ME Bank increases rates now

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 27th Aug, 2015.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    ME today announced changes to its variable and fixed home loan interest rates for investor and selected owner occupied loans.



    Effective 15 September 2015 ME’s Basic Variable home loan interest rate for new investor borrowers will rise by 0.40% ..and our Flexible home loan with member package interest rate for new investor borrowers will increase by 0.36% .... Rates across existing investor loans will also rise by 0.41%.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    And Adelaide/Bendigo Bank is up 0.20% on Monday the 31st.
    Adelaide is increasing investment loans to 4.39% for their basic product and 4.44% for their offset product.
    Adelaide are a little harder to qualify for than some lenders, but they're one of the more competitive in investment lending if you do qualify.
     
  3. Corey Batt

    Corey Batt Well-Known Member

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    I remember quite well recently my ME Bank BDM was quite depressed at the scrutiny they were under with their existing book - now the screws get turned to get the figures where they need to.
     
  4. Redwood

    Redwood Well-Known Member

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    It would be funny trying to get these clowns to actually explain the basis point increase - I mean - capital required and impact on the rate. Talk about digging their own holes and unfortunately the end client is now paying more, unfortunately I can see interest rates on investor loans increasing by 75 to 100 basis point in the near future.

    Cheers Ivan
     
  5. euro73

    euro73 Well-Known Member Business Member

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    I was at a NAB workshop on Monday and the numbers were presented as follows;
    Until APRA stepped in, the Big 4 and Macquarie were required to set aside approx $1.50 (15%ish) of capital per $100 across their overall book.
    With an average gross margin of @ 150bpts above cost of funds, after accounting for costs and tax, , banks earn a profit of @ 37-40bpts per loan, which equates to a @ 25-27% Return on that $1.50 of capital.
    Banks have been asked to increase their weighting ( capital) to a minimum of 25% , so they now need to set aside $2.50. Obviously if they earn 37-40bpts margin on $2.50, their returns are reduced to @16%.
    So, some simple calculations would suggest that in order to return to ROE's approaching 25 - 26%, against new capital requirements of $2.50, their after tax margins need to increase from 37-40 to @ 70 bpts. Hence the @ 30bpts increases you have seen across the board.

    Whether this requires further adjustment will depend on APRA, and of course, if the banks go chasing P & I business aggressively and take much lower margins there, they will certainly have to recover additional margin from investors in order to maintain their ROE. So I would agree there is the potential for an additional hike in I/O debt under that scenario. But by how much...who knows?
     
    Last edited: 27th Aug, 2015
    chylld and mcarthur like this.
  6. mcarthur

    mcarthur Well-Known Member

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    Um, perhaps $15 of $100 (15%) or $1.50 of $10 (15%)?
     
  7. euro73

    euro73 Well-Known Member Business Member

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    Yes, typo sorry. But the moral of the story remains - banks need to increase margins to cover off on the increased capital weighting APRA has requested, to restore their ROE.
     

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