The month of April has seen the market fully digest the impact of the 2 rate cuts made by the Reserve Bank of Australia (RBA) in March, which took the cash rate to 0.25%.
These cash rate cuts, plus the introduction of a target yield for the 3-year Australian Government Bonds, has introduced a new platform for the RBA to manage domestic liquidity. The RBA has been extremely active in supporting the liquidity in the domestic bond market and also introduced the ADI funding offer to enable the banks to increase lending to small and medium sized business. This strong financial support and platform set by the RBA has enabled lenders continue to offer service as “usual”. Lending interest rates have now adopted a 2%+ rate norm with interest rates as low as 2.09% for 2 years fixed.
Pleasingly, the lenders are being extremely supportive of existing customer relationships for both consumer credit and business credit. Most have introduced very simple processes and procedures online to enable borrowers to establish repayment freezes on credit, switch to interest only repayments, and have provided welcome cashflow support.
From a new home and investment loan perspective, this “service as usual” being offered by the lenders is slowly adapting the changing business conditions we see ourselves operating in.
The property market has seen a massive reduction in the volume of properties for sale. The concern with open homes, general marketing and the online auction process has resulted in extremely low volume of property and lower clearance rates. The bank valuers are now being extremely cautious when appraising a property value for mortgage purposes, and we are seeing a big increase in the risk numbers on a valuation making it harder under normal credit policy to accept the properties for security under new loan arrangements. We are seeing most valuations being done via online software or kerbside appraisals.
Other policy changes we have seen are much lower extension of commission and bonus income used in loan servicing, along with certain borrower employment restrictions e.g. tourism and hospitality. The lenders have now introduced calls to employers of borrowers to confirm ongoing income and employment arrangements, along with a secondary pre-settlement check before finalising any finance. These tougher credit assessment measures have pushed out the lenders’ turnaround times, with some lenders taking 20 days + to pick up a file.
Having said this, for good credit applications there is definitely opportunity for borrowers to receive much better rates by either pushing their existing lenders or considering a refinance. Our team can run through some quick interest rate checks and credit checks to help you understand how your current rates compare. As always, please reach out to the Infocus Lending Advisory team or your adviser if you have any questions.