In our last issue of Wealth & Health, we introduced our Mortgage consultant Jerome; in this issue, we have asked him to provide an update on important changes to the lending market.
Following another cash rate cut in July, at just 1%, the current cash rate is the lowest in Australia’s history. Lower finance interest rates should mean significant interest savings to borrowers.
In addition to this; APRA has confirmed it will allow Authorised Deposit Institutions (ADIs), being most banks and lenders, to change the rate at which they assess a customers’ ability to serve this loans.
Prior to the change, an ADI assessed your income and expenses and determined your ability to service the loan at a 7 per cent affordability rate. This buffer is designed to ensure that you will still be able to service the loan should interest rates increase. Following the most recent changes, APRA has confirmed they have changed the assessment rate and advised how it should be calculated. ADIs can now use 2.5% plus their minimum interest rate to get the new assessment rate.
For example, if a lender’s minimum interest rate is 3.5%, you add the 2.5% which will give an assessment rate of 6%. This means different lenders will have different assessment rates based on their minimum interest rates, therefore increasing competition in the home loan market. Prior to the change, a borrower was assessed at 7%. Previously if a lender had determined a borrowing capacity of $750,000 based on income and expenses, this would now be increased by 1%, or in this case $7,500, giving a new borrowing capacity of $757,500.
“This is a welcome change for those with a mortgage or anyone looking to get into the property market.”
Borrowers should be questioning how best to take advantage of the current historically low-interest rates, recent rate cuts, current property market conditions and this new low assessment rate to their benefit.
How can you benefit from all of this?
Your ability to compete in the property market is now greater due to increased borrowing capacity which may open up opportunities for you to purchase properties you previously felt were beyond your reach. This change is relevant not only for owner-occupiers but also to property investors as well.
If you have a mortgage you should question whether you are in a position to take advantage of these low-interest rates. This will largely depend upon how your current mortgage is structured.
If you have been considering buying a home or investing in property, lower property prices and historically low-interest rates provide the perfect combination to make this happen.
Existing mortgage holders should also review their current arrangements. Depending on your loan structure this is a great time to compare lenders and ask yourself if you could be in a better position.
It is important to consider factors other than rates alone, and you must ensure that the mortgage suits your individual needs and circumstances. To find out if you could be saving money, or using the current low rates to better your position, please make an appointment with our Mortgage Consultant, Jerome Mootoo by calling the office on 1300 001 998 or emailing email@example.com