There’s an old saying in business that the only constant is change.
In regards to the home loan industry in Australia, never a truer word was said. 2015 has seen a period of unprecedented change.
At Loan Avenue, our focus has been to embrace change and use the opportunity to innovate and adapt new products and services, to help people improve their financial position and get ahead sooner.
Change can be confusing for borrowers. Adding to that, nothing is more frustrating than having a lender who is not accessible when people need help the most.
Dealing with a specialist non-bank lender during times of uncertainty is beneficial to ensure people are aware of their options in a timely manner and receive personalised financial guidance as to the right tailored financial strategy.
With that in mind, I’d like to use the opportunity of our inaugural newsletter to help you understand why so much has changed in such a short period of time.
Put simply, those entrusted to look after us are worried about Australia’s economy and want to ensure we have a strong financial system to protect households should something happen.
Three regulatory bodies are the conduit for change in the lending industry:
- The Reserve Bank of Australia (RBA) has the role of maintaining a stable economy.
- The Australian Prudential Regulatory Authority (APRA) ensures consumers are protected when dealing with banks and insurance companies.
- The Australia Securities and Investment Commission (ASIC) is the watchdog that protects consumers by enforcing the law.
These regulators have expressed the following view:
- Australia’s economy has been slowing. Interest rates were reduced to stimulate growth. An unintended consequence is that low interest rates have caused unusual growth in the use of interest-only investment loans. These products have overinflated the demand for property, causing a pricing ‘bubble’ and reducing general affordability and supply for owner-occupiers. This situation has sparked fears of a crash in the property market if the economy falters. In other words, the growth in property prices is unsustainable and the impact of a price correction on the Australian community needs forward managing.
- It is inevitable that interest rates will start rising and this may have a dramatic impact on loan serviceability for the average household. A robust and secure banking and financial system is needed to protect sectors of the economy that are adversely exposed to economic downturns such as lenders and families in the property market. Taking steps to strengthen the local banking system is also important given its reliance on foreign-sourced funding.
To strengthen Australia’s financial system, the regulators have asked that banks adhere to the following new rules:
- Investment lending must not grow more than 10% per year.
- Banks must hold and assign more capital equity to mortgage lending.
- Banks must follow new industry guidelines for responsible lending practices.
These are broad rules and may be open to interpretation as to how they are applied by individual lenders. Hence we see some variations in the market that are causing confusion amongst borrowers, such as individual treatment of serviceability and assessment of income and expenditure.
If you have any questions, please do not hesitate to give us a call and discuss your personal situation with our experienced finance professionals. Yes that’s right. In a refreshing twist you get to speak to real people.
Despite uncertain times, we’re working hard to give people a better deal and help them get ahead sooner. A prime example of this is our latest home loan product called Rapid Freedom.
Start your path to financial freedom and check-out our new home loan below called Rapid Freedom. You could be up for an amazing interest rate discount of up to 3% on your owner-occupied home.
Imagine the possibilities with savings like that.
All the best.
Paul Collins
