Another month has gone by with the Reserve Bank of Australia’s official cash rate sitting at 1.50%. The lowest it has ever been. The home loan market is largely following the general credit environment which is being effected by the factors outlined below.
Key Factors Impacting The Current Credit Environment
The current credit environment is being effected by three general factors.
1. General Economic Variables
Leading up to May’s Federal election, Australia’s economic variables can be summed up as follows:
- Low unemployment rate
- Low wage growth
- Low interest rate environment
- Zero inflation. The Consumer Price Index (CPI) for the March quarter was 0
- High household debt levels
2. Property Market Outlook
The property market around Australia can be summed up in the numbers below.
- Property markets around Australia peaked in mid 2017 and have softened since
- The combined Australian market is down 6% since the peak in mid 2017
- The Sydney market went down 7.8% during 2018
- The Melbourne market declined 6.4% during 2018
- The only state capital city increasing at the moment is Hobart. This is all due to high levels of inter-state migration
3. Regulatory Changes
Regulatory concerns are weighting heavily on the credit market at present. The recently completed Royal Commission into the Banking and Insurance industries has had quite an impact on how Lenders are doing business.
- Royal Commission has Lenders looking very closely at their processes. This is pushing home loan application timeframes out. A lot of Lenders are reviewing their processes and applying much more oversight and governance
- Responsible Lending Guidelines are being re-examined and in some places re-interpreted. Lenders are erring on the side of caution on just about all decisions. No one wants to be accused of appearing to to contravene the Responsible Lending Guidelines
- Verification of income and expenses is proving to be very challenging at the moment. Again, Lenders do not want to attract any further negative press
Current State of Credit Markets
As a consequence of the above factors, the current home loan market can be summed up in the following way.
1. Lending Is Down
General lending is down 20% compared to last year, which in turn was down on the year before.
2. Changes In Lender Policies
Lenders are revising their policies in order to adhere to ASIC and APRA changing rules. Lending criteria is going to be tightened up further as a consequence.
3. Royal Commission & Changes To Regulations
Lenders are still trying to work out how to adopt the Royal Commission’s findings. There are a number of changes to the Lenders’ internal and external processes and systems. Lenders are implementing these changes as quickly as they can. Generally, the bigger the Lender, the longer this process takes due to size, complexity and cost of their operation.
4. Comprehensive Credit Reporting Regulations
This was mandated by the federal government to help consumers access their credit data more readily. This will also be used by Lenders and other Credit Providers. These regulations should be very positive for consumers with good money habits.
5. Federal Election
Labor’s promised changes in the removal of Negative Gearing on existing property, and halving of the Capital Gains Tax is causing uncertainty. The full effect of these changes will only become apparent once the final legislation passes Parliament and is implemented.
Major Interest Rate Changes In May 2019
With the above changes in mind, a number of lenders have reduced their Fixed rates. Some examples of these are as follows:
Owner Occupied Fixed Rate Loans
ING: 2 Year Fixed 3.59% p.a. (4.72% p.a. comparison rate) when combined with Orange Advantage
variable loan, P&I repayment only, up to 95% LVR including LMI, $299 annual fee
Suncorp: 3 Year Fixed 3.49% p.a. (4.25% p.a. comparison rate), P&I repayment only, up to 90% LVR including LMI, $375 annual Package fee
Macquarie: 2 Year & 3 Year Fixed 3.69% p.a. (3.79% p.a. comparison rate), P&I repayment only, max. 70% LVR, no ongoing fee
Investment Fixed Rate Loans
AMP: 2 Year Fixed 3.88% p.a. (5.42% p.a. comparison rate), P&I repayment only, up to 90% LVR + LMI, no annual Package fee if loan is 100% fixed (no variable split)
Westpac: 3 Year Fixed 3.99% p.a. (comparison rate not available) – IO repayment only, up to 90% LVR including LMI, $395 annual Package fee
Variable Rate Loans
Citibank: currently offering 3.55% variable rate (3.60% comparison rate) for Owner Occupied refinance only. Min. loan $500,000, 80% LVR max., P&I repayment, PAYG income only. $399 application fee, no ongoing fee.
A number of lenders are still offering purchase or refinance rebates.
ANZ: offering up to $3,500 refinance rebate for loans $700,000 or above, or up to $2,500 refinance rebate for loans between $400,000 to $700,000. P&I repayment only for Owner Occupied or Investment, $395 annual fee applies. Limited time only.
St George & Westpac: offering $2,000 refinance rebate, or $1,000 purchase rebate for loans of $250,000 or more per property under Package ($395 annual fee applies); P&I repayment only for Owner Occupied or P&I or IO for Investment. Limited time only.
Please contact us to find out more!