- Posted by chillit
- On October 7, 2015
- 0 Comments
We have a few topics to discuss in this latest offering from Critique Private Clients:
- Changes to Lending Regulations and Movements in Interest Rates:
Please see the Update Here from our mortgage consultant on the lending changes occurring in the Australian marketplace as a result of the APRA regulations. There has been some increases in interest rates for investment and interest only loans due to the rapid expansion of the loan books of financial institutions across the industry (please see the NAB broker overview attached to this email and the written summary at the bottom of this email).
- Investment Markets: We have seen some significant volatility in all sharemarkets over the past month with the Australian market reacting to the appetite for commodities across the globe. A great summary can be found in the Macquarie article which outlines the current state of play and how aims to explain the falls in commodity prices and expectations for the future:
- Aged Care Advice: This is quite a niche area and Critique has provided advice to clients who are considering their options in a transition to an Aged Care facility. The strategies can be complex and clients have sought advice around how the funding of Aged Care works and if they should retain their own home. We have received an increased number of enquiries about Aged Care advice of late and thought this is an important issue to raise.
If you have any queries on the topics raised above please let me know.
Lending Changes Overview:
We are currently seeing some major and unprecedented changes to the Australian mortgage industry.
Given government concerns over the booming property market, particularly in Sydney and Melbourne, a range of rules are being introduced that specifically target investment loans.
APRA (Australian Prudential Regulation Authority) is the federal regulator that is implementing these changes.
APRA has mandated that Financial Institutions must not grow their Investment Loan portfolio by more than 10% this year. This change seems harmless, however current demand is running much higher than 10% and many of our banks and other financial institutions are already very close to, or over, this 10% growth limit.
Some lenders have recently reached and exceeded this 10% threshold and one lender in particular has just announced that they will not be able to offer investment loans until they get back under the threshold.
How does this impact you?
If you have an owner occupied home loan that is set up with principal reducing repayments, you will not be impacted by these current changes. You may even benefit as banks try to attract more owner occupied loans, with greater competition potentially leading to reduced interest rates.
However, if you have an existing variable rate investment loan, you may receive notification from your lender that your interest rate has increased.
If you have a variable home loan or investment loan with “interest only” repayments, you may also receive notification from your lender that your rate has increased.
Exactly why some lenders are lifting rates for existing clients is hard to confirm, however, the major lenders have been asked to set aside approximately 50% more capital by the end of this financial year. This new policy is going to make our financial institutions significantly stronger but it will also increase their costs. The cost of this additional capital will be passed on to borrowers. This current rate hike may be the first step in this process.
What should you do?
The mortgage market has just become far more complex. Every mortgage holding client has a unique set of circumstances that may require a unique strategy.
If you are looking to buy an investment property, contact me early. While many lenders are getting more restrictive on investment loans, there are others who are well below the APRA cap and are stepping up to plug the gap in the market.
Please give me a call if you receive notification of a rate increase or wish to discuss any of the above in relation to your current loans or future plans.