Thinking about refinancing to upgrade your property, or perhaps build your investment portfolio? Apparently you’re not alone!
According to the Deloitte Australian Mortgage Report for 2015, mortgage settlement activity increased by 20 per cent last year, as property owners took advantage of enticingly low interest rates to refinance their loans for the purpose of upgrading.
And it’s anticipated that this activity will continue to drive the lending market over the next three years.
Key players from Australia’s lending arena who took part in the Deloitte panel, from which the report was produced, forecast loan settlements to increase by a further 6 to 10 per cent this year.
A prediction seemingly supported by the record $33.2 billion of property finance commitments posted at the end of 2014.
Credit growth surprisingly slow
Despite the fact that loan settlements are going gangbusters at the moment, overall credit growth has been trending historically low, at around 7 per cent.
This is because, as Macquarie Bank head of intermediary banking Frank Ganis explains, “Lending growth has been in refinances, with new lending at lower levels of around 3 to 4 per cent. The market has also seen an increase in demand by investors.”
New investment trends muddy the statistical waters
The Deloitte appointed panel of lending industry heavyweights agree that local investors will account for the second largest piece of the property credit pie in 2015.
However, there’s some conjecture as to how many of those borrowing to invest in bricks and mortar are doing so as current homeowners looking to secure their financial future with property assets, or first timers popping their proverbial housing cherry as investors.
Panellist Bill Armour from ANZ noted that a lack of official data around first home investors was cause for concern.
“The risk is that they classify anyone who has said they’re an investor as a non-first home buyer and as such are somewhat demonized as driving house prices up, but actually they are just savvy young people who have figured out a way to enter the market.”
While this might sound like a bunch of banking rhetoric, statistics are beginning to emerge in support of anecdotal reports from within the industry, that suggest a lot more young people are remaining as tenants while purchasing something they can afford as an investment.
After that little digression down housing affordability lane let’s move right along and consider how you might, as a property investor and/or homeowner, use this current low interest rate environment to your own economic advantage (yes, that was the initial point of this article!).
As an active, established or start up property investor…
Now is the time to think about your strategy in terms of utilising existing or growing equity to build your asset base.
Consider the necessary acquisition rate and asset type that’s required to achieve your identified investment objectives and timeframe. How does all of that fit with your current financial capacity?
Planning your borrowing approach is just as critical to your long-term success as optimal asset selection.
As a seasoned property investor looking to wind down…
How can you use the current low rate environment to reduce your non-tax deductible debt (as the first priority) and then your investment related debt, in order to eventually draw an income from your investment portfolio?
Even though interest rates might be shrinking, you should continue to make the same monthly mortgage repayments at previous, higher levels. These were obviously affordable for you at the time, so why not maintain them?
By doing so, you can end up shaving years (and thousands of dollars) off your property loans, putting you in a better gearing position as you near the end of your working life.
Start this process with any non-tax deductible debt in the first instance, so you retain negative gearing benefits whilst still full time employed. Then consider your exit plan from work and how long you have to extinguish sufficient debt to make your portfolio self-sustaining and income producing.
As a first time buyer looking to get into the game
Whatever you do, don’t let all the talk of housing affordability hold you back! There’s a lot of hype and fear confronting would-be property buyers right now, so it’s critical to not lose sight of the wood for the trees.
Consider all of your options and importantly, think carefully about your expectations – now and in the future.
I personally think today’s young investors, who choose to rent in their desired inner city, hip and happening postcodes, while purchasing in more affordable areas as landlords in their own right, are very clever indeed.
They’re taking advantage of some of the cheapest credit we’ve ever seen in Australian banking history to secure their financial future, all while living the young, urban ideal.
Because you know I’m all about the rates, ‘bout the rates…
Actually, that’s not entirely true! Far from it really. But it’s a catchy little tune that you’re probably humming right about now.
The reality is, no finance strategy should ever be approached from one angle, including interest rates.
“Lenders don’t have to be the cheapest but they do have to be competitive and be seen to go the extra mile for the consumer,” says Deloitte financial services partner James Hickey.
Product features and flexibility are coming into play now more than ever, as banks find it increasingly difficult to wage wars based on retail rates alone.
The Deloitte report claims that with so many choices available to consumers these days, mortgage brokers are increasingly fundamental to the process of identifying and applying for a suitable home loan, even though new online application options are emerging in the market.
“As direct online applications start to emerge you will see some customers use that channel, which is good for choice,” said panellist Angela Middleton from ME Bank.
“But there will always be an important role for brokers to have a face to face with customers, particularly customers who wish to better understand the product and get more information about what is available and what’s best for them.”
If you would like more helpful advice around how to manage existing portfolio debt and take advantage of the current low interest rate environment to optimise your cashflow position, why not contact the team here at Trilogy?
Unlike your computer, we’ll talk you through the best possible mortgage options for your circumstances and strategy, without freezing up for no apparent reason. Click here to connect with us today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).