Something happened last week that every investor should pay attention to.
The NAB, Suncorp, ANZ and Westpac banks all announced, and implemented, increases to their 3 and 5 Year Fixed Rates.
After a long period of trending downwards, I think it’s very significant that each of these Lenders are moving their 3 Year Fixed Rates into the same space.
As I’ve said before, while some interest rate movements downward can clearly be indicative of a marketing strategy, rarely will Banks move their rates upwards for that reason. Clearly, what we are seeing is an increase across several major Lenders, into the same fixed rate space. That’s enough for me to sit up and take notice.
One of the problems in waiting for the bottom of any cycle is being in a position to react to it when it arrives. If you are a NAB, ANZ, Westpac or Suncorp borrower it’s already too late, the rates have increased. Now you are in a position where you have to scramble to get a refinance done, if you can of course, to tap into one of the remaining low rates. Given the lengthy timeframe for a refinance you would be advised to take up the Rate Lock option that most Lenders offer. Rate Lock is simply a fee the Bank will charge to hold the requested rate for a given time frame, usually 90 days. Naturally, if you are chasing low rates, this is an added cost that really should be considered when selecting a Lender.
In the past, Lenders would tend to give some notice that their rates were going to increase so there was time to contact clients and give them the option of locking in at the lower rate. Unfortunately, the notice we receive these days usually comes in at the most inopportune time. For example, I received the NAB’s notification of a rate increase at 5.04pm the day before the rates were to be increased.
Just to be clear, I’m not advocating putting all your loans into Fixed Rates. There is a place for Fixed Rates in any portfolio as they provide certainty of repayment over a given period. However, each investor has to consider the impact that the decision to Fix will have on their own circumstances.
It’s possible that Fixing with your current Lender may stop you getting any further increases because of the serviceability calculator being used. As an example, Westpac has just announced upward changes to its calculator that will negatively impact borrowers, both new and existing. That change will reduce the capacity to borrow which is so important for investors. While the interest rate looks good now, your capacity to access more equity from that Lender could be compromised, possibly undermining a future opportunity.
That’s why I always advise my clients to borrow as much as they can, when they can, whether they need it or not. Remember, Murphy’s Law says that when you need it, you won’t be able to get it.
I suggest you ask yourself these three questions PRIOR to locking a loan in a Fixed Rate.
Will I want to sell this property within the Fixed period?
Can I get further equity from this property?
Will this Lender give the equity to me?
The answers you get will determine your actions. For a Home Owner, it’s quite simple but for the serious property investor the answers are critical.
If you have contemplated Fixed rates in the past but were waiting for the bottom then you may like to jump on board now. Be aware that Fixed Rates are not for everyone and there are consequences to be had from locking in your property.
I suggest you take a look at your portfolio through the eyes of a Professional Mortgage Advisor before leaping into the unknown. And at Investors Direct we can do that for you.
Simply contact me at firstname.lastname@example.org I will be glad to give you any advice you seek.