To fix or not to fix that is the question With the official cash rate slashed to 2.25% borrowers are back in the driving seat to negotiate a better deal on their loans. The Reserve Bank of Australia recently cut interest rates to their lowest level in more than 50 years in a bid to spur nonmining economic activity and to bolster business lending. To fix or not to fix loans is the inevitable question that arises and it presents an opportunity for customers to be proactive and to have a renewed discussion with their lenders. Managing Director of Cooper Financial Connections, Peter Cooper, urges customers to approach their financial institutions to ascertain whether the interest rate they are currently receiving is in line with what’s on offer in the market place. If they don’t come to the negotiating table, the advice is clear – get an adviser to run a ruler over the books and consider refinancing. “Should their bank not be willing to compete in order to keep their business, then it would be wise to take the business to a credit adviser to review the situation and if prudent refinance,” he says. “This opportunity also applies to those customers who locked away their lending at a higher fixed rate two or three years ago and are now watching variable rates drop consistently, while their rate and repayments stay the same.” Cooper suggests borrowers establish exactly what the applicable ‘break funding cost’ would be to break the fixed rate. Armed with that information, he advises a review of the situation with a professional credit adviser to see if it is financially viable to make the switch from fixed to variable. “The fixed rate locked away a few years ago was bundled and hedged at a wholesale cost. Therefore it’s worth asking the question and reviewing, because even by paying the penalty, you could still be in front - even if you were to fix your rate again,” he says. “What we say to our clients is that they must at least ask the question because the institutions are not in the business of saving them money. Rather, they’re in business to make a profit for the shareholders at your expense.” The value of investment housing loans is soaring and economists are predicting it to get even hotter. A report in the Sydney Morning Herald indicated that lending to investors for residential property is now double the level in 2011, with the value of loans surging 7.2% in December to be up almost 20 per cent for the year. It also noted the value of investment housing loans has skyrocketed in the past 12 months, jumping almost 20% by the end of December and economists warn it will rise even further. The rate cut will make residential rental yields even more attractive to the yield chasers. "Investors are borrowing $12.6 billion per month, compared to $18.6 billion for owner occupiers. Stripping out the refinancing brings the owner occupiers back to $12.3 billion per month, just below investors," says Commonwealth Bank economist Michael Workman. Reserve Bank Governor Glenn Stevens, says financial conditions are very accommodative globally, with long-term borrowing rates for several major sovereigns reaching new all-time lows over recent months. Some risk spreads have widened a little but overall financing costs for creditworthy borrowers remain low. In a statement following the rate cut, he said credit growth picked up to moderate rates in 2014, with stronger growth in lending to investors in housing assets. Dwelling prices have continued to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. pm FINANCE pindaramagazine.com.au Pindara Magazine 111
Pindara Private Hospital Magazine - Issue Four
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