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2018: The year to set up your financial future

Based on the expectations of most economists, mortgage holders have between nine and 18 months of the current record low-interest rates before the Reserve Bank will begin the process of moving them up towards more long-term historical norms.

Despite some projections from economists that the RBA will move rates up mid to late 2018, the central bank will be keeping a very close eye on the housing market and will be loathed to become accountable for any precipitous fall in house prices.

Low wages growth and inflation and very weak consumer spending will provide it with the conditions to retain interest rates at 1.5 per cent.

Interest rates are more likely to go nowhere this year.

Now is the perfect time to secure your financial future by securing the best possible borrowing solution.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Commercial property behaved mostly as expected in 2017

Yields continued to firm, tenants were back in the market and the office sector did particularly well, benefiting from business growth and, in the case of Sydney, withdrawal of stock.

Australia quietly moves towards its 27th year of positive economic growth. With high levels of transparency, a comparatively stable government, strict planning controls and strong performance of most commercial property types, why wouldn’t you want to buy?

If you are considering entering the commercial property market, or have already taken advantage of the sound conditions present, contact Strategic Investor Group to ensure you get the right advice regarding any potential loan structure.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Most Australians indicate their biggest life goal is a financial one

Most Australians indicate their biggest life goal is a financial one, but many admit failing to plan is a roadblock.

Popular dreams and aspirations

Interestingly, nearly half of all Australians recently surveyed said they dreamed about the future every few weeks, with people’s major life goals including things such as:

  1. Full financial freedom and independence – 59%
  2. Having the lifestyle of their choice – 58%
  3. Being able to pursue interests and hobbies – 50%
  4. Having more free time to spend with loved ones – 43%
  5. Having a family – 19%.

Let Strategic Investor Group remove the roadblock and help you reach your dreams and aspirations.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

How much is it costing you for being loyal to your Bank?

What’s your bank loyalty worth? The better part of $5 billion a year. Well that, of course, is what it’s worth to the banks – what it’s theoretically costing existing customers who don’t shop around.

What it quantifies for the first time is how much more banks are prepared to discount interest rates for new customers, compared with what they charge their existing, loyal customers.

The RBA’s analysis of the securitisation numbers clearly shows how keen the banks are to attract new mortgages. The average outstanding loan is itself at a substantial discount to the advertised rates, but new loans – those taken out over the past three months – are more than 30 points cheaper again.

The bottom line is that, on average, we end up paying about as much as the RBA wants us to pay for money. To make up the average though, people on higher incomes with bigger loans who shop around pay substantially less than trusting, loyal customers

While investor loans are more expensive than those for owner-occupiers, the discount offered for new business remains attractive.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Australian Economic Indicators

In an ever-evolving financial market place, it is important to keep informed and up to date.

Australian economic indicators remain sound with growth picking up more recently.

Momentum in the labour market has improved. Strong employment growth has been recorded over recent months, although wage growth remains low by historical standards.

Economic conditions continue to vary across the states, with the New South Wales economy performing strongly, and there are signs that economic conditions are starting to improve.

Conditions in the established housing market remain strongest in Sydney, which is consistent with better economic growth expected in coming months.

Are your financial circumstances positioned to take advantage of current sound economic conditions?

– Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Wages Growth

Australian workers are still stuck with the lowest level of wages growth in at least two decades, as pay packets increased an average of just 1.9 per cent last financial year.

That is the same annual increase that was recorded for the three months to March, and only just matches the current level of cost of living increases, as measured by the consumer price index.

Private sector wages rose a paltry 1.8 per cent over the past year, while public servants saw an average 2.4 per cent pay rise.

When was the last time you reviewed your budget and in particular the effect interest rate increases may be having, or could potentially have, in the future?

Now is a good time to be prudent and review your financial circumstances, in particular how your budget would be affected by increased interest rates.

Attractive fixed interest rates options are available should your individual financial circumstances dictate.

 

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

 

Interest Only: PI Rate Movements

The average interest only investment loans with a variable rate have shot up by 73 basis points due to rate movements beginning last November.

These figures, from the latest Reserve Bank of Australia (RBA) Statement on Monetary Policy released on 3 August 2017, reveal this increase was caused by a double whammy of rate rises in November and again in June.

“Since May, most lenders have increased their standard variable reference rates for interest-only loans by around 30 basis points and reduced standard variable rates for principal-and-interest loans to owner-occupiers by around five basis points,” the RBA wrote.

The average fixed and variable rates, as well as the associated changes since November, are listed below:

Interest rate Change since Nov 2016
Variable P&I rate
Owner occupier 4.41% -4 basis points
Investor 4.98% +29 basis points
Variable IO rate
Owner occupier 4.98% +52 basis points
Investor 5.46% +73 basis points
Fixed P&I rate
Owner occupier 4.14% +3 basis points
Investor 4.45% +20 basis points
Average outstanding rate 4.63% +13 basis points

 

– Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Corporate Partners, Valued Relationships & Communication  

In an environment of constant change, how strong are your valued relationships with your strategic business partners?

Are you able to pick up the phone and speak to your valued partners, as and when you need them? How quickly do your valued business partners respond to you when you reach out for assistance?

Within the financial services industry, we are finding that response times continue to extend beyond what should be fair and reasonable.

What took 24 hours, now takes a week. What took a week, now takes a month. These constant delays end up costing your business both time and money.

If delays occur are you kept up to date? Do your strategic business partners communicate with you by articulating the reasons for the delay, and the timeline surrounding resolution of your request?

At Strategic Investor Group your strategy advice, lending advice and property advice comes with an In-The Loop guarantee. You will never go more than 48 hours without a detailed update regarding your specific requirements.

–  Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Interest Rates – Will they rise, remain stable or fall?

If you have been listening to the so-called experts most were predicting interest rates to fall. Then most predicted they would rise. All the while they have remained steady and are now most likely to stay that way for the rest of this calendar year, and well into the new year.

Whilst the official cash rate has not changed since September 2016 the banks have independently responded by raising rates, particularly on interest only loans, which mostly are used by investors. Investors are now paying much more than a year ago.

In addition, the new bank levy imposed by the Federal Government on the big four in the recent budget is also likely to be passed on and, in fact, smaller and regional banks have already shifted rates higher in anticipation.

Given Bank interest rates already are on the up, and wages growth is the weakest on record, it would be a brave RBA governor who would contemplate a rise in the near future. Phil Lowe will let the banks do the work for him.

Regardless of when your existing loans are due for review, NOW is the time to consider your financing options.

With so many changes to lending criteria in the past few months, nobody quite knows where this will end. One thing is certain, however, that investors need advice right now to ensure they are correctly structured.

Many investors who are coming off their 5-year interest only agreement with their Bank, are going to get a rude shock when their Bank denies a further interest only extension of that loan. A possible solution is to apply for an extension today, whilst they are still eligible.

– Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Right now, is the time to review your debt – it’s costing you money

 

Although the official cash rate remains on hold, all four major banks in June raised interest rates by between 0.3 and 0.35 percentage points on interest-only home loans, mainly used by investors, while also cutting some other owner-occupied rates by a much smaller amount.

One reason is the prospect of tougher capital rules.

Any week now, the Australian Prudential Regulation Authority (APRA) will reveal how much extra capital banks must hold to be more shock-proof, a change that on its own would dampen profits.

Recent behaviour sees the banks having a track record in passing on the cost of tougher capital requirements to their customers.

A recent Reserve Bank paper pointed out that since 2008, official interest rates set by the RBA had dropped 5.75 percentage points, but the rates banks charge on home loans were only down by around 3.9 percentage points over the same period.

It is highly likely that the next round of capital rules may also see another out of cycle rate increase for investor loans.

A second and related reason why investors and people with interest-only loans may keep copping it is the regulators’ concern about the housing market.

In March, APRA imposed a 30 per cent cap on the proportion of new mortgage lending that can be interest-only, alongside a previous 10 per cent cap on growth in the stock of housing investor loans.

Banks have adjusted to these caps through a combination of tougher lending rules, and price signals.

However, the objective of these two caps is also to limit competition in housing investor lending.

The recent rate hikes by banks should quell some of the RBA’s fears about households’ excessive interest-only borrowing, without any need to move the cash rate.

A third reason why property investors may face higher interest rates is the political target on the banks’ backs. When they are so on the nose with pollies, bankers are naturally hesitant about slugging the majority of mortgage customers, who are owner occupiers, with higher rates.

But when housing affordability is so stretched in NSW and Victoria, it’s a brave politician who comes out and bashes the banks for jacking up rates on landlords.

Whether it is tougher capital rules, curbs on the housing market, or the bank tax, lenders have plenty of excuses to raise interest rates at their disposal. Property investors have become the easiest group for the lenders to target.

With so many changes to lending criteria in the past few months, nobody quite knows where this will end. One thing is certain, however, that investors need advice right now to ensure they are correctly structured.

Many investors who are coming off their 5-year interest only agreement with their Bank, are going to get a rude shock when their Bank denies a further interest only extension of that loan. A possible solution is to apply for an extension today, whilst they are still eligible.

– Carl Thompson – Commercial Lending Specialist, Strategic Investor Group