After several consecutive quarters of record low interest rates, Australian home buyers are facing uncertain news with some banks choosing to increase fixed, interest-only and investment loan rates in the lead up to Christmas. This is despite the official cash rate remaining at a record low.
But Rob Emmett, CEO of Collins Home Loans is quick to remind us that all is not lost, as there are still lots of great home loans deals around. "Competition in the mortgage sector remains high with the diversity of loan product choice never stronger - which means that shopping around is more important than ever before" he says.
Last week the Commonwealth Bank raised rates on fixed term owner occupied and investment loans by up to 65 basis points. This week Westpac have just announced they will be raising fixed interest rates on new and existing interest-only home loans. And now the ANZ has become the latest of the big four banks to lift its variable interest rate.
Tracking the commentary by the CEOs of these banks and you quickly see that they blame changing market conditions and regulatory changes, which now requires the major banks to retain more capital as a buffer against any future risk.
Australian banks borrowing costs have also risen due to a reliance on the international capital market. Some commentators are referring to this as the ‘Trump effect’, but the reality is that the Australian banking sector has been shifting in this direction since December 2014, when the banking regulator APRA changed the criteria for investment lending in an attempt to cool property prices in Sydney and Melbourne. Therefore Trump’s impending Presidency has only probably accelerated this pattern rather than initiate it. And now with today’s news in the US Federal Reserve has increased official interest rates for the first time since 2004, Rob Emmett, sees little chance that the Australian mortgage market won't be impacted in some way.
Rob Emmett said that “the Banks have been operating independently of the RBA for some time now and I cannot see anything changing in the coming months as banks continue to respond to external pressures both regulatory and from international forces”.
Opportunity is still knocking. The question is, will answer?
Rob Emmett still think there are opportunities for good home deals but he warns that low interest rates won't last forever. “As a general rule of thumb fixed rates are one of the best indicators of market expectations of future rates and with these on the rise, we can only anticipate that there will be continued upwards pressure on rates in the coming months”, he says.
“The exciting thing about the Australian mortgage market is that origin and cost of funding differs between lenders and there is lots of competition out there”, he says. “Shop around”, is the key advice and “don't go straight to your bank, rather use a mortgage broker to identify the best options to suit your particular needs”, he says.
To cover off the perceived risk associated with interest-only and investment loan, some lenders now ask for larger deposits for investor loans, some have scrapped discounts. Others have made principal and interest repayments cheaper. Still others now offer better discounts on owner occupied loans and have moved away from promoting investment loans.
What direction to take?
As these changes vary from lender to lender, there is uncertainty in the marketplace as to which way to turn. As a mortgage broker, Collins Home Loans is in touch with the latest changes occurring in the industry and can seek out the best options to suit your particular needs. If you would like to contact one of our mortgage broker to discuss your current situation or make a loan enquiry, please click here.
