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Collins Home Loans Blog

So is it time to turn the tables on your Bank?

Posted by Rob Emmett on Jun 5, 2018 3:38:12 PM

Banks

In a move mostly predicted by economists, the Reserve Bank of Australia (RBA) board has again decided to keep the cash rate at a record low of 1.5 per cent for the month of June. The cash rate has now remained at the same level for a record-breaking 21 months in a row or for the 19th consecutive rate change decision.

It is likely that the revelations from the Banking Royal Commission have influenced the RBA's decision to keep rates on hold, with an acknowledgement that residential lending market has become more difficult. This is in light of the tighter rules around living expenses as people may find it harder to get credit in the coming months. 

The key question for everyone is, how will these recent revelations from the Financial Services Royal Commission, impact on your ability to borrow money? Let’s have a quick look at some of the likely impacts for lending and tips for navigating the changes.

1. Bank loyalty will cost you money
One of the key outcomes from the Royal Commission is that existing Bank customers are not being rewarded for their loyalty, with the big four banks being called out by the ACCC for offering discounts to new customers but not existing ones.

The ACCC’s recent report identified that existing banking residential mortgage borrowers paid significantly higher interest rates than new borrowers at the same bank. And it was difficult for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort. The ACCC goes on to say that it doesn't  "...often see the big four banks vying to offer borrowe rs the lowest interest rates. Their pricing behaviour seems more accommodating and consistent with maintaining current positions". 

2. Changes in policy and pricing will vary wildly between Banks
Each bank is likely to respond individually to any credit limits shifts and policy and pricing will vary from one Bank to the next. The waters will become muddier - as each bank is likely to respond individually to any policy direction or credit limits. The knowledge of an experienced mortgage broker will be vital to navigate this changing environment.

3. Increased scrutiny on household expenses
If you think a home loan application is complex now, expect increased scrutiny on household expenses in response to the Royal Commission. The effect of these changes will be that banks will reject more applications than ever before, which is why it will be important to have an experienced broker assisting you along the way.

4. Reduced Loan to Valuation Ratios for investment lending.
Tightening of lending standards in the assessment of loans could trigger a reduction in LVR in some areas of borrowing. APRA recently removed the 10% cap on growth in investor lending, in order to preempt and offset the likely impact of any tighter lending rules arising from the royal commission.

So if you are considering buying property or refinancing an existing loan in the coming months, then seeking the independent advice of a mortgage broker has never been more important, as they can assist you to navigate this volatile and complex landscape.

Topics: blog