Interest rates are at historically low levels in Australia and have been for a prolonged period. Most commentators state the RBA is sitting on the fence with no real pressure to increase interest rates at present. So what are the external factors that have already caused rate increases and may continue to cause further increases?
The answers are “Basel” reforms and pressure being applied to the banks by the APRA.
Basel reforms gained momentum following the GFC with developed nations across the world agreeing to impose tighter banking regulations. These regulations are known as the Basel reforms. Essentially, the banks are required to hold increased capital for each loan they have on their books. The banks argue that increased capital costs reduce their profit margins and therefore they need to increase their interest margins to mum and dad borrowers to compensate for their lost revenue.
The APRA has been concerned with over heating property markets in southern states and has now undertaken a thorough review of the Australian banks. A result of this review is that we now have a two tiered pricing structure within the market. Investment property loans are now more expensive than owner occupied loans and equally borrowers can expect to pay more for interest only loans in most cases.
We foresee that the potential for variable rates to increase further is more likely to come from APRA pressure and Basel reforms than interest rate increases passed on by the RBA.
So what are your options?
Firstly, there are some very good value fixed interest rates available in the market today, generally these will be offered as “specials” and will be available to new to bank clients only. Fixed rates will guard against APRA and Basel increases.
Secondly, competition is always changing. One of the major banks, who we have used extensively for a number of years due to their competitive pricing, is no longer winning much of our business. They have priced themselves out of the market and are not willing to negotiate or match rates.
The nature of banking is cyclical and banks appetites are continually changing on how aggressively they target new business. A review of your current loans may surprise you on how much money can be saved.
Should you wish to talk to one of our team members regarding your loans please call for an appointment.
DISCLAIMER: This article is intended to provide a general summary only and should not be relied on as a substitute for professional advice.