As the Sydney property slowdown extends across other capital cities and economic forecasts offer a fairly cheerless outlook, lenders have come out swinging, with a raft of enticingly competitive and compelling fixed rate products.
Recently, smaller lenders swept in to secure a greater slice of Australia’s lucrative mortgage market, slashing home loan rates by up to 75 basis points in some instances, in the wake of a charge by the big four to lift their retail product offerings.
The banks justified raising rates independent of the Reserve last year, citing regulatory pressure to keep a lid on borrowings, lest the property markets become too overheated with increased activity.
Now though, as the latest property data reveals a slight release of hot air from the residential housing balloon, particularly across Sydney and Melbourne, the tide is once again turning across the banking sector.
Little lenders lead the charge, but the big boys come out swinging
Following the lead of smaller lenders, Westpac recently launched a variable rate for owner occupied (P & I) loans of 3.59% – the lowest offer from the bank since 1956.
“We know many Australians begin thinking about purchasing new homes around the December and January period,” said a Westpac spokesperson, “Which is why we’re pleased to offer a range of competitive rates for new lending customers at this time.”
According to Canstar data for 23 to 29 January, rates for three year fixed residential P&I loans, and investment P&I loans recorded an average decrease of 0.21% and 0.43% respectively since December last year.
Cooler house prices could be the culprit
It’s not surprising that this current act of generosity just happens to coincide with the first signs that a more prolonged, and significant cooling of house prices seems inevitable as we head into 2018.
According to CoreLogic, house prices fell in six of our eight capital cities throughout January (an admittedly slower seasonal period for the property markets), declining by 0.3% nationally. Meanwhile, apartment prices dropped by 0.5%.
While some analysts believe this decline is a normal seasonal adjustment, CoreLogic’s Tim Lawless said, “In the absence of a catalyst to reinvigorate the market, such as lower mortgage rates or a loosening in credit policies, we expect to see a continuation of softening conditions across these markets.”
Although Lawless claims the slowdown isn’t particularly sinister, other analysts such as JP Morgan have suggested falling house prices could impact Australia’s banking sector earnings in much the same vain as occurred throughout Sweden, when house prices plummeted by 9% and bank stocks closely followed suit.
Far from a market crash however, JP Morgan expects annual house price growth in Australia will fall below 2% over the next two years, in a more prolonged, staggered decline than was witnessed in Sweden.
Predictions of a less bullish downturn haven’t stopped some hedge funds from balking at how much fiscal power Aussie banks are currently wielding over the local economy, however.
Data indicates that the total assets spread across the big four lending institutions here amounts to 220% of the nation’s GDP, causing alarmists to state the obvious – if the big four topple, they could take the entire Australian economy with them; an unlikely scenario certainly, but one that’s making some economic boffins a little edgy.
Great news for investors
While the wheels may not be set to fall off entirely, they’re undeniably turning more slowly for the local housing sector, which is actually good news for investors.
Not only does a cooler market provide those looking to make long term returns on a property portfolio with the opportunity to secure more competitively priced residential assets, it’s also fuelling an about face from the banks, who are once more reducing their retail product offerings.
Here at Trilogy Funding, we currently have the opportunity to assist clients in securing a fixed rate investment home loan from as little as 3.89% for P&I and 4.09% for interest only.
While this remarkable offer has been ongoing since last December, it does have a limited shelf life and is therefore a time sensitive proposition.
Indeed, with talk of the banks facing increased cost of funding as we head further into 2018, this current, lower rate bonanza could be short lived, particularly if the current property sector slowdown is more of a seasonal fluctuation than a significant long term cooling.
What does this mean for you, the investor?
If you’ve been contemplating a new asset acquisition, or refinancing of your current investment portfolio, there’s really no time like the present to consult one of our brokers to find out if you could be getting a better deal.
Not only does this incredibly low fixed rate product offer investors additional security around the short-term future of their repayments, providing a more structured and manageable cashflow scenario for your asset base, it also has the potential to save you thousands of dollars in interest over the life of your loan.
In terms of servicing your property investment debt, the benefits of a low, fixed repayment amount at this current juncture, where market uncertainty prevails, are undeniable…
- Finances are more manageable – less fluctuation and more certainty around monthly mortgage commitments means you can better plan and forecast your cashflow. Knowing what you have to pay each month, for an extended period of time, can provide additional peace of mind.
- Breathing space – structure your finances so that any savings enjoyed from changing to this incredible fixed rate offering now, are invested in an offset account or similar facility that allows you to create a solid cashflow buffer.
- Servicing improvements – reducing your interest repayments and having the certainty of a fixed rate loan can make your overall debt position a lot more manageable, thereby assisting with future servicing requirements going forward.
- Hedge your bets – there are many ways investors can take advantage of a fixed rate loan, without tying yourself into complicated structures that are impossible to exit, including apportioning your repayments across both fixed and variable products.
Importantly, investors would do well to remember that every market moves in cycles; what goes up must come down and vice versa. Although it may not happen in 2018, interest rates will start to move upwards again at some stage. And in the property game, he who plans ahead invariably wins the race.
Make a time to talk with one of the brokers here at Trilogy Funding about, not just fixing your investment loans to potentially save on the interest you’re paying, but also to ensure you have the best possible finance structure in place for today’s conditions, as well as tomorrow’s potential changes.
Home loans and investment loans should never be a “set and forget” proposition. In fact we recommend a review of your current loan portfolio at least every two years.
New offers are hitting the market faster than ever before. Call us on 1300 657 132 to find out more about this special, time sensitive fixed rate deal, and to ensure you don’t miss out on a product that could be a far better rate and fit for your needs.