18 May 2022
This week we had Simon Orbell of Smartmove Mortgage Advisors to talk to our team, giving an update on the lending environment given the recent increase to the cash rate. Here is a quick snapshot of a few things going on when it comes to interest rates, fixed rates, approvals, and rebates in the banking industry.
Simon Orbell Smart Move
Interest Rates
As we all know, interest rates are on the rise. However, no one knows by how much and how quickly they will increase. Given mixed commentary from economists of the big 4 banks as well as the futures market, it is safe to say that nothing is set in stone.
At this point it is important to remember that even if interest rates rise to the level currently forecast by the more conservative economists, we will still have interest rates well below the long-term Australian interest rate average.
Fixed Rates
Currently, most fixed rates on your mortgage are at least 1.2% – 1.5% higher than variable rates. This means you need between eight and twelve rate rises of 0.25% to just break even on a fixed rate, so right now, most of our clients are choosing to stick with variable rates.
Bank Assessment Rates
The banks are still assessing borrower’s ability to repay loans at 3% above the actual rate the borrower pays. This is twelve rises of 0.25% above current rates. This provides comfort to the borrower and the market that if rates rise, borrowers should still be able to afford it.
Borrowing Capacity
When looking at rising interest rates it is important to note that borrowing capacity reduces. To give an estimate, a 1% rise in interest rates creates a 10% reduction in borrowing capacity for borrowers.
Pre-approvals
Many lenders are not giving certainty to their pre-approved customers. What this means, is that if you are pre-approved with some lenders, they won’t honour your preapproval if the rate has risen since the pre-approval was put in place. It is our advice to make sure your preapproval is still valid or speak to a broker who can get you a pre-approval with certainty.
It is also important to make sure that when you are getting a pre-approval that you ensure it is a “fully assessed” preapproval, not an electronic preapproval that is generated by the computer system of your lender, so you don’t run into any hurdles down the track.
Refinance Rebates
We are seeing lenders offer up to $6,000 as a refinance rebate to persuade customers move lenders and refinance. There is plenty of competition in the marketplace for customers to get a better deal than their current one, so please reach out if you need assistance with this or anything else when it comes to mortgages or refinancing.
In the current market it is important to have the best mortgage advisor on your side. Please don’t hesitate to contact Simon Orbell, Team Leader & Director – Smartmove on sorbell@smartmove.com.au or 0403 403 899.
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