While the OCR remains unchanged, most interest rates are inching up … what’s going on? Brendon explains.
Here is what I have noticed in the last month or so …
1. Interest rates have nudged up bit by bit
We are seeing most banks increase their rates by around 0.1% over the majority of their term periods. Although the Official Cash Rate is firmly grounded, these rates are rising because the sources of the banks’ money are rising. Firstly, deposit rates are rising so that banks can attract more deposits, and, secondly, international interest rates (of which banks pay to get some of their money) are also increasing. These increases are being passed on to us, the homeowners.
2. There are noticeable differences between banks
The interest rates that banks are willing to offer their clients are varying between banks. For those banks wanting to "grow their mortgage book", there are some good discounts on rates. The banks that are not discounting are either happy with their current mortgage share or their other “banky type ratios” are at their “banky limits” so they have no wiggle room left—they simply aren't interested in competing on rates.
Given this variation between banks, the old trick of shopping around and going back to the bank with the other banks’ rates isn't having much of an impact, if any.
If the bank is your "main bank"(generally defined by the fact that your salary or wages are going to that bank) then you will get better rates.
3. Banks are giving significantly different rates for investment property loans as compared to owner-occupied loans
The reason for this difference is that new regulations make banks hold more capital for different types of loans. Investment property loans are more costly for the bank and they are passing these costs on.
4. Interest-only loans are harder to get
Many banks are only allowing interest-only loans on investment property and then are limiting it to say five years tops. At Velocity Financial we currently need to find highly compelling reasons for banks to agree to interest-only loans on owner-occupied property.
5. More now than ever, it is hard to say what a good rate is ... it depends on all of the above
The above points also mean a good strategy is more individualised than ever. As always though, you fix for certainty—the more certainty you want, the longer you fix (but the higher rate you pay)—and the more flexibility you want, the more you have in some form of floating loan account.
If you are in more of a complex situation with multiple properties, working with us, your accountant and your lawyer, to design the best strategy is increasingly important. To fix or float is just the start! Often we will be working with multiple entities with multiple loan products at multiple banks. We don't want to complicate things for the sake of it, but having this set up correctly can enable our clients to get ahead quicker, to be as well protected as possible and to make significant savings.
If you have a simple set up or need a complex configuration we are happy to work with you to ensure your loan structures are well thought out and optimised for today’s climate.
Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.