The banking landscape for lending to property transactions in the wake of the Royal Commission has dramatically changed. Many will attest that the biggest influence of property prices is access to credit. Australia is just coming off the back of a credit boom, with record low interest rates cultivating an environment of easy money for all borrowers for many years. Through our residential finance business, we are at the coalface witnessing the banks softly decreasing their appetite for writing new loans. In some instances, clients that would have been considered blue chip by the banks 12 to 18 months ago, are struggling to service their existing debts and proposed new lending. The reasons for this are as follows:
Living expenses are coming under greater scrutiny: Banks are now combing over client’s bank statements with great scrutiny. Where once upon a time borrowers were free to simply declare their living expenses, banks are now verifying these declarations by cross referencing them with transactions from statements. Therefore, if applying for credit, it’s a good idea to check through your statements to see if there are any unnecessary charges or direct debits going out every month that could hamper your servicing.
Assessment rates are starting to bite: When applying for finance, the bank assesses your ability to make repayments at a higher rate than what you will actually pay. They also assess all your existing debts at the higher rate as well, called the assessment rate. At the moment, assessment rates are at least 2 percent higher than actual rates, but are typically between 7.5 and 8.5 percent. You can see how this would considerably reduce monthly cashflow for borrower servicing.
Rates are increasing: Despite the RBA leaving rates on hold for approximately 2 years at 1.5%, banks have been increasing their variable rates by up to 0.2%. Costs of wholesale funding from overseas markets are predominantly blamed for this increase but this again, places pressure on borrower’s ability to service new loans and monthly cashflows.
Interest only is becoming harder: Once a favourite of the banks and borrowers alike, regulatory changes have meant interest only loan growth is being restricted. This has pushed rates higher for those looking to refinance their existing interest only loans. In some cases, borrowers coming off interest only loans have only been able to refinance to principal and interest repayments, albeit at a much more affordable rate, but higher monthly repayments which has further impacted servicing.
At the moment, our residential finance division is seeing a high volume of transaction from clients who typically have multiple properties. What has happened over time, is that their rate has gradually crept up with their existing bank and they are now seeking to refinance to lower cost opportunities in the lending marketplace. The reality is that it takes a great deal of expertise from your mortgage broker to restructure a portfolio of properties in the current financial market. We are still able to successfully restructure deals and save clients a small fortune per year in the process. If you would like an expert to cast their eyes over your current property portfolio debts, speak with Shoheel Khan on 0418 110 870 or [email protected] or Conor Macnamara on [email protected].