and here we go again for 2016... "increments" - expect more

My broker got back to me today with an approval for 4.09% fixed for 2 years on an IP loan just over $250k. Or variable at 4.37%. With $1,500 cash back I think that's a no brainer.

Only issue is I'm not sure whether to take the fixed rate or variable. 4.09% for IP loan is going to be hard to beat I reckon.

 

Nah - they just hadn't jacked loc rates up yet. It was only a matter of time.

Cheers

Jamie

 

I am very anti fixing and have been vocal on it in the past but G that 3.99% from CBA is tempting.

 

You will find that by April most lenders will have risen there rates.

 

That's a great rate for just over 250k. I was offered 4.19% for loans over 1 million. I'm going to try for 3.99%

 

I am assuming it's for 2 years fixed IO with CBA?

Cheers,
Oracle.

 

I wouldn't read too much into this just yet. They've only increased rates on a single product, the line of credit. It's not an adjustment to the standard variable rates.

The Westpac/St George LOC product was under priced when compared to interest only investment loans. It's been one of the ways to get slightly better than published rates for investors. Additionally they've tend to have lower barriers for cash out.

For the moment I see this as an adjustment of a particular product to align it better to the market, rather than a signal of an overall rate increase.

 

Resimac increasing investment loans by 15bps as of 1 March

 

I called it last year... there will be at least one, and likely two, and possibly three incremental rises between now and mid 2017. BASEL IV is the next regulatory regime that will come into effect, and it will require that banks migrate any short term RMBS arrangements into medium term arrangements by 2018. Our banks currently raise debt using a variety of RMBS structures, but 25-30% of Australian mortgage funding currently rolls over every 90 days or 180 days ( in order to keep funding costs down) This is changing. The BASEL committee recommendations , which Australia will very likely adopt, will require that banks migrate to a minimum 12 month rollover ... which will increase funding costs by at least 30bps.

So connect some dots. Firstly , if banks continue the price war on P&I Owner Occupied business - and they will, because P&I lending requires less capital to be provisioned by APRA and so is more profitable - it's going to have to be paid for/subsidised by I/O Investor business... just like it is now - so do the maths . The gap between P&I and I/O will widen further.

The only mystery in any of this is when each lender will do it, and how each lender will do it. ie will it be like AMP, where one large jump occurs ? Or will it be product by product , like STG did with Portfolio? Or will it be in 2 or 3 x 10 or 15 bpt increments? Bottom line = it doesnt matter.... it will add up to the same in the end.

Now, there's a real possibility none of this will mean anything to your current NET position, especially if the RBA cuts the cash rate by 50 bpts throughout 2016. Because rather than decreasing rates the banks will just hold back some or all of the RBA cuts to investors. So all things being equal, the net effect will be pretty much negligible for investors - great news for P&I Owner Occupiers though! But if the RBA does not cut rates at all, expect I/O lending to climb 30+ basis points throughout 2016 and 2017.

This is why, if you are an investor who plans to hold for at least the next 2 or 3 years - seriously consider a 2 or 3 year fixed rate. But whatever you choose to do - focus aggressively on non deductible debt reduction for the next few years. Laser like focus. It will pay large servicing dividends over time...as its the only way capacity will seriously improve without very large pay rises or rental increases or a windfall of some type.

 

Negative nelly over here.

 

What's negative??? Its a simple honest question, why defensive, why ignore this? If market sentiment turns when fear sets in.

The market I play in is strong at the moment but I am also aware that APRA has impacted on various property markets in Oz so I am watching this closely.

Very interested in what mortgage brokers have to say.





MTR

 

Yep. I'm trying to get my broker to get me 3.99% fixed for 2 years on my IPs.

 

Well McGrath certainly agrees with you @MTR

They posted their half yearly today and the investor presentation had this to say...

Of course the market responded. ASX:MEA down 14.7% today.

 

Is the CBA offers ending soon ? (variable/fixed for PPOR and IP)
Very good offers there by a major player!

And does it apply to loan with LVR >80% ? (about ~85% LVR).

 

For IP discounting yes the 1.5% offer is available to 90% LVRs.
It will impact the discount level provided for O/O rates. Can get close to the 1.5% discount mark on O/O for large debts at 80%.

 

The CBA 1.5% offer is just until the end of Feb from what I understand.

 

Does the CBA rate vary from state to state? or according to LVR ratio
At the moment they are charging 4.77 for my investment loans

 

No it doesn't vary according to state.

depending on your borrowing it maybe worth a call to your broker or to the retention team for a further discount.

 

I believe there current offer of 4.37% variable (after 1,5% discount) is valid for the month of Feb. In my case this is for a LVR of up to 90%

 

With variable increasing, do you guys think there'll be some upward movements on fixed too? Or completely different kettle of fish?