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The APRA (Australian Prudential Regulation Authority) finalised changes which improved borrowing power by as much as 15 per cent.
In a letter, following its consultation with industry stakeholders, APRA announced the following changes effective 5 July 2019:
Banks are now able to review and set their own minimum interest rate floor however, they must maintain an interest rate buffer of at least 2.5% over the loan’s interest rate.
Banks (ADIs) will now no longer have to assess home loan applications using a base assessment rate of at least 7 per cent. Most lenders previously used 7.25% p.a. but a slew of lenders are announcing their new floor rate.
How much more can I borrow?
A few major banks have already announced their floor rate with one major announcing a floor rate as low as 5.30% p.a.
Going forward, the banks will use the actual interest rate plus a 2.5% buffer or their floor assessment rate – whichever is higher for assessment.
This applies for borrowers of any given level of income and expenses as well as for both owner-occupiers and investment lending.
For example, a single borrower with an annual gross income of $90,000 with no other ongoing liability and standard living expenses used to be able to borrow up to $557,920 when assessed at 7.25%.
Now, the same borrower assessed at 6.00%, allows him to borrow up to $634,808.
That’s an increase of roughly 14% in the maximum borrowing power.
The borrowing power calculation will be different for everyone as it’s a complex calculation but nonetheless, most borrowers will see their borrowing power increase significantly.
How does this affect loans on a fixed rate?
For home loans on a fixed rate, the assessment rate will be based on what rate the loan will revert to after the fixed rate term ends.
So for example, if your fixed loan reverts to 4.5% after the fixed term ends, then your assessment rate will be 4.5% plus 2.5% (buffer rate) which is 7.00% p.a or the minimum floor rate whichever is higher.
What we’re expecting from banks?
Some lenders like ING are very strict with serviceability, their assessment rate of 8% is one of the highest and is unlikely to change by much.
While other lenders like CBA believe rates may return to 7% in the long term and want to make sure that customers can afford this, so are also unlikely to change by much as well.
Whereas, most banks are likely to assess loans at 6.5% instead of 7.25%.
The combination of the two recent cash rate cuts and the new assessment rate, more people are likely to qualify for a refinance and this is expected to create strong competition and competing promotions by lenders in the second half of this year.
So, the coming months will likely see good additional savings for all clients who are actively looking to review their home loans.
What does this mean for you?
It favours owner-occupiers the most.
Investors, in particular, can likely borrow 15% to 30% more.
It also means that borrowers who were stuck in their current loans, often on poor terms or coming to the end of their interest only terms, are now far more likely to be able to refinance.
Due to the rapid change in interest rates, cuts to fixed rates have not yet flowed through yet, but we’re likely to see these cuts come through over the next few weeks.
How we can help?
Many people who couldn’t refinance before will no longer be mortgage prisoners.
There’s every reason for both new and existing borrowers to take advantage of record low interest rates and relaxing borrowing power guidelines.
To revisit your borrowing power, speak with one of our specialist mortgage brokers today by giving us a call on 1300 889 743 or by filling in our online assessment form.
Who passed on the full rate cut among the big four?
The big four are reducing their variable rate home loan rates for owner-occupiers paying principal and interest as follows:
ANZ: 0.25% (25 basis points) effective from 12 July.
CBA: 0.19% (19 basis points) effective from 23 July.
NAB: 0.19% (19 basis points) effective from 12 July.
Westpac: 0.20% (20 basis points) effective from 16 July.
This time around, ANZ became the only major bank to pass on the full rate cut to both its new and existing variable rate customers. While previously, ANZ, along with Westpac, was widely criticised for passing on only a partial rate cut in June.
But now, both CBA and NAB who passed on the previous rate cut in full decided to pass only a partial rate cut.
The big four are set to rake in $354 million a year in additional interest by withholding some of the rate cut from their customers.
By also delaying the date their cuts take effect, the banks are looking at pocketing an extra $109.1 million in additional interest.
Impact of the combined rate cut on annual savings and missed savings
Let’s look at the impact of the combined rate cut on home loan borrower’s savings and missed savings due to the banks not passing on the full rate cut.
June rate cut passed
July rate cut passed
Total rate cut passed (out of 0.50%)
Missed annual savings
Missed savings over the life of the loan
These calculations are based on making the reduced repayment (principal and interest monthly repayment) on a $400,000 home loan with a 30-year term on a variable interest rate of 4.00%.
What rate cut each lender passed on?
AMP: 0.20% p.a. (Total rate cut passed – 0.45%) effective date – 22 July 2019
Auswide Bank: 0.25% (total rate cut passed – 0.50%) effective date – 4 July
Bank Australia: 0.16% p.a. (Total rate cut passed – 0.41%) effective date – 22 July
Bank of Melbourne: 0.20% p.a. (Total rate cut passed – 0.40%) effective date -16 July
Bank of Queensland: 0.15% (Total rate cut passed – 0.40%) effective date – 23 July
Bank SA: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
Bankwest: 0.19% (Total rate cut passed – 0.44%) effective date – 23 July
Firstmac: 0.25% effective date not announced
Heritage: 0.15% (Total rate cut passed – 0.35%) effective date – 18 July
ING: 0.22% (Total rate cut passed – 0.47%) effective date – 18 July
Liberty: 0.19% (Total rate cut passed – 0.39%) effective date – 23 July
La Trobe: 0.30% (Total rate cut passed – 0.40%)
Macquarie: 0.20% (Total rate cut passed – 0.45%)effective date – 18 July
Me Bank: 0.15% (Total rate cut passed – 0.40%) effective date – 23 July
Newcastle Permanent: 0.25% (total rate cut passed – 0.50%) effective date – 29 July
Qudos: 0.15% (Total rate cut passed – 0.40%) effective date – 16 July
Resimac: 0.25% (previous rate cut not disclosed) effective date – 24 July
RAMS: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
State Custodians: 0.25% (previous rate not passed) effective date – 24 July
St George: 0.20% (Total rate cut passed – 0.40%) effective date – 16 July
Suncorp Bank: 0.19% (Total rate cut passed – 0.39%) effective date – 19 July
If you’d like your home loan interest rate reviewed by one of our specialist mortgage brokers, please give us a call on 1300 889 743 or fill in our online assessment form.
Should you reduce your mortgage repayments?
When interest rates drop for a principal and interest loan, most lenders don’t actually lower your repayments.
There’s less interest charged, so you end up paying off the loan faster and staving years off of your mortgage.
For example, a $500,000 home loan over 30 years may have its rate drop from 3.75% to 3.50%.
If you continue to make the old repayments, then you’ll save 1.57 years and $43,500 in interest over the life of the loan.
Homeowners should take this opportunity to increase the size of their repayments if possible, for the same home loan, if they paid $300 per month more than their old repayments then they’d save 6.67 years and $101,200 in interest.
Now is also an excellent opportunity to consolidate any expensive debts such as credit cards into your home loan and take advantage of the lower home loan rate.
The Australian Broking Awards is the night of nights for brokers, brokerages, aggregators and mortgage industry leaders.
The awards are judged by a panel of leading industry experts and competing in the awards are some of Australia’s best brokerages.
On Friday night, we were named as Australia’s Top Mortgage Broking Office (More than 5 brokers) at the 2019 Australian Broking Awards ceremony.
Home Loan Experts’Managing Director – Otto Dargan had this to say after winning “We’re thrilled to have won against such tough competition. A big thank you to our team who have worked hard to deliver great results for our customers and to be an example of the rest of our industry to follow”.
Why did we win?
We were fortunate enough to win this major award amidst tough competition.
Among other contributing factors, the main reasons we won are:
There hasn’t been a better time for first home buyers to buy their first home since the housing values peaked in 2017.
We’ve listed the most important factors which makes it the right time for first home buyers to finally enter the property market.
Lower house prices across most major cities
The decline in house values has been a boon for first home buyers in terms of affordability.
According to Core Logic, in the combined capital cities, housing values are currently 10.1% lower than its peak which is the largest decline in values any time over the past 30 years.
As of June 2019:
Sydney’s median dwelling value of $776,135 is 14.9% lower than its peak.
Melbourne’s median dwelling value of $619,804 is 11.1% lower than its peak.
Brisbane’s median dwelling value of $484,882 is 2.4% lower than its peak.
Perth’s median dwelling value of $436,090 is 19.2% lower than its peak.
Adelaide’s dwelling value of $431,702 fell slightly below its peak by 0.5%.
Darwin’s median dwelling value of $393,298 is 29.5% lower than its peak.
Hobart’s median dwelling value of $445,235 which fell slightly below its peak by 1.3%.
Canberra’s median dwelling value of $587,583 is only down by 0.2% from its peak.
The good news is that Sydney and Melbourne showed a monthly increase in housing values by 0.07% and 0.24% in June for the first time since 2017, according to the latest CoreLogic’s Hedonic Daily Home Value Index.
This contributed to the slowest decline in national home values by 0.2 per cent month to month since March 2018 and with signs of housing prices stabilising, a trend seen since early 2019, it all points towards this being an ideal time for first home buyers.
Record low-interest rates
Home loan interest rates are already around the lowest they’ve been since the 1960s, while one year fixed rate home loans are pushing below 3 per cent and variable rate home loans hovering in the mid 3 per cent. With one lender recently announcing a 2.99% p.a. (3.59% comparison rate) 3 year fixed rate loan .
The Reserve Bank of Australia (RBA) announced yet another cash rate cut of 0.25% on July 2nd, following its rate cut in June, taking the cash rate to a historic low of 1.00%.
Relatively, fewer banks are passing on the full rate cut to their customers this time.
Before this change, most banks used an assessment rate of 7.25% when assessing a borrowers ability to repay the home loan, now most banks are likely to assess loans at around 6.5% instead of a base rate of 7.25%.
For example, a single borrower with an annual income of $100,000 with no debts and standard living expenses will have his borrowing power increase to $713,034 from $626,670. That’s an increase of approximately 14% or $86,364 in your borrowing power when assessed at 6 per cent.
Similarly, a couple with a combined income of $100,000 (no dependents and standard living expenses) is able to borrow an additional $110,848 under the new assessment rate, increasing their borrowing power from $804,337 to $915,185.
The borrowing power calculation will be different for everyone as it’s a complex calculation but nonetheless, most borrowers will see their borrowing power increase significantly.
Special deposit guarantee from the federal government
The scheme which is set to roll out on January 2020 allows first home buyers to borrow up to 95% of the property value with a 5% deposit as the government is essentially guaranteeing your home loan so you don’t pay a hefty Lenders Mortgage Insurance (LMI) fees.
You’re looking at saving tens of thousands in LMI fees with this scheme.
For example, if you were purchasing an $800,000 property in NSW with a 5% deposit, you’re looking at saving anywhere between $31,160 and 34,960 depending on the mortgage insurer.
You don’t have to wait for the scheme to come into effect if you have a guarantor.
Higher auction clearance rates
Auction clearance rates which are a soft indicator of housing market trends are on the rise, which points to positive property sentiment.
Research group CoreLogic recorded preliminary clearance rate of 66.4 per cent nationally while Sydney recorded the strongest preliminary auction clearance rate of 74.7% up from 49.4% recorded this time last year.
It’s a buyer’s market
The numbers of houses listed on the market remain high providing buyers with a wide range of choices and a strong negotiation position. There’s little in the way of urgency due to limited competition.
It’s a challenging seller’s market which means it’s great for first home buyers.
Boom in the number of new houses entering the market
Despite the slowdown in the numbers of new homes beginning construction, the number of completed new homes entering the market is high.
This high volume of supply is considered a key factor behind the improvement in housing affordability.
According to ME’s second quarter ‘Property Sentiment Report’, more than a third of Australians are planning on purchasing a house this year and more people expect prices to rise than fall over the next 12 months.
The report also indicated that after affordability, Australians were most worried about tightening credit policies.
Our specialist mortgage brokers know which lenders have flexible credit policies and are often updated in advance on upcoming policy changes so you don’t have to worry about constantly changing credit policies.
In an open letter to the banks, APRA (Australian Prudential Regulation Authority) has proposed amending their guidelines to allow banks to determine their own assessment rate.
This will substantially increase the maximum borrowing power of many home loan borrowers.
What changes to mortgage lending is APRA proposing?
APRA is proposing to:
Remove the 7% serviceability floor rate used to assess all home loans (most banks typically use 7.25%).
Increase the expected level of the serviceability buffer from at least 2% to 2.5% (most banks currently use 2.25% above your home loan rate).
Remove expectation that a prudent bank will use a buffer comfortably above the proposed 2.5%.
How does it affect my borrowing capacity?
Currently, banks or ADIs (authorised deposit-taking institutions) are required to assess home loans on the ability of the borrower to meet the repayments at a base rate of 7% or 2% above their home loan rates, whichever is higher.
The gap between the 7 per cent floor rate and the actual interest rates paid by borrowers has widened by quite a bit, so APRA is looking to do away with the high floor rate.
However, APRA will still require banks to add a buffer rate of 2.5% on top of the home loan interest rate.
How much more can I borrow?
Under the current model, a single borrower with an income of $100,000 p.a. with no dependents and standard living expenses while being assessed at 7.25% can borrow a maximum of $626,670 for a 30-year mortgage. (CBA calculator)
However, with the new model, if the same borrower is assessed at 6% his maximum borrowing power increases to $713,034, an increase of $86,000 approximately.
That’s roughly an increase of 14 per cent in your borrowing power.
With rates as low as in the mid 3 percentage point, being assessed at 6% is a real possibility as a 3.50% interest rate plus a buffer rate of 2.5% is just that.
Moreover, under the current system, a couple earning a combined income of $100,000 with two dependents can borrow up to $551,470.
The couple’s maximum borrowing capacity increases to $627,470 when assessed at 6% – an increase of $76,000.
Why did APRA propose these changes?
APRA first introduced the existing guidelines in 2014 essentially “to limit excessive borrowing in an environment of low-interest rates and high household debt.”
Overall, there was a need in the past to have a floor assessment rate in case interest rates rose; however, this has not been the case for some time now as:
In a low-interest rate environment which is expected to persist longer, the gap between actual rates paid and the floor rate has become unnecessarily wide.
In 2014, a single variable rate was used as the basis for all mortgage loans however, since then the banks have introduced different pricing for different loans. Therefore a single floor rate for both owner occupiers with principal and interest loans and investors with interest-only loans doesn’t make sense.
The proposed changes to assessment rates will affect both the banks as well as non-bank lenders as most if not all also use a similar assessment rate.
Auction clearance rates are now higher but there’s still limited stock on the market.
An unintended consequence of the current policy is that many investors basically became ‘mortgage prisoners‘ because they were unable to refinance to lower interest rates because of the high serviceability rate in place.
Many lenders took advantage of this situation by increasing interest rates for investors.
This is a significant loss to the Australian economy as these investors could be using this money to invest or spend rather than it going to lender profits.
If APRA’s proposed changes can help these borrowers refinance, then this will be a significant win for the economy even if it is not directly in APRA’s remit.
Negative gearing benefits
Right now, many lenders assess negative gearing benefits at the actual rate rather than the assessment rate which is overly conservative.
As we believe that it is reasonable for them to assess negative gearing at the same rate that they are assessing the new/existing mortgage at.
This would have a significant effect on helping investors who are mortgage prisoners.
However, every lender has its own lending policy, it is up to the lender’s discretion sd to how they want to assess negative gearing benefits.
How can we help?
We have over 40 lenders on our panel and their serviceability calculators so we can work out your borrowing power before submitting your home loan application.
Speak with one of our specialist mortgage brokers today by calling us on 1300 889 743 or by filling in our online assessment form and we’ll work with you to get you the amount you need.
Among the big four banks, both NAB and CBA have announced that they’re passing on the full rate cut of 0.25% (25 basis points) to all variable rate home loans for both new and existing customers.
What this means is, a borrower with a mortgage balance of $500,000 on a standard variable rate of say 5.36% (principal and interest repayment) can save up to $77 per month or $27,851 over 30 years, when the full rate cut is passed on.
Surprisingly, ANZ is choosing not to pass on the full rate cut, reducing its variable home loan rates by only 0.18% and holding back 0.07% or almost 30% of the rate cut.
Westpac too is also only passing on 0.20% of the rate cut deciding to pocket 20% of the rate cut.
Which lenders passed on the full rate cut?
AMP: 0.25% (25 basis points) effective 21 June 2019
Bank Australia: 0.25% (25 basis points) effective 24 June 2019
Bankwest: 0.25% (25 basis points) effective 25 June 2019
BOQ: 0.25% (25 basis points) effective 25 June 2019
IMB: 0.25% (25 basis points) effective 21 June 2019
ING: 0.25% (25 basis points) effective 18 June 2019
Macquarie Bank: 0.25% (25 basis points) effective 21 June 2019
ME Bank: 0.25% (25 basis points) effective 27 June 2019
Pepper Money: 0.25% (25 basis points) effective 24 June 2019
UBank: 0.25% (25 basis points) effective 28 June 2019
Which lenders only passed on a partial rate cut?
Bank of Melbourne: 0.20% (20 basis points) effective 18 June 2019
Bank SA: 0.20% (20 basis points) effective 18 June 2019
Bendigo: 0.20% (20 basis points) effective 28 June 2019
Citibank: 0.20% (20 basis points) effective 14 June 2019
Heritage Bank: 0.20% (20 basis points) effective 21 June 2019
RAMS: 0.20% (20 basis points) effective 18 June 2019
St George: 0.20% (20 basis points) effective 18 June 2019
Sun Corp: 0.20% (20 basis points) effective 21 June 2019
Give us a call on 1300 889 743 or fill in our online assessment form if you would like your rate reviewed by one of our specialist mortgage brokers.
How do I take advantage of record low interest rates?
The variable mortgage is at the lowest rate it’s been since the 1960s, while the one-year fixed rates are pushing below 3 per cent, a near-record low.
If you’ve haven’t been monitoring your home loan interest rate in the last couple of years, you could be on a significantly higher interest rate.
And if you’re with a major lender, then you’re definitely overpaying as there’s a difference of 0.75% p.a. on average already between the variable rates offered by the big four and other smaller lenders.
The majors are often slow to pass on lower rates to their existing customers, while they often have special introductory offers to attract new customers with rates as low as 3.55%.
To work out if you can get a better rate:
Find out your interest rate and then check your lender’s website to see if they are offering a lower interest rate to new customers.
Find and compare the best rates available on the market. Often, there are better rates on offer by other lenders.
You should call your lender or let your broker ask them to match the current best offer and if they can’t or won’t, it may be better off simply refinancing your home loan with a different lender.
Even though not all lenders are passing on the full RBA cut, some lenders are offering their lowest rates to the home buyers with big deposits or large equity held for existing owner-occupiers seeking to refinance.
You owe it to your self to shop around for a better home loan rate or better yet let your mortgage broker do the work for you.
Am I eligible for a refinance?
You should consider refinancing to take advantage of the current mortgage rates if:
The Government has announced a new first home buyer scheme just days out from the Federal Election.
So how does it stack up in improving housing affordability?
How it works
If you have saved at least 5% of the property value as a deposit, the Government will guarantee up to 15% so you can avoid the cost of Lenders Mortgage Insurance (LMI), which kicks in when borrowing more than 80% of the property value.
Based on average purchase prices in the capital cities, you could save anywhere between $10,000 and $40,000, which sounds great if you’ve spent the fast few years squirreling away your savings.
Interestingly, Scott Morrison’s first home buyer loan is one of the few schemes that has support from the Opposition.
The problem is there’s a catch.
The government guarantee will be subject to:
Borrowers earning no more than $125,000 a year (or $200,000 for couples).
The value of the property being purchased.
The property location.
On top of this, the incentive is only open to 10,000 borrowers a year, which is only around 10 per cent of the total number of Australians who purchased their first home in 2018.
We believe the scheme does not go nearly far enough to solve housing affordability for first-time buyers.
Is it an election stunt? I guess we’ll find out when the full details are released and if they decide to open it up to more than 10,000 borrowers a year.
Will low deposit holders stretch themselves thin?
There is a risk of borrowers ending up in negative equity, which is where the outstanding balance on a mortgage is greater than the property value.
That’s because the scheme is essentially encouraging people to borrow at a high Loan to Value Ratio (LVR) because the government guarantee allows you to avoid the cost of LMI.
Borrowers still need to meet serviceability requirements but is there a risk of widespread default if property prices continue to fall as they have been in some markets around the country?
On the flip side, some economists have also argued that this new incentive will further drive up demand for real estate, which will lock out first home buyers who don’t qualify for the scheme.
What is the real solution for first home buyers?
The government should look at:
Opening this scheme up to more than 10,000 borrowers each year.
Looking at other solutions to help first home buyers with a small deposit as this is what holds them back.
Encouraging more housing supply which, in turn, creates affordable options for home buyers.
Improving infrastructure so it is more viable to purchase outside of metro locations where prices are generally higher.
Whether you’re upsizing, downsizing or just moving to a home in a new location, no doubt things have changed since buying your last home.
There are a number of home loan options available when you’re moving on to your next property so how do you get from one home to the next?
The ideal way to do it, financially speaking, is to sell your existing home first.
In this way, you’ll know exactly how much money you can spend on your next home and how much you’ll need to borrow. It will also put you in a good position with potential lenders for your next home loan.
But life isn’t always that straightforward.
What is a bridging loan?
If you can’t sell your existing home first for some reason, you might want to consider a bridging loan, which gives you access to funds to buy your new home before you’ve sold your current one.
There are generally two types of bridging loans: closed bridging loans and open bridging loans.
Closed bridging loans are available to borrowers who have already locked in the sale of their existing property and know when it will settle. These are usually short-term arrangements.
Open bridging loans are used when the existing property has not yet been sold and these can be arranged for up to 6 months.
How does this type of mortgage work?
A bridging loan requires the lender to work out the size of the total loan by adding the value of your new home to your existing mortgage, then subtracting the likely sale price of your existing home.
This requires a valuation by the bank, which will cost approximately $200 for each property.
Typically, you pay interest only on the entire loan amount until the first property is sold and the principal is repaid in full.
Bridging loans are sometimes structured so you only make principal and interest repayments on the loan until settlement, capitalising the interest due on the rest of the loan.
Either way, once you have sold your existing property, the loan reverts to an ordinary home loan.
The pros of bridging loans
You won’t miss out on your ideal property.
If you want to build your next home, you can stay in your existing property until the new one is completed.
You won’t have to worry about matching up settlement and move-in dates.
You may achieve a better price for your existing property without the pressure of having to sell immediately, particularly in the current selling environment.
You can avoid the costs of renting while you’re between homes and paying the movers twice.
The cons of bridging finance
During the bridging period, you’ll have two loans that are accruing interest.
Both properties will have to be valued by the lender – which could be costly.
The longer it takes to sell your existing home, the more interest you’ll pay, as the interest is compounded monthly.
If you don’t sell your current home within the bridging period, you could be required to pay a higher interest rate to continue.
You’ll need at least 20% of the total value of both properties (either in cash or equity in your existing property) to qualify for a bridging loan.
What if a bridging loan doesn’t work me?
Sell first: This is suitable if you have little to no equity or if your property may take some time to sell.
Buy first: This is suitable if you have significant equity (you can use a line of credit facility) and a strong enough income to hold both properties.
Simultaneous settlement: This is suitable if you can arrange both the purchase and the sale to settle on the same day. Often, you’ll need to have excellent negotiation skills or a great mortgage broker and solicitor to make this work.
Have you considered holding off selling?
With some markets around Australia experiencing a ‘correction’ at present, it could be a good idea to keep your current property as an investment and sell it on when the market recovers.
Call us on 1300 889 743 or complete our online enquiry form to discover which option is right for you.
This article originally appeared in Connective eNews and has been reprinted with permission. To know more about Connective, visit the website at www.connective.com.au.
Investment loan rates are lower than they have been in previous months but the subsequent hand down of the Royal Commission means lending policies are still strict, especially among the major banks.
Banks are mainly concerned about protecting their brand in light of increased regulatory oversight from the competition watchdog.
Non-bank lenders tend to be a little more considered so they are now a more viable option if you’ve been knocked back by a major bank.
Should you fix or switch to variable?
First of all, no one can predict the future.
However, with 3-year fixed rates currently as low as 3.49%, fixing is definitely worth considering if you’re not planning on moving or selling in the near future.
Improving your chances at approval
Most banks still prefer principal and interest (P&I) home loans over interest only, although the removal of the IO speed limit means more lenders are willing to consider this.
Banks are applying tougher criteria to investment loans compared to home loans which means that lender choice is critical.
The assessment of living expenses is still at fever pitch so reducing your spending at least 3-6 months before applying for a mortgage can really improve your chances.
It’s an oldie but most lenders prefer borrowers who have at least a 20% deposit in genuine savings.
Are SMSF loans back in favour?
If you’re at that age where you’re considering your retirement nest egg, you may be wondering where to turn for a loan for self-managed superannuation fund (SMSF).
The big lenders in this space were Macquarie, AMP and St George but they have pulled out.
NAB is still technically playing in SMSF lending but you need at least $5 million in your fund so they aren’t a viable option for most borrowers.
Why did these banks pull out?
As with investment loans, lenders offering SMSF loans came under regulatory pressure in the lead up to the Royal Commission.
So protecting brand reputation is essential for these major lenders.
SMSF rates will increase
Some non-bank lenders are in fierece competition with each other vying for SMSF borrowers but the problem is that it creates an environment for mortgage prisoners.
With less lenders to choose from, borrowers who have an SMSF loan will likely have no choice but to stay with their lender and pay a higher interest rate.
What type of SMSF borrowers are likely to benefit?
Business owners who have a commercial property as their premises and are planning to sell to their SMSF for tax purposes.
High net worth individuals with at least $500,000 in their SMSF.
When it doesn’t work…
If, for example, you have $200,000 in your SMSF, the cost of running the fund plus the cost of the SMSF loan will likely outweigh, or at least eat heavily into, any potential return on investment.
The tide has turned for second-tier lenders
When you talk to people about their perception of the banks, most people say they would rather support a smaller lender.
However, most customers will still choose a major bank over a smaller lender, even if the smaller lender is offering a much sharper interest rate.
Much of this psychology has to do with the old adage of “too big to fail” and a misguided belief in the instability of second-tier lenders.
Our mortgage brokers deal with many lenders on a daily basis and we would challenge this belief.
We find that smaller lenders are very sophisticated in the way they do business, their rates are often lower, and their online platforms are very innovative, making it easier for borrowers to manage their home loans.
Credit unions and building societies, in particular, take really good care of their customers.
Do you qualify for a home loan?
Lending policies and interest rates have changed a lot over the past few months as banks react to regulatory changes and take a closer look at their loan books.
However, a mortgage broker can help you cut through the noise and find a lender that can offer you the right home loan for your needs and at a sharp rate.
Call us on 1300 889 743 or complete our online enquiry form to discover if we can get you approved for a mortgage.