world are rising their rates.
  • We are also going to be facing some rate rises independently of the RBA.

What is the good news?

As much as this may seem to be a restrictive situation, many opportunities arise due to it.

Since the interest rates have changed, so will the policies and criteria for lending.

Not many people will be buying or investing in properties. This opens a lot of doors and opportunities for bargains to those who are looking to invest and start building a property portfolio.

Rent prices are very likely to increase, and if you already have a property investment portfolio, you will potentially earn more rental return.

 

Why shouldn’t we panic?

This is just a natural part of the cycle and it’s happening all around the world.

Here at Zinger Finance, we don’t focus on interest rates and, even though property interest rates are on the rise, we’re not concerned about them. We don’t even believe that they will increase dramatically anyway.

In our experience, we’ve found that banks will offer cheap rates just to get you in the door. But, we guarantee you, that these cheap rates come with a lot more terms and conditions that don’t necessarily complement your long-term goals.

Therefore, don’t settle for cheap loans, as quite often they won’t get you very far.

 

What to do next?

Senior Zinger Finance strategist, Graham Turnbull explains that there are solutions, regardless of your current position.

“If you are a experienced investor, focus on building your investment portfolio and make sure to stay away from the bank’s cheap marketing strategies.

If you’re not already an investor, there are heaps of varying interest rates floating out there that you may be able to strike a good deal out of.”

 

As we have said before, we don’t just focus on interest rates. There are many things to consider when choosing the right home loan for you and your situation.

If you are buying your own home, you would potentially look at a different loan structure to what you would look at if you were building an investment property portfolio.

Zinger Finance structures mortgages in a way that minimizes the impact of changes such as the increase of interest rates.

If you have any questions, our experienced team at Zinger Finance are more than happy to help.


How Much Can I Borrow?

How Much Can I Borrow?

Calculating how much you can borrow is not as simple as you may think. Different banks might come to different decisions on how much to lend you. Here are some things they look at before deciding.

 

Lending Is Case By Case

Finance Manager for Zinger Finance, Graham Turnbull, says lending is a case by case scenario that depends on the borrower’s serviceability and credit history.

[Serviceability is a word that banks use to describe the borrower’s financial ability to pay back a loan.]

A number of different income and expense considerations are taken into account before deciding how much an individual can afford to borrow.

 

How Do Banks Assess Borrowing Capacity?

Before a bank lends you money, they need to find out if you can afford to make the monthly repayments on this amount.

They may do this by using a variety of different calculations such as Net Income Surplus (NIS).

The NIS shows the lender how much money the borrower will have left each month after paying for expenses and making mortgage repayments.

To calculate NIS, lenders will aggregate all sources of income before subtracting living expenses, and debt obligations. This includes monthly repayments on the new debt and monthly repayments on any existing debt.

Each bank is different. While most banks calculate NIS in this way, the way each financial institution treats income and expenses can vary.

 

Not All Income Is Treated Equally

Most banks will distinguish between different types of income.

For instance, income from a self-employed person is usually seen as less secure than that of a permanent, full-time employee.

The amount of time an individual has worked in their role can also affect serviceability. If a person has only just started at a new job, their income will be seen as less secure than that of a person who has worked 12 months in their role.

Uncertain income sources, such as rental income, investment income, Centrelink payments, bonuses and commissions, will usually be given a “haircut”.

This trimming strategy is used to reduce risk to the bank – and the borrower.

 

Expenses

When it comes to assessing a borrower’s level of expense, lenders apply a minimum benchmark that is based on the Household Expenditure Measure (HEM).

To the banks, it is almost irrelevant having a level of expense that is lower than this benchmark – even if you actually do. This is a safeguard to ensure that if your expenses do increase, you will still be able to make repayments.

 

Dependants

If you have dependants, you will have a greater level of expenditure than if you are single and without children.

 

Existing Debts

Lenders may load up your repayments on existing debt in order to reduce risk. While you may be paying interest only at a low interest rate, lenders will calculate this expense as though you were paying both principal and interest at a slightly higher rate.

 

Mortgage Repayment Buffers

Banks will also apply the above mentioned strategy to the repayments on the new loan. Even if you will be paying interest only for the first five years, the lender will use an “assessment rate” at higher interest on both interest and principal repayments.

 

Credit Cards

The limits on your credit cards are also taken into account when calculating expenses. The banks want to know that you will be able to pay your mortgage even if you max out each month.

 

Credit History

Banks may be reluctant to lend you money if you have a bad credit file. Missed payments and multiple loan applications may mean lenders will see you as a high risk customer, affecting how much you can borrow.

 

Put Your Best Foot Forward

Graham says, speaking with a finance strategist is the best way to find out how much you can borrow. He says, in order to present your best self to the banks, it is helpful to do the following:

 

  1. Stay in control of paperwork and have all income and expense statements in easy reach.
  2. Demonstrate a good savings history and manage statements to demonstrate consistency and financial control.
  3.  Check your credit file and clear up any black marks.

Let's chat

Take the next step and book a chat with a Financial Strategist today.

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