Seismic shift: two major banks hike fixed interest rates

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Are the days of ultra-low fixed interest rates over? It’s looking increasingly so, with two major banks increasing their fixed rates this week. So if you’ve been thinking about fixing your mortgage lately, it could be time to consider doing so.

Do you know how when one tectonic plate shifts, others around it soon follow?

Well, in the past week, the Commonwealth Bank (CBA) and then Westpac hiked the interest rates on their 2-, 3-, 4- and 5-year fixed-rate home loans by 0.1% (for owner-occupiers paying principal and interest).

Meanwhile, ING also lifted its fixed rates on 2- to 5-year terms by 0.05% to 0.2%.

For mortgage-holders, it’s a clear ol’ rumbling sign that the days of super-low fixed interest rates are coming to an end.

So why are banks increasing fixed interest rates?

The Reserve Bank of Australia (RBA) has repeatedly insisted the official cash rate isn’t likely to rise until 2024 at the earliest.

But it seems the banks don’t believe them. The banks think it’ll happen sooner.

CBA, for example, is currently predicting the RBA will increase the official cash rate in May 2023, while Westpac is predicting a rate hike in March 2023 – both well before the RBA’s 2024 timeline.

Given that’s about 18 months away, the major banks are now adjusting the fixed rates on fixed terms of 2-years and longer, in order to head off the expected rise in their funding costs.

“Lenders are scrambling to lift fixed rates before they start to feel the margin squeeze,” explains Canstar finance expert Steve Mickenbecker.

“Borrowers shouldn’t be so complacent as they must expect rises inside two years, and the closer they get to that point, the less attractive the fixed rates alternative will be.

“They may want to consider fixing their interest rate for three years or longer, while the going is still good.”

Variable interest rates cut

Interestingly, a number of the banks – including CBA and ING – simultaneously slashed interest rates on some of their variable-rate home loans this week.

And CBA even cut their 1-year fixed rate by 0.1% (for owner-occupiers paying principal and interest).

So why did they do this when (longer-term) fixed rates are going up?

Well, aggressively competing for customers on variable-rate mortgages (and 1-year fixed) makes sense for lenders when a cash rate hike is predicted to be at least 18 months away.

They can always increase their variable rates when needed, but they can’t do the same for borrowers locked in on longer-term fixed-rate mortgages.

So what’s next?

As mentioned above, when the big banks make a move, it’s not uncommon for other lenders to follow suit – as seen with ING this week.

So if you’ve been on the fence about fixing your rate, it’s definitely worth getting in touch with us sooner rather than later.

We can run you through a number of different options, including fixing your interest rate for two, three, four or five years, or just fixing a part of your mortgage (but not all of it).

If you’d like to know more about this – or any other topics raised in this article – then please get in touch today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How 1-in-10 first home buyers cracked the market 4 years sooner

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Almost 33,000 Australians bought their first home four years sooner thanks to two federal government schemes that give first home buyers a leg up into the property market. Could you, or someone you know, be eligible?

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

This week the federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

Hold up, what are these first home buyer schemes?

The FHLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

So who’s using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are aged under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme’s recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

How to secure a spot

We’ve got good news. And a bit of not-so-good news.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there’s still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you’re a single parent there’s a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don’t need to be a first home buyer.

Last but not least, it’s worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously the federal government made a surprise announcement to release 10,000 additional spots in January.

So if any of the above schemes are of interest to you, get in touch with us today and we can run you through everything you need to know about them so that you’re ready to apply when the time comes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

SME lending options are on the rise, but how do you access them?

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While many SME owners worry about their access to finance, a surge of new lenders and products is rapidly expanding the options available. And brokers have an important role to play for businesses, says the Productivity Commission.

Changes to lending markets over the past decade mean there’s now a wide range of business finance options that don’t require property as security, according to a new report by the Productivity Commission.

However, a lack of awareness of these new finance options is one of the biggest hurdles preventing SME owners from accessing them.

This is where a broker with up-to-date market knowledge can play an important role for your business, explains the Productivity Commission.

“SMEs may not be aware of all their lending options and may not feel confident about new options. Brokers can help match them with appropriate lending options,” the Productivity Commission says.

“These options include borrowing against alternative collateral – such as vehicles, machinery and intangible assets (for example, invoices and other expected receipts) – and unsecured lending.”

Why are more SME finance options emerging?

Changes to prudential rules have made lending to SMEs less attractive for the major banks, but at the same time, created opportunities for new and established non-bank lenders, says the Productivity Commission.

This has resulted in a broader range of lending options beyond traditional property-secured loans for SMEs, especially with the emergence of fintechs and more accessible borrower data.

“Combining new data sources with innovative analytical tools (such as artificial intelligence and machine learning) has given many lenders the information and confidence to lend to SMEs without the security of property,” adds the report.

However, while most SMEs are aware of banks as a source of finance, awareness of the newer options is more limited.

How we can help your business

As brokers, we’re constantly upskilling and learning to make sure we stay abreast of the finance options and players in the SME finance space.

“Brokers are expected to have current market knowledge and participate in ongoing training to stay informed about new lenders and products,” explains the report.

“For example, aggregators and industry associations hold various educational events – including conferences, workshops and webinars – to improve brokers’ understanding of SME lending options.”

And it’s for this reason that the Productivity Commission highlights the key role brokers can play for busy SME owners.

“By connecting borrowers to lenders, brokers can play an important education role, particularly for those SME customers that do not have the time or inclination to undertake detailed market research,” says the report.

So if you’re in need of finance for your SME business, but don’t know where to start, get in touch today.

We’d love to run you through the growing number of finance options available for SMEs like yours.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Is a home loan lending crackdown on the horizon?

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The federal treasurer has given the strongest indication yet that a home loan crackdown is coming, stating that “carefully targeted and timely adjustments” may be necessary to avoid troubled waters. So what could a potential lending crackdown look like?

Lending standards and fast-rising property prices have been hot topics of late.

Interest rates are at record-low levels, and the typical Australian home has seen its value increase more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

It’s a recipe that’s making financial regulators a touch worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.

So federal treasurer Josh Frydenberg recently met with the Council of Financial Regulators – which includes APRA, ASIC, the Australian Treasury and the RBA – to discuss the state of the housing market.

“We must be mindful of the balance between credit and income growth to prevent the build-up of future risks in the financial system,” Mr Frydenberg said in a statement.

“Carefully targeted and timely adjustments are sometimes necessary. There are a range of tools available to APRA to deliver this outcome.”

What could this possible crackdown look like?

Here’s an interesting stat for you: almost 22% of Australians have a mortgage debt that’s more than six times higher than their annual income, according to the latest data from APRA.

That’s up from 16% just one year ago.

The fact APRA mentions that particular stat gives us a pretty good clue as to what one possible lending crackdown measure could be.

“Most analysts expect that this time, APRA will target debt-to-income ratios, probably by limiting the proportion of loans that can be made above six times an applicant’s household income,” explains the ABC.

It’s also worth noting that Mr Frydenberg and APRA are not the only ones to publicly indicate that change could be on the horizon – the RBA expressed similar concerns about the increase in housing prices and housing debt just days ago, too.

“Even though the banks have strong balance sheets and lending standards are being maintained, there is a risk that in this environment, households will become increasingly indebted,” RBA assistant governor Michele Bullock wrote.

“A high level of debt could pose risks to the economy in the event of a shock to household incomes or a sharp decline in housing prices. Whether or not there is need to consider macro-prudential tools to address these risks is something we are continually assessing.”

Want to know how a potential lending crackdown might affect you?

It’s worth reiterating that we still have very limited information available about what financial regulators have in mind for any potential lending crackdowns.

What we can do, however, is help you assess your potential debt-to-income ratio on any property purchase you currently have in mind. And we can also help you determine your borrowing capacity in the current lending landscape.

So if you’d like to find out more, get in touch today. We’d be more than happy to run you through it all in more detail according to your personal circumstances.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Only half of SMEs have recently been able to secure full funding: report

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Almost one-in-two SMEs have applied for new funding in the last six months, a new report has found, and of those SMEs only half were successful in obtaining the full amount they were seeking.

If you haven’t already figured it out over the past 18 months, small and medium-sized business owners are a pretty resilient bunch.

You know that classic 90’s Chumbawamba song: “I get knocked down, but I get up again…” Yeah, life as an SME owner can be a little like that at times.

In the latest round of knock-downs, a survey of 1750 SMEs nationwide, conducted by East & Partners and Judo Bank, found that 48.1% of SMEs had applied for new funding in the last six months.

And of those SMEs, only 50.4% were successful in accessing the full amount, 22% were partially successful, and 27.7% were unsuccessful.

What else did the SME funding report find?

It seems the bigger you are, the better your chances of securing funding.

Twice as many businesses in the $1 million to $10 million turnover range were unsuccessful in their application for funding (36.5%), compared with just 15.9% in the $10 million to $50 million turnover category.

And difficulty accessing new funding is especially pronounced if you work in the retail space, with 44.4% of retailers unable to secure new funding compared to a mere 8.6% of builders.

SMEs are primarily borrowing for working capital (91.1%), investment in new plant and equipment (48.1%), and COVID-19 related provisions including bridging finance (45.6%).

One-in-four SMEs also want new funding to hire more staff (25.9%).

How we can help your business

Times are tough for many businesses, there’s no doubt about that.

So if you’re an SME owner in need of funding, get in touch today and we can take the lead on helping you source finance.

The sooner we can discuss your options with you, the better placed your business can be to get through 2021 and thrive beyond.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.