We are going through a period of great change and in this month’s newsletter I’d like to cover some of the more important points that have come to light lately.

First the good news - at this month’s meeting, the RBA have again announced that the benchmark interest rate they set will remain unchanged, so no immediate rises in rates for all of us with a mortgage. As I have mentioned before though, and as we have all witnessed over the last 12 months this is only a ‘Guide’ and lenders can choose to move rates independently, however I don’t really expect this to happen at this time, so I think we can rest easy for at least the next month or two. After that, it is still a 50/50 guess as to what may happen with rates and this will be driven by inflationary pressures, cost of long term funds and worldwide events.

You will all have seen and heard in the media how the big banks have been beating each other up over rates and lending costs - a big part of which has been the emphasis on exit fees. Let me make one thing very clear on this, if exit fees disappear then you will just pay the money in some other shape or form. It will be either through higher rates, more borrowing restrictions, higher entry costs and even possibly less competition from smaller lenders as they rely on these costs to enable them to be competitive on rate. One thing you can be certain of, the banks won’t lose money.

That said, the current competition between lenders is overall good for the consumer, as it is making the banks offer lower rates on certain lending and making them come up with more innovative products in the short term. Just remember though, they are only giving back the extra rate they installed earlier above the normal RBA increases.

It can be tempting when you listen to all the media hype to rush out and change your loan but in reality you need to do your research and be careful, just changing for the sake of it is rarely beneficial as there are costs involved for title transfers and registrations, valuations, preparation of documents etc that often then get added to your loan. It is important to review properly to make sure you will come out ahead in the long term. While rate is an important factor it is not the only factor that should be considered. Your future needs and plans also need to be a major consideration. For instance, what if you are thinking of investing in the next few years and the lender you choose cannot facilitate your plans, you will then need to go through the process all over again, thus adding more cost.

If you are looking at increasing your loan, consolidating debt or wish to just review your current facility it is important that all aspects and future plans are considered, not JUST the rate.

So please, take all the media hype with a grain of salt and don’t think a small reduction of rate will always be the best option.

Now to another area.

On the first of January this year, the introduction of new finance and lending laws that come under the titles ‘National Consumer Credit Protection’ (NCCP) and ‘Responsible Lending Guidelines’ (RLG) are having some major effects on the type of loans that are now available and more importantly who can borrow and how they can do so. Without going into total detail, some of the major effects have been in the following areas:

·         People 35 years and over now may see more restrictions from lenders in some areas and types of funding available.

·         Low document loans have changed greatly and carry many more restrictions.

·         More emphasis on your ‘FUTURE’ income and any changes that ‘MAY’ happen are large considerations.

·         Company and Trust borrowings have been affected in some circumstances.

·         Investment borrowings.

·         Documentation needed for loan qualification.

In short, the lending landscape has changed totally - what you could do in the past may not necessarily be what you can do today and you just might be able to do some things that have been unavailable for some time.

Now, this may all seem like bad news, but it is not. With change comes innovation. While there can be a settling period and restrictions in some areas when new regulations are introduced, lenders are in the business of lending money and they will adapt and bring in new products that will allow them to continue the volume of lending they are comfortable with.

For instance, in the last 2 years it has been extremely difficult for people with small deposits to enter the housing market as 95% and 97% lending became almost nonexistent, with 90% loans by enlarge being the most that many could borrow. This meant that people would need at least in the vicinity of 15% to 20% and often more of the purchase price to cover all costs involved plus the deposit and on a purchase of even $400,000 someone starting out would need around $60,000 to $80,000 in savings just to enter the market.

This is one of the areas that has been attacked by lenders to try and drive more lending. Most majors, after competition from non bank lenders have now re-entered the 95% to 97% lending arena, allowing people with smaller deposits to again qualify for loans more often.

You should expect many changes in the lending arena in the next 12 to 18 months, until all the new regulations are sorted out and understood. Nothing you really need to worry about other than getting good experienced help if you need to do anything.

Don’t listen to all the hype from lenders that is written in the media and just make educated decisions, not knee jerk reactions. The facts are that the world has changed post GFC and those changes will take time to adjust for everyone - lenders and consumers.

In conclusion, if you are thinking of buying your first home or more investment properties, looking at loan options, consolidating debt, refinancing, restructuring or anything else, what was true yesterday may not be true today, so seek the right help and guidance.

Until next month, keep well.

Regards

Gregg Mountford
Negotiator Finance