2017 Lending Update

In our first lending update for 2017, we wanted to share some fairly significant information with you regarding recently announced changes to the pricing of home loan and investment property loan products which you may or may not be aware of. These changes affect anyone who has an investment property loan or is on an interest only repayment structure or those of you that utilise line of credit products secured by your home.

From the middle of December most of the banks including the big 5 lenders – CBA, ANZ, Westpac, St George and NAB, all announced increases to the home loan rates. Significantly, but not unexpectedly, without any corresponding change in the RBA cash rate.

As background, the reason for the changes are driven by the ongoing regulatory pressure being applied to the banks. As discussed previously in this newsletter, since mid-2014, the regulators, as part of their efforts to try and slow local property market growth, have been influencing and directing bank behaviour and specifically their lending activity through increased regulatory requirements and supervision. As an example, two of the directives introduced, are that a bank’s investment property loan book must not grow by more than 10% per annum versus their total property loan book AND they require the banks to hold more capital against their investment property loan books, meaning that banks have to make those loans more expensive if they want to maintain their return on capital objectives. Over the last 18 months, the banks have responded to these directives in a number of direct and indirect ways, increasing pricing in the way they have, certainly addresses their issues but at the expense of you, the customers. It is also important to be aware that this is the 3rd time in the last 18 months that we have seen these types of changes and increases.

So what are the changes?

• Investment property loans – ANZ, CBA and NAB all increased their variable rates by between 0.07% and 0.15%, with NAB being the highest change at 0.15%
• Interest ONLY loans – Westpac and St George increased pricing on all loans, owner occupied loans and investment property loans, with an interest only repayment structure by 0.08%. (NAB already have this differential pricing in place, with interest only loans being 0.1% more expensive than principal & interest loans). CBA have also flagged their intention to introduce this differential pricing by informing the market that they will be introducing specific interest only products and pricing in March 2017.
• Line of credit – CBA, ANZ, Westpac and St George all increased pricing by 0.15%

So what can do about this – firstly be aware of what the changes are if they affect you. Secondly review the market or get assistance in reviewing the market, to see if your particular situation is in line with the other providers. Whilst these changes may appear to be fairly small, this is not the first time they have increased rates in this manner and it all has an impact on your overall loan cost. If any of you would like assistance in evaluating where your pricing and offering sits in comparison with the current market, LogiX Financial are always happy to perform a debt review free of charge. Be Proactive.