Liberty is about to increase rates

Liberty is seen by most brokers as a lender of last resort. We've been putting a lot of business there simply because they'll lend significantly more than other lenders. If your borrowing limits with most lenders are $1M, you can probably get as much as $2M from Liberty.

Liberty know this and have increased their rates for investors signifcantly. Today if you want an interest only investment loan at 80% and already have a couple of properties, you'll pay 5.59%. They do this because they can get away with it. They have no competition for investment loans when servicing is tight.

We've just been informed that Liberty is likely to increase their interest only loans again in the very near future. They haven't specified by how much, but I'd guess it'll be about 0.15% - 0.25%. This is likely to be applied to all new and existing loans.

We've already seen the major banks increase interest only rates and there's even been some quiet offers for very competitive principal and interest loans out there.

20 minutes ago I had a conversation with a client where he stated he can't afford a 3.99% principal & interest loan, but he can afford 4.6% interest only. The irony is that in 5 years time he'll have even more trouble affording the 25 year amatorisation period when the IO term expires.

People need to start considering principal and interest loans rather than interest only. Here's some benefits:
* In today's lending market, you can usually lend more with the mainstream lenders by having P&I loans.
* An I/O loan is more likely to be declined by credit scoring. Some lenders are cherry picking only the strongest applications. I expect that I/O loans are now being seen as more risky and even if everything else stacks up, this might be the thing that gets an application declined.
* Over the life of the loan, P&I is actually significantly cheaper.

 

Good advice as always Pete. We do have a Liberty one so will be keen to see what happens.

All of ours are P&I now except for one. But that ones with westpac so should be able to renew it.

 

Agree Peter. The old paradigm of interest only across the board is dead - whilst it certainly has beneficial tax considerations there is an increasing margin to costs which this needs to be weighed against to balance what the net end result is.

Then there's the practicality - so often I see people saying they go IO as its better to redirect their after tax cash flow to their PPOR instead - meanwhile the PPOR mortgage is still being paid at the minimum repayment.

Cash flow is a genuine concern which brings many investors to IO - but people need to be very aware that whilst you can try kick the can down the road for 5-10 years, you cannot always rely on refinancing your existing investment debts into new interest only terms in this age.

 

Hi Pete, the great irony, is with these lenders taking actuals, you basically are encouraged to stay on IO even if you can afford P&I if you want to use these lenders.

I was thinking a while ago they were wanting to become more mainstream as were competitive at one time.

 

Kinda - but there's nothing stopping someone making additional repayments even if they're on IO so you can have your cake and eat it.

 

Most of us need a shift in mindset and strategy revision regarding paying some loans off by P&I. Not many here and our Accountants rarely push us on to the P/I path.

Its not the end of the world to pay down some principle while money is cheap.

If you have no short term plan to sell down on properties, then what else are you relying on to reduce loans other than small rental increases.

Look at it as a short term CF hit for a medium to longer term cashflow improvement and much more improved LVR and serviceability position (assuming you can't significantly improve your position by using some cash from other means).

Paying P&I now at current rates, can be a lot better than I/O on 6+% interest.

The power of P&I can be compared to reverse compounding, particularly more powerful when interest rates are very low.

At 8 or 9% interest most (particularly recent) investors will be cactus regardless of how they roll.

 

Just do not pay it into Liberty acc.

Would be better to just change some to P&I ...... those that are competitive.

 

I think it is, the frequency and amount compared to others that they were competitive with back when APRA first stepped in, along with the other indicators.

Pepper does not seem to have done this, what about La Trobe and or others ?

You have not just the rates, amounts and frequency, but the pro investor thing (that has also been modified) and application and fees.

 

That is the irony of it all, there's still some lenders where your serviceability is better off being IO with existing loans.

The best solution of course is to plan everything well ahead and in minute detail. That way you can make decisions about going I/O or P&I right from the beginning. The problem is it's impossible to create a plan spanning years where the detail can hold up that well.

The other thing to consider is that APRA is aware of what Liberty is doing. They are trying to find a way to bring private funders under their umbrella as well. It's quite possible that that avenue will be closed in the future as well.


Liberty certainly do have their place and it's not only for investors. Since the first post in this thread, I've written a loan with Liberty for a lady who's purchasing an owner occupied property, it's her only home. 70% LVR, principal & interest, 3.89%. Her serviceability is so tight that nobody else will lend to her, but I've got no doubt that she'll make all sorts of sacrifices to make sure she keeps the house.