There have been some major changes since my last article that you the borrower need to know to be able to navigate through this ever changing banking world we now live in.
In summary, the red tape and strict regulatory requirement’s seem to have softened slightly which has resulted in the Sydney market coming off and clearance rates in Melbourne reducing.
Today’s article below is about summarising what has happened in 2017 from an Investment Lending perspective as well as giving you some good topics to think about over the Christmas break when deciding on next steps for your investment lending strategies for the 2018 year ahead. As always we at ALIC want to be at the forefront with you during such important decisions.
Major topics covered-
· Are you too loyal to your major bank?
· Why second tiers can save you $10000 to $20000 annually
· Update on the market as well as Vendors having to transition to reality
· Have the regulators achieved a favorable outcome with increased bank rates and tighter servicing standards?
Are you too loyal to your major bank?
This is a question you all need to ask after the latest changes that have affected the major banks significantly with up to five rate rises for interest only and investment recipients. Yes five changes, so please check your rates as you might be unpleasantly surprised.
The capping of loan volumes with the biggest banks make it tough for them to be competitive at times which can result in them shifting and releasing the lever when they have to manage work flows.
A lot of people stay at the majors because they started there as a child for example the CBA Dollar Mite account or they believe it is a lower risk to be at a major bank compared to a second tier when borrowing money.
The majority of our clients owe money, so remember when an institution lends you the money, they are taking the risk not you. Obviously if you aren’t a borrowing and have creditor funds, that’s a different story, however a lot of second tier institutions don’t take deposits.
Why second tier banks can save you $10,000 to $20,000 annually
The cost of being too loyal to the majors in most cases where clients own 2-4 properties is significant since the latest regulatory changes. We are saving many investor clients in the range of $10,000 to $20,000, which could be the loyalty cost you are paying.
Admittedly the internet banking and experience of logging in and out is not as good as a major bank experience but what price are you prepared to pay for that? Other flaws to keep in mind with the smaller institutions are around valuation fees and the number of offsets available which is small fry when we are talking about an *investment variable rate of 3.69% available today if you are paying principal and interest and own a Principal place of Residence.
* Note: This campaign last until 28/02/18 and we would need to lodge our application prior to that date, so please email me for a discussion if interested.
The Vendors transition to reality begins
At ALIC we are constantly getting updates from the best property experts in the market and the good news is, the Sydney market has finally stopped after 57% of growth over a little more than 3 years with properties selling for $1.3 million three months ago struggling to reach $1.1 million due to low demand, low confidence in the market and a far tighter credit world. In Melbourne we are starting to see properties passed in with lower clearance rates and vendors now having to transition to a mindset that indicates their property is not worth what they believed it once was only weeks earlier.
Obviously there are many markets within markets that vary to this but this is the first time we have seen such results in over four years which is exciting for all investors when a market transitions from a vendors market to a buyer’s market.
For all our ALIC clients who have wondered why our expert BA partners have not purchased Investment properties in Sydney and Melbourne over the last 2 years, the answer is simple. Astute investors don’t buy in a market that has already done 20% growth hoping for a further 30% more when the government regulators were doing their best to stop them in April 2016. Our clients with the assistance of the correct experts around them buy in a bottoming market with greater upside that indicates reduced risk.
Have the regulators achieved a favorable outcome with increased bank rates and tighter servicing standards?
Bank rates in the 2017 financial year have gone up significantly for Investors and interest only recipients. It would be music to a lot of your ears that this seems to have stopped and the gap between Owner Occupied rates and Investor rates should be set for some time. I personally don’t see the major banks giving up this new margin when the profitability gained from such changes was and is significant for the major banks involved. I have always said, if you could increase your profitability by 30% and only lose 10% of your clients due to strong loyalty, most business owners would sign up!! The banks have done extremely well from the regulators hard work.
Yes the regulators in my eyes did do their job, the credit market is tighter which is a good thing, Brokers and bankers handing out credit incorrectly and over committing their clients has reduced due to increased servicing rates when banks determine loan capacities along with other initiatives completed to rein the banks and brokers in. We all now have to have stricter conversation’s around living expenses along with lending and interest only capping I already covered off on earlier. In banking I have always had a simple rule of thumb – If the lending institutions can’t lend you the money there is a pretty good reason behind it and maybe you should be thinking about borrowing a smaller amount or changing strategy”
All of these changes have certainly cleaned up the industry a lot and will go a long way to assisting with reducing our consumer lending growth of 40 billion a year annually and getting us ready for the future Banking Royal Commission ahead of us. I believe a lot of the hard work already done on the lending side of the ledger by the broker associations and banks over the last 18 months which should shield residential lending from being a major focal point during the Commission.
My door is always open for loan structuring and strategy conversations so please let me know when you would like a meeting to discuss your personal situation. Also don’t forget if the 3.69% rate does interest you for an Investment facility for new Resimac clients, this offer finishes at the end of Feb 2018 so we only have 1 week to organise, reply to me or/and Amber-Lee my EA or call on 1300 254 228 and we will arrange a quick 15-30 minute discussion to plan a better outcome for you.
http://www.alic.com.au/wp-content/uploads/2018/02/questions.jpeg500780immwpuser01http://www.alic.com.au/wp-content/uploads/2016/08/logo.pngimmwpuser012018-02-19 00:19:072018-02-19 01:07:04More Information you need to know now : Part 4