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An interest rate hike by Reserve Bank governor Michelle Bullock has prompted speculation the value of debt will spark a secret credit war among lenders. Mortgage market experts have revealed a secret credit war among banks could be a surprise outcome from the Reserve Bank’s next cash rate hike. Economists and market watchers are widely anticipating a 0.25 percentage point increase in the nation’s cash rate from 4.35 per cent to 4.6 per cent on September 29, the highest level since the aftermath of the global financial crisis in 2009.
While it’s grim news for homeowners struggling to keep their mortgage under control, for those with the right kind of debt — banks and other lenders might be about to become surprisingly generous. RELATED: 100 Aus suburbs at risk from next rate rise Rates nightmare: Experts tip double RBA hike before Christmas One RBA decision can affect home ownership for more than a decade, research finds Real Estate Buyers Agents Association of Australia president Zoran Solano has speculated that an interest rate hike today, and the potential of another, will spark a secret rate war. Mr Solano said that with the cost of debt surging, the value of that debt would rise in the eyes of banks — and could leave certain property owners in a position to get unadvertised deals.
“We will see off-market, or silent rates that banks won’t advertise but will offer if they want to keep your business,” he said. “It would be more likely you would get that secret rate when you have more debt. “And there might be a secret credit war behind closed doors to retain the bigger business.” The professional homebuyer said those with debts into the millions of dollars, likely around $2m-$4m, could be the best placed.
Hot Property Buyers Agency managing director Zoran Solano believes banks might be about to get more generous with their mortgage rate discounting — for the right people. However, he said that would need to be in a certain format as highly leveraged investors with dozens of homes were more likely to be seen as a risk for the banks and they would potentially prefer those with two or three higher-end homes. Loan Market chief executive Sam White said the premise held merit.
“The good news about this cycle is that the banks have lots of money, it’s not a scarcity of money problem,” Mr White said. “There will be more competition, they will be trying to get the money out the door. “Beyond a certain point, they won’t go.
But there will be off the card rates for borrowers who that particular bank wants to target.” He added that this might not just be on the size of the debt alone, as some banks might also have a desire to have more exposure to a certain suburbs — and be less willing to increase it in others. Minimising debts such as credit cards and other loans might also be a factor in getting the best interest rates. “That won’t last for very long, but there are definitely negotiations with lenders you can have to reduce rates.” But the size of debt will be a negative factor for others.
Mr White noted that when you owned less than 80 per cent of your home it would be harder to make changes to your mortgage or to get better rates. On the reverse side, if you owed less than $100,000, you might also find it more difficult to get the best rates. What A Rate Hike Means For Your Home Dream Household income Borrowing capacity today Purchase price today Purchase price after 0.25ppt hike Purchase price after 0.5ppt hike $75,000 $337,500 $405,000 $396,170 $387,748 $100,000 $450,000 $540,000 $528,226 $516,997 $150,000 $675,000 $810,000 $792,499 $775,652 $200,000 $900,000 $1,080,000 $1,056,612 $1,034,150 $250,000 $1,125,000 $1,350,000 $1,320,725 $1,292,649 $300,000 $1,350,000 $1,620,000 $1,584,838 $1,551,148 Source: Moneysmart.gov.au However, a loan with a high value but that is still low risk, likely benefits the most from the middle ground.
“They are pretty keen now, and they will continue to be so moving forward, for the right customers,” Mr White said. “So, if there is a rate rise, one important thing is to look around and compare options — see what is out there.” However he noted that there was a lot more pricing for “risk” around loans at the moment, so how much of the home you own and the way you are employed as well as who by, as well as other more nebulous factors such as where the home is located could all play a part in how much the bank will be willing to back you. Loan Market Group chief executive Sam White agrees there will be better rates for those with the right kind of debt.
For the rest of the nation’s mortgage holders, Mr Solano said while families and first-home buyers might be unlikely to see the same levels of discount as those with eye-watering borrowing, it would still be possible to get better margins as banks were seeing fewer new loans coming in as lending data had showed slowing activity across almost every segment in the June quarter. “The rate that they are advertising and the rate you would get if you kick up a stink are two different things,” Mr Solano said. “And first-home buyers and families might get a little reprieve if they have a relationship with their bank or broker – but they won’t get the same discount rates of the larger mortgage holders.” Sign up to the Herald Sun Weekly Real Estate Update.
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Source: realestate.com.au
