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Banks Raising Rates – Our Plan of Attack!

Banks are all raising their rates and this will be rightly concerning many of you. We felt that we should provide you with an update on what has happened so far, what still needs to happen and what our ‘Plan of Attack’ should look like.

The reasons given for raising rates are rising funding costs and increasing prudential regulations placed on lenders with regards to their lending behaviour. Borrowing conditions have been good for a long time which the regulators see as contributing to the heat in the property market (specifically Sydney and Melbourne). The main lending areas being targeted are investment loans and interest-only loans.

What has happened so far?

All the big 4, and some second tier lenders have recently announced variable interest rate changes. Rates on investment loans have been impacted the most.

What still needs to happen?

There are two important things that Vision is keeping a close eye on:

  1. How many other lenders follow, and how will their rate movements compare.
  2. Whether lenders alter their discounting policies. Almost all our clients receive discounts from the standard variable rates (based on many factors). We need to monitor whether, after these rate rises, banks will be reviewing the level of these discounts.

It may take a few weeks for these factors to play out.

Plan of Attack

It is not a good time to immediately move lenders purely based on rate because you could pay a lot of refinancing costs, only to find out that your new lender is not cheaper. Here is what we should do:

  1. Find out exactly what your lender is doing to each of your loan accounts – you should receive a letter from them.
  2. Wait to see how other lenders move and whether your bank will change their discounting policy – we will know more about this as more announcements are made.
  3. Review your long term lending strategy with us and we can review how to save you money whilst retaining optimal lending structures.

Vision will assist you with all of these deliberations. We see it as a key part of our role to ensure your lending strategy is relevant and that your rates are as competitive as possible, now and into the future. Contact us to discuss further.

2 Comments

  1. Rob McCann on March 28, 2017 at 9:25 am

    Good work Hamish. I would have thought also that locking in rates might be an option albeit it inhibits the ability to switch lenders.

    • Hamish Ferguson on March 28, 2017 at 11:08 am

      Hi Rob, great point. We would consider locking or fixing as part of the long term strategy. Fixing can be great when you really want to consistency of having the same repayment each month and not letting market forces change this. If you have a young family and cashflow is limited then fixing may be a good solution here. As you have alluded to, fixing though is more restrictive and if you don’t fix for the right reasons, you may regret this down the track if rates drop further later on. Our suggestion would be if you are thinking of fixing to give us a call first so that we can gather more information and help you with this decision

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