Over the past few weeks we have seen lenders in the industry reduce their variable and fixed interest rates for Owner-occupiers and Investors. Some lenders are now offering tiered interest rates on the Loan to Security ratio (LVR). An example would be that if the LVR was under 60%, this would attract a slightly lower interest rate than a loan with a LVR of 80%.
Also, we are noticing that the major banks are reducing their discounts on “package” loans. All discounts above and beyond the bank’s standard tiered discounts are subject to pricing approvals. Additionally, to obtain a higher lending discount on interest rates, the borrower would need to be in the upper end for the lender to consider higher than normal pricing discounts.
With the forthcoming Spring season, real estate property listings are expected to ramp up and banks normally have their “Spring marketing campaigns” to obtain market share for borrowers.
Floor and Buffer Rate
Recently, we have seen that the Australian Prudential Regulation Authority (APRA) has reduced the benchmark that banks utilise for serviceability for borrowers.
The changes now effectively introduced by lenders have a “floor rate” plus a margin to assess serviceability.
Currently, lenders’ “floor rates” range between 5.25% to 5.75% with a buffer ranging from 2.50% to 2.75%.
- If the variable rate applying to the proposed loan plus the interest rate buffer of 2.50% p.a. is less than the floor rate, then the floor rate is applied as the serviceability assessment rate.
- If the variable rate applying to the proposed loan plus the interest rate buffer of 2.50% p.a. is greater than the floor rate, then the rate on the loan plus the interest rate buffer is applied as the serviceability assessment rate.
An example of the revised guidelines would be as follows :-
Say Variable rate was 3.10% Add Buffer say 2.50% equals 5.60%
Say the Floor rate was 5.75%.
The lender would utilise the “Floor rate” to assess the loan serviceability.
Paul and his fellow professionals have been integral members of the finance community addressing needs of their clients that banks cannot. Contact us today to find out how we can help you in your unique situation.