Most of you will recently have received a letter from your bank advising that the rate on your home loan has been increased. This is on top of other out of cycle rate rises passed on by the banks late last year. Why is this happening?
The government agencies ASIC, APRA and the Reserve Bank have long been concerned about the booming Sydney and Melbourne property markets. As a result, they have been applying pressure to the banks to rein in their lending to investors in particular but also to other borrowers. This has resulted in the banks tightening their lending criteria across the board and increasing their interest rates. Despite the fact that the market here in WA is in the doldrums, we are being tarred with the same brush.
Examples of recent tightening in lending criteria include:
– Forensic examination of borrowers’ living expenses
– Loan term being aligned to your anticipated retirement age
– Maximum interest only periods being reduced
– Serviceability for interest only loans being assessed on the P&I payments after completion of the interest only period
– Lending to overseas borrowers either cancelled or severely restricted
– Percentage of rental income included reduced
Interest rates for investment and interest only loans have borne the brunt of the rate rises with most of these loans now having interest rates nearly one per cent higher than a P&I owner occupier home loan. If you’re hoping for an end to these rate rises, you may well be disappointed. It is highly likely there may be another one or two out of cycle rate rises later this year.
The only way to protect yourself is to consider fixing part or all of your loan. Refer our recent BLOG on fixed rates. Two and three year fixed rates at less than 4% are still available so if you are interested, please give us a call.
Some examples or recent articles talking about rate increases