07 March 2023
Update from Simon Orbell of Smartmove Mortgage Advisors
We recently had Simon come to chat with us about the lending market, and what market indicators he could see from his industry. There was lots of discussion, many questions answered and lots we can take away to help our clients on their buying journey. Thank you Simon and the team at Smartmove!
Here is a summary of the points we discussed:
Inflation & The Economy
Inflation continues to trouble the Reserve Bank as they try to bring it back into their preferred range of 2% – 3%. But why are the Reserve Bank so worried about inflation?
Inflation is a rise in the price of goods and services which leads to a decline in purchasing power over time. Our dollar doesn’t go as far because everything costs more.
In Australia, inflation data gets announced quarterly – the next announcement is April 26. In the US, it gets announced monthly and the next announcement is due March 14. All eyes will be on this result and what it means for interest rates.
Interest Rates
Interest rates are the Reserve Bank’s way to try and reduce consumer spending which “should” help reduce inflation. By increasing rates people spend less in various areas of the economy and hopefully help to get inflation under control. The issue is that it can take some time for interest rate rises to take effect.
Based on the current data, most economists are predicting between 2 & 4 further rates rises this year. Then, depending on which economist you follow, 4-7 rate drops in 2024.
The best variable rates we are seeing at as low as 4.81%. The best fixed rates we are seeing are around 5.39% with some of the lenders.
The “fixed rate cliff” continues to flow through, with huge numbers of fixed rate customers moving to variable rates over the coming months.
Case Studies
We have had recent scenarios where one lender will lend anywhere from $150,000 to in some cases over a $1 million more than other providers. Obviously the key in these situations is affordability for the customer but there are solutions that allow customers to do more (property wise) with the right strategy and approach.
We have also had some clients who have come to us after getting declined by a bank who we then manage to get approved at another bank or even with the same lender by ensuring their application is presented in the best light and also by leveraging key relationships in the lenders to get the right outcomes.
The above is why if you are talking to the bank direct you need to be speaking to a quality mortgage broker. Around 70% of all residential loans in Australia now get originated by mortgage brokers.
For Those Who Are Building
We are having a lot of customers run out of money during their renovation/build process.
Getting additional funding/lending from a bank mid construction can be very difficult. I encourage anyone looking to renovate or build to get their financing in place before they start their build process and build in a solid buffer of additional funds to ensure any cost overruns don’t cause issues during the process.
Mortgage Prisoners
Whilst it is a terrible name, a mortgage prisoner is a customer who cannot refinance as they cannot show on the different bank metrics (including the ability to show that they can afford the loan at a 3% interest rate buffer on top of the actual rate the customer will pay – called the “assessment rate”) that they can afford the loan. As rates have risen as fast as they have, there are a number of mortgage prisoners who aren’t able to get a better deal as they cannot show that they can afford the new loan. However, some lenders are starting to make this easier by not actually conducting a traditional serviceability check but focusing on whether the customer will be better off under the new loan or not in terms of working out if they will approve the loan or not.
Application Numbers
Lastly, within our business we are seeing new application numbers as strong as we have seen in the last 12 months which is a good leading indicator. Whilst our refinance numbers are up, we are also seeing strong purchase applications as well.
If you or anyone you know are looking for professional mortgage advice, please get in touch with Simon and the team at Smartmove, with contact details as follows:
Simon Orbell | Smartmove
Mortgage & Finance Advisor, Team Leader & Director
Mobile 0403 403 899 | sorbell@smartmove.com.au
Read Simon’s last update here.
