BANKING INFORMATION YOU NEED TO KNOW NOW: PART 2
On the 23rd of February we e-mailed out “Banking information you need to know now” Part 1 (http://www.alic.com.au/banking-information-you-need-to-know-now/), to ensure that you as a valued client understand how to respond and or interpret such changes in the market place as well as being in the “know”. ASIC/APRA are still enforcing changes in the market and they will continue to do so until the Melbourne and Sydney market growth moderates. YES the banks will continue to be ‘Open and Close’ dependant on their current lending levels and capital requirements.
Some of the Institutions like AMP and CUA have closed up all investment lending as well as larger banks like CBA being restricted to taking on new Investment clients under the regulators 10% speed limit.
Other major changes include by ASIC/APRA and the banks that you need to know are –
- Investment rates are on the move with some majors moving between 40-60 basis points over 6 months, this will continue until the market slows in Melbourne and Sydney and the banks are happy to recover margin.
- Banks are now limiting the number of interest only loans that an institution can approve. Some banks have to reduce this by 25%. This will create some drastic changes for all borrowers with some investors forced to pay principle and interest.
- The government regulators are making it harder to rollover an interest only loan by ensuring that income verification will be required as a minimum in future. Changes in circumstances around income could mean your interest only loan repayments could increase by 50% because the income serviceability test won’t allow your loan to be rolled over a further term on interest only.
- Investors are still getting the blame for the market growing at such a rate, which is very debateable in Sydney and Melbourne.
- Owner Occupiers taking out incredibly large home loan debts are really the main driver of the growth while more astute investors sit on their hands in the states of Melbourne and Sydney and focus on more valuable future markets.
- Second tier banks have offered better rates by significant amounts with the majority of customers exiting the majors to save and experience a better alternative. Rates for investment lending as low as 3.79% variable are still possible now on interest only via such a channel.
- Many lending institutions are slow and pedantic in this market and loans are taking longer than ever to process which fundamentally is a reaction to the regulators keeping everyone on their toes. Not a decision is made internally without every facet of the transaction being scrutinised which can become frustrating for you as a client. An extra two weeks of processing delays can certainly be worth the savings though!
- The Victorian state budget was announced with the proposed cancellation of further stamp duty exemptions between spouses for investment properties. This will have a profound impact for a lot of investment lending clients wanting to increase their deductible debts in Victoria (the window is potentially open for 56 more days). Come back to us immediately if you are wanting to transfer ownerships to get your correct lending structures in play.
APRA and ASIC are doing a good job ensuring the property and lending markets are safe and managed appropriately, the negative aspect is you as a client are left up in the air on most of these matters until you go and borrow or change your loan in some form and it could be too late in a few weeks or months to structure accordingly around cash flow and gearing.
Negative Gearing is a massive topic and Labour seem determined to change it drastically, Liberal are more conservative and will look to tinker. Note either way it should be grandfathered if drastic changes occur, this means what you have now you should keep, so any clients wanting to buy in before changes should so sooner rather than later.
With the property market showing great value in the right areas, our experts are buying nationally and we are on the plane next week for 3 days to research new markets coming on. Remember every dog has its day and there has been an incredible amount of opportunities outside of Melbourne and Sydney over the last 5-10 years that our experts wants you to know about and show value.
Each and every one of these are important changes you need to know and understand in the banking and brokering industry at present. As an astute Investor client of ALIC, we are excited by the changes as that will bring opportunity and if our clients continue to buy correctly using the right experts and ALIC around structuring loans to benefit you, there can be some great upside and reward. In closing, the three main points you should be acting on are –
Rates at second tiers can save you some substantial money in this current market while the majors keep increasing the investment rates when trying to maintain profits off lesser volumes. We feel the second tiers will be requested to change their home loan rates for investor’s policy shortly and all clients grand fathered will benefit greatly. You have a matter of 56 days to get organised to take advantage of a FREE stamp duty concession between spouses on investment properties. Don’t forget the banks and solicitors need to process these changes so contact us now if you want this change completed and you don’t pay full stamp duty at a cost of up to $30k for a $550k dwelling.If your incomes have changed, PLEASE ensure you keep offset funds available because your payments could increase by 50% on loans that are unable to be rolled over for a new interest only term.
Please call 1300 254 228 to organise a time if you want to discuss any of this as there is limited time before the changes are implemented.
Have a great day and thanks for being a valued client of ALIC.