Every time the news comes on lately, the story for homebuyers and investors seems to worsen; stories of banks ripping customers off and of tighter lending controls installed as a result of investigations into banking practices.
Tightened lending controls mean most people can’t borrow as much today as they could a just few months ago. For some, this makes buying their first home even more difficult, while other households are feeling stuck when it comes to refinancing their existing debt.
This all sounds pretty dismal for home buyers, investors and the industry in general, right?
Meanwhile, many seasoned professionals are standing back — taking stock of where things are at — and asking, “Is this as good as it gets?”
Well, my answer to you is perhaps it is — and that is not a bad thing!
Listen, tighter lending controls are a good thing. The fact that it will be harder to over-extend yourself financially today than it was a few months ago is a good thing.
It reduces the risk of a major fallout when the inevitable market correction occurs. (Are we in one now, some might ask?…)
These ARE the good old days
So, maybe right now you can’t be ‘keeping up with the Jones’s’ by buying that big, new house in the suburb of your dreams — but this isn’t a terrible spot to be in.
While I’m not going to bang on here about the ‘crazy high’ interest rates of the Hawke/Keating Government era (a necessary correction at the time), I will point out that in contrast we are in a period where the RBA Cash Rate remains at a record low of 1.5%. Remember that just 10 years ago, in 2008 the (RBA) Board had the cash rate at 7.25%. At the time, standard variable rates were in excess of 9%, compared with circa 5% to 5.5% now. That’s a big difference in just 10 years.
So, while conditions might feel tough now, things are actually pretty good. With interest rates so low, now is the opportune time to get ahead for long term financial wealth and stability.
Capitalise on this opportunity
To do this, I suggest you follow these steps:
- Review your expenses and reduce where possible: With APRA now casting a watchful eye over the banks, banks are in turn looking more closely at your actual living expenses when loans are applied for. It’s important you know what it costs you to live. At the same time, see if you can cut back on any discretionary expenses or recurring expenses by looking for a better deal
- Make additional mortgage repayments: With the savings you’ve generated by understanding and cutting back on unnecessary expenses, you should direct this to your mortgage. ( I know, this isn’t very sexy advice but it’s great advice nonetheless!) Remember, home owning and investing is about building long-term wealth. We are not here to promote get rich quick schemes, because they don’t work. Paying off debt now, whilst interest rates are low is a great strategy. By paying off your loan faster, you will build up a buffer to help you weather the next financial storm.
- Talk to a reputable mortgage broker if it has been more than a year since you reviewed your loan(s). Depending on your current circumstances, you could save thousands of $$ per year, and by directing this saving into your home loan, you could pay off your loan years earlier. There are plenty of lenders offering both fixed (1 to 3 year) and variable comparison rates of under 4.00% .
So remember, don’t let the tighter lending controls get you down – it’s not all bad news. Fewer households will be able to overextend themselves, which is beneficial for the health of the economy overall, and the RBA cash rate remains at a record low of 1.5% meaning you should be able to find some wiggle room in there for a better deal than the one you’re currently on!
If you are worried about whether you’d be accepted for refinancing under the tighter lending conditions, it’s important to talk to your mortgage broker first before approaching a lender. All banks have different policies and what doesn’t work for one bank, might be acceptable for another. It’s also important that you have someone looking at your situation and providing strategic advice on how you could structure your affairs to improve your chances of obtaining finance.
If this is you, call me or send an email through and we’ll get working on the best solution for your unique situation.