Have you come to grips with the interest rates yet? Well hang on to your hats; it’s going to be a bumpy ride!
Last year’s interference in the property market by the regulatory body APRA( Australian Prudential Regulatory Authority) caused a significant change in the way we look at Mortgage loans. The Banks lifted their rates for Investment loans while keeping their Home Loan rates the same in response to a growth limit set by APRA. This has caused a two tiered market to develop with O/O benefiting from the decision. In fact, some Lenders reduced their Home Loans at the same time they increased their Investment Loans. Investors were left shaking their heads.
Well, that decision obviously was going to have an impact on the Banks bottom line. Less investment borrowing means less profit. It was obvious that any attempt to push investors out of the market would create profit shortfall. The slack was never going to be made up solely by Owner Occupiers. In fact, the changes made qualifying more difficult for both types of borrowers.
What could happen next?
Clearly if profit is at risk, the Banks will take measures to improve the situation. They have shareholders to answer to and remember, they still have a 10% year on year target to contend with.
One option could be to keep the same two tiered approach but to announce “special offers” for investors using discounts for limited time. That way they can continue to be seen to be doing the right thing while boosting their bottom line. Whether any offer is available under the counter or announced publicly doesn’t really matter. Another advantage is that when the 10% limit approaches the special offers can be removed. After all, they don’t want to risk a fine for exceeding their target.
Keeping the same two tiered structure also shows APRA they remain a good corporate citizen.
Naturally, profit can also come from a variety of areas such as fees, charges and higher rates.
Nothing can be ruled out at this stage.
I note that a small Mutual Lender has removed the differential from its loan offering on the basis that the increase rate for investors had proved to be very effective in cooling down the growth in their investor portfolio. If they can do it when will the Big Four?