Liberty IO rate increase

Hi,

Just letting people know that Liberty will increase their IO loans by 34 points, effective immediately. And yes, I am aware that this is happening across the board with all lenders and Liberty is the last resort lender, so no need to state something that's been said a hundred times over.

This further reinforces the heightened risk for potential investors that may want to purchase that one more IP purchase during their IP journey and my need to consider possible 'defensive' strategies to hold onto their IPs.

 

Would this impact investor demand to buy?

 

Thanks @jins13. I got a bunch of letters from Liberty recently but haven't yet opened them!

 

Their lovely gift of taking some more from 'professional' investors and slugging investors. Total crooks

 

Its probably a little unfair to single out any single lender. Everyone is raising I/O rates. Every lender in the land has pretty well lifted I/O rates by between 50 and 70bpts this year. Some banks just went up by 80bpts in one bite. And the bad news is that there will be more rate increases in all probability. Not a certainty, but quite likely. There's just such a long way to go for many lenders to get below the 30% quota, so everyone should expect further rate rises or LVR reductions, or both.

It's simply time for any investor for whom these things are already a problem or for whom these things have the potential to become a problem soon, to start considering using any remaining capacity to make a purchase that buys them income/ injects some additional cash flow, to assist with the higher outgoings coming their way. Otherwise, try to raise rents. It wont help much though, but it might be enough to keep things ticking over for a while longer. Or try to increase income from salary. That would be more helpful. Trouble is, wage inflation is basically dead flat for most people. Or sell.

That's just the way it is now. Cash flow management is just so much more important than it has been previously. Particularly for those with immature portfolio's generating immature yields. The P&I cliff is not going to be welcome news for that category of investor. But then again, there has been plenty of warning. About the P&I cliff. About cash flow management. About debt reduction. About cash cows.

Not to worry though...all the capital growth plays that category have pursued in the last couple of years should have paid off handsomely; certainly sufficiently to sell if required, pay out the associated loan, pay the CGT bill and pay off some extra debt to boot. Problem solved. That is of course, if the growth plays produced the growth. Right? Right.

Still time to recalibrate. If you are short of cash flow... add some if possible - rent, salary or buy it via a cash cow or add a granny flat . If you cant add any income, try and restructure to buy some time. Even 2 or 3 years will make a world of difference... and if you cant restructure.. take the early decision to sell so you arent selling when the rest of the 3.5% - 4% yield herd realise the P&I cliff is real and they may have to sell as well.

#APRA=UBER #oldbusinessmodeldisrupted #decadetodeleverage #cashcowskilldebt

 

We are starting the exit strategy on 6 of our properties,getting in early,Never be afraid to sell and make a profit...Never !!

 

Quite possibly. They shouldn't be buying if they're that rate sensitive but some might have been thinking of sneaking in before rates were upped. They're about 8 months too late for that, November/December was the sweet spot.

Overall it shouldn't be a big deal but added to all of the other measures it's death by a thousand cuts, gradual rate increases are another avenue for banks and regulators to soften the market.

 

Well, they won't be "we value you as a customer" OR "were cutting fees and charges" OR "We Love you".... letters.

I suggest you stamp them all return to sender, not at this address

 

If they follow what they have done for over a year, and recently as per above WITH NO LIMITS imposed, just imagine how much fun it will be if/when the new powers has the govt forcing them to be under X amount.......wow, how painful will that be ?

Hand them the keys if they are your only lender and no assets

 

My issues with Liberty are the high interest rates (bet some borrowers are paying in the mid 6%) and the many and high fees that they like to attach ie internal refinance will cost you $1620 ($330 valuation, $295 annual fee and $995 application fee). Liberty is just trying to find any opportunities to extort money off people in my mind.

For myself, the best strategy is to improve my cash flow with maximising my rental returns through cosmetic renovations, garage to granny flat conversions, pay off my HECS (will be like an indirect 8% pay increase), reduce my PPOR loan and save a bigger buffer.

 

Yes, the loading & yes, much higher rates now, but your forgetting all the other fees, application fees, extra for splits etc etc, no proper offset, not sure if even fixed is easy to do....

So a premium+++ it would seem ?

Now the real question is......what rate are people paying if they took an IO investment loan if it was your 3rd place and it was at 90LVR or above if they do that, what sort of coin is that costing ? What are 80LVR loans at with the above ?

 

$1620 per internal application (not even new) and expect that majority of investors with over 90 LVR IO loan to be around the mid 6% interest rate.

I view Liberty like those payday loans

 

tbh I find it much easier to refinance a loan than to get approved for a new loan. So for those that are stuck with Liberty and even some others like Pepper whos interest rates are through the roof I would be looking at refinancing ASAP.

There are still a bunch of non conforming lenders that dont need to meet APRA requirements that will gladly take on the loan at a much better rate. I suggest you start to look around at other alternatives.

Also for the ones that have been borrowed at 90% LVR - well you should be taking advantage of the growth of your houses and get them re-evaluated by the bank once it hits 85% and 80% LVR to reduce your interest rates.

 

Liberty are pricey, most borrowers would have been aware of their market position before going to them. For 80% I/O INV loans, their servicing calculator made them worthwhile, not their pricing.

There's been a rebalancing of I/O INV pricing across the board, and Liberty are just keeping their respective position (about 80-100bps) above market comparators for similar loan products. The price investors pay to stretch themselves further.

Interestingly, for those that have refi options out there, there may be scope to switch to P&I and effectively lower the overall repayment with a 200bp difference in rates between cheaper P&I INV fixed products and I/O INV with Liberty. May be worthwhile exploring for those that do have the option to move to these options (Westpac).

 

What are the Liberty's PI and fixed rates at 80 LVR? (assuming all add ons)

 

Pepper have better rates and reasonable fees, but they lack ability to fix, and for that matter, I am not sure Liberty is any chop in regard to fixing, I know it does not seem to be published anywhere, maybe someone can explain if Liberty offers a decent fixed rate or even if the method for fixing is practical. I would be looking closely at break costs and conditions too.

Feel free too publish your list of lenders who have similar servicing to Liberty, who ? maybe La Trobe ? Bluestone ? how does rate compare ? please PM if you do not want to shout it from the rooftop here (as they will get smashed if you really do have some unknowns or ones who do not have a broker channel)

re LVR, I am also not sure that Liberty will drop your rate if your 90 loan is now 80 or 60 or whatever, does anyone know for sure if they in fact do this ?

 

I do not think they give you much better rate if P&I, they have no need to do this, and people should not be fooled by the other lenders either, once they have no strong motivation to fish people across via pricing, they will slam the door on you too I think later, although not the same way as some.

 

Does Liberty need to meet APRA requirements like the other conforming lenders?
Or they are just jumping in to take advantage of investors who have hit the serviceability wall?

 

They do lower the rate if the loan is 80 LVR.

What's your interest rate with pepper?