Weekly wrap - Friday 6th November
Interest rates cuts
We did some reading this week after the Reserve Bank of Australia announcement on Tuesday, to understand more about what's driving the RBA to bring the cash rate down and then bring interest rates down, which obviously flows onto us as borrowers. A lot was mentioned about a hundred billion dollar package to support what's called quantitative easing, a way for them to be able to manipulate interest rates.
The cash rate is reduced to 0.1%, which is the lowest in history. That basically allows the banks to then pass on cuts to us. The goal is to allow most of us to borrow money as cheap as possible. Whether you're a household buying a home or a business wanting to expand, the lower the cost of finance for everybody, then the more support is provided to recover from the pandemic.
It was the third time since March this year the RBA have dropped rates and the sixth time since June 2019.
A large majority of banks moved their variable rate, but none of the big four banks. Where the big wins have been is in the fixed rates space. We saw a five year fixed rate with ANZ dropped down to 2.29%. Commonwealth Bank has their four-year rate at 1.99%. NAB did the same with their four-year fixed rate down to 1.98%. And Westpac’s four-year fixed rate is 1.99%.
Surely if you're a homeowner, this benefits your position hugely.
We talk a lot to clients about a possible split strategy, the best of both worlds: part fixed, part variable. You can still be reducing your loan whilst having a big portion of the funding locked in at a certain rate. Reach out and we’ll help you figure out what’s the best option in your situation.
We've got clients who have outdated products with a four in front of it calling us. Without even changing banks, we've helped renegotiate these down to 1.99%. That's half the rate!
Review of the responsible lending guidelines
We're getting feedback such as: "I’m going to hold off till next year because the laws are changing, and it's going to be really easy for me to borrow money. You know, the bank's not going to look at my income or my liabilities."
We just wanted to clarify that a lot of that's not changing. What is open for discussion is the monthly living expenses; your discretionary spending. There's going to be more ownership around understanding what we're spending from a general lifestyle point of view and how that affects our ability to meet our mortgage payments. So that's the big change. There's still going to be some investigation and discussion, but that ownership piece is on you. So you're still going to need to confirm income to the same level you do now. Your credit files are going to be expected to have good conduct. None of that is going to change.
Christmas is coming!
It's the start of November. We talked a lot about how long things are taking and have been taking over to get approval. Now we have to couple that with the rush to Christmas. Solicitors are going to take off and there's going to be a closed down period.
Some banks can still pull things through, but which ones and how do you know that?
That's our role to help you.
We've had a discussion with a solicitor this week who had instruction from a seller saying that they wouldn't take settlements post December 18 or before January 10. That's a huge gap. If you've got a contract in play and you've got to have a finance clause or a settlement clause over that period, that's big.
So it's just a friendly reminder from our side to reach out and have discussions early.