If now isn't the right time, when will be?
Written on the 18 July 2019 by Wayne Spindler
Have you heard about the latest changes that will positively affect you getting a home loan?
If you have a home or investment property loan that you'd like to refinance, or have contemplated applying for one or both, as the old cliché goes, now has never been a better time to get things underway.
With recent interest rate reductions and an update to APRA's guidance to lenders on their serviceability assessments, the stars have realigned towards borrowers and improved their potential borrowing capacity.
No doubt you have read or heard about the RBA's reduction of the cash rate to 1.00% over the last two months, with lenders passing on all of the first rate cut and part of the second to varying degrees (although some are not actually passing it on for another week or two, but that is a different story).
Hit me with the numbers?
What has received less publicity however, and what you may not have heard is that APRA has revised its guidelines to lenders and no longer requires them to assess home loan applications using a minimum interest rate of at least 7.00%, with many using 7.25% and some as high as 8.00%. Instead, lenders can now set their own "floor rate" and apply a "buffer" of at least 2.50% above the loan's actual interest rate. ANZ were one of the first to announce they would implement the change from 15 July, with a floor rate of 5.50% and 2.50%. Westpac (and its associates) quickly followed with a reduction to 5.75% and 2.50%, with their changes commencing on 16 July. MyState reduced theirs to 6.20% and 2.50% and most other lenders also expected to announce changes over the coming days it is a competitive market after all. Auswide, who actually dropped to 7.00% some time ago, are expected to match these changes over the coming days.
What else do I need to know?
All this does not necessarily mean that an application is automatically assessed at 5.50% or at 5.70%. Where the proposed loan (or an existing loan not being refinanced) has a rate above 3.00% (with ANZ for example) or 3.20% (with Westpac) the buffer rate applies so, if the actual rate is 3.50% then a higher rate would be used. This gets even more complicated when a fixed rate is involved as the "revert rate" (the rate that might be applied when the fixed rate ends) may also have to be considered. Westpac gave some examples of how their floor rate might still be as high as 7.23%!
What's in it for me?
What it does mean for home owners and investors is that owner occupied rates can be as low as 2.99% (provided you meet the product and lending requirements of the lender in question) and borrowing capacity has increased, making it easier to meet a lender's servicing requirements, which can be even better news for people with more than one loan what once was assessed at 7.25% may now be assessed at something closer to 6.20%.
How can I get up to speed and act on this?
If there are things that I've mentioned in this article that you didn't know, it reiterates the need to talk to your broker about your home loan as he/she should be across the various changes, especially in regards to servicing and capacity, and should be able to explain how they might impact on you and the possible benefits of refinancing or applying for a home loan now rather than later.
After all, your broker should be recommending a loan that is not unsuitable for you, and one that meets your current needs and objectives. This may not necessarily be the one with the lowest interest rate as this may not actually be the most suitable loan for you; there are a number of factors to consider when selecting and recommending a loan, which is why your broker is a key part of this process.
If you have any questions and would like some simple, easy to understand answers, please reach out to me on 1300 665 906.
Article written by Wayne Spindler - Senior Home Loan Specialist at Fox Finance Group
Author: Wayne Spindler
About: Senior Home Loan Specialist