Rate changes mean it’s time to take stock
4 July 2017
We’ve come to the end of a financial year that has jolted loan rates.
The regulator – APRA – has issued two directives that have impacted on the loan industry. APRA told all banks to limit their exposure to investor loans. More recently, APRA told the banks that they could not have more than 30 per cent of their books exposed to interest-only loans.
This is significant for the banks, which like interest-only loans. Why wouldn’t they? The loan never reduces so their interest received remains the same. But APRA senses an issue for Australia’s housing market if these interest-only loans are not limited. So, the banks must toe the line.
But the banks, which are also facing the impact of the bank levy delivered in the recent Federal Budget, still want to deliver profit to their shareholders. So, here’s the catch that impacts loans across the country. While they can’t increase their interest-only loan books, they want to generate the same profits. So, in recent weeks, the big banks have increased the rates on interest-only loans. Last week, the Commonwealth Bank was the last to do this while slightly lowering their rate for owner-occupiers. This week we have seen the smaller banks follow suit. All interest only borrowers will see the impacts of these changes.
At Front Row, we’ve had several requests from clients to review their loan structures following these changes. We recommend this – for many people there are now better options available than when they first signed up to their loan. We’re advising anyone who would like to discuss this to directly contact us.
Life can be busy so it’s important to take stock of loans, particularly after such an active year for rates around the country.