Mortgage Hell

If you bought a property with a fixed loan in July 2021 your interest rate would have been a very reasonable 1.97% p.a. However, when your loan expires later this year – as many thousands will – your  new interest rate could be as high as 7.19% – assuming the cash rate is hiked by the predicted 75 basis points.

Many homeowners who borrowed to the limit back in 2021. Will find themselves in mortgage hell. First, lenders will apply a new serviceability test. If they fail they could be denied a loan. Secondly, borrowers could find themselves paying tens of thousands of dollars for lender’s mortgage insurance if the value of their properties is deemed to have slipped and the loan-to-value ratio is greater than 80%.  Stand by for some very ugly headlines in the coming months.

Bad News Bonanza

Banks are salivating at the thought of $478 billion worth of refinance loans coming back on the market.  Competition to capture a share of this potential bonanza is fierce with 34 lenders offering cashback deals ranging from $1,000 to $5,000. The CEO of Australian Finance Group, David Bailey says he has never seen the refinancing market so competitive.  Don’t be fooled if you are considering a cashback deal. You’ll pay for it down the track.

Ludicrous

While banks are pumping up their mortgage rates, it appears they are not so keen to share the increased revenue with depositors. Many savers are still earning less than 1% on their hard earned cash, according to the folks at RateCity.

So, it’s welcome news that the Federal Treasurer has asked the ACCC to investigate how the banks are handling savings account interest rates. RateCity research director, Sally Tindall said,  “It’s ludicrous to think that some accounts are still offering ongoing savings rates below 1 per cent, when the market leaders now have rates over 4.50 per cent.”

Warning

Don’t delete your Zoom app just yet. Flying in for a face-to-face meeting is still problematic. Airfares remain up to 30% dearer than they were before the pandemic.  You can’t find a cheap discount fare for lover or money.  The airlines don’t need to offer them because they are not flying as many planes and those that do get into the air  are packed to the brim.    The good news for shareholders is that all three airline groups are forecasting profits this financial year after three years of significant losses. The information is contained in the Airline Competition in Australia report from the ACCC which has warned the airlines not to deliberately reduce flights just to maintain high fares. 

Pressure

Pressure is mounting on the federal government to introduce tough regulations forcing BNPL companies to follow the same “responsible lending” practices as other credit providers.  The government is currently considering three proposals the most severe of which is the “responsible lending” requirement.  MoneyMe boss, Clayton Howes, says because BNPLs are not compelled to provide credit data about their customers, it creates a dangerous blind spot for other lenders approached to provide funds – a reasonable point if the aim is to protect borrowers from themselves.

Consumer groups and Westpac, which does not have a BNPL product, are also backing the tough option. It won’t surprise you that NAB, which lends to the BNPL sector, favours a softer option.

Bonus Read

The philosopher, Bertrand Russell, identified four desires driving all human behaviour. They are acquisitiveness, rivalry, vanity and love of power. He explained them in his acceptance speech when he received the Nobel Prize. If you are interested in an enlightened read follow the link.

 Have a great week.   If you or your clients need funds for a business we could help. We are specialists in invoice finance, trade finance and supply chain finance. You can contact  me on 0411 535 096. 

Paul Ransley