Good morning!
I hope you all had a great Easter. Though this Easter will be one we will all remember, I trust you are all safe, and you and your families are well.
I’d like to share a win I had, with a lender I don’t have a formal relationship with.
I was referred a client a couple of weeks ago who needed to look at refinancing their home loan. As I looked at their scenario there were a couple of pain points for them. They were on a 5yr fixed loan that had 12 months yet to run at 4.7%, and a variable loan rate of 3.5%. When assessing this, I found that the Male applicant was a FIFO worker in the mines, and had just been sent home indefinitely. The Female applicant was working in a full time government public service job.
In discussion with them I found that they could continue to maintain their current repayments without significantly affecting their lifestyle even without his income. What it did mean was that I couldn’t do a normal refinance for them and take them away from their current lender.
We discussed how to get this to work. I suggested they call their current lender and ask them to improve the rate on their variable and find out what the break cost would be on their fixed loan. Once we knew what the cost would be to break the fixed term (about $3,500). They then had to ask the lender if they were prepared to consolidate their current loans into one variable rate. I gave them a list of banks who were much cheaper, to show the lender the clients knew what the state of the market was. The lender then said they would concider and that they ‘might’ be able to get the variable rate down to 2.97%. Which wasn’t too bad.
However when the lender came back two days later, and said they couldn’t do this and that the clients would be facing a potentially higher rate than the 2.97% originally indicated.
I then penned an email to that banks CEO and Client Service Manager (on the clients behalf) giving them some facts on rate and product, and that the lender should concider trying the keep a good, loyal client in the current market. This email wasn’t responded to, BUT in the couple of hours after the clients sending this email to them, they had a surprising call from the bank.
All of a sudden they could beat the initial rate offered and consolidate the two loans into one loan with a rate of 2.79%... Even though the clients still had to pay the break cost of $3,500 the saving to the clients in the first year alone was in excess of $7,000.
Needless to say the clients were happy. The moral of the story here is that even when a bank says no, it doesn’t always mean a no.
The fact that the clients were in a good position with regards to equity, had made all of their repayments, and were not asking to go on a repayment holiday meant that they were much more attractive to the bank. I will never know if the email sent to the CEO was the cause, it did feel good though to help a client get to a better place, and still be able to reduce their loan and get in front.
Several lenders came out this week stating they will be reducing their acceptable rental property investment income. Bank of Sydney being the most aggressive here. Previously they were using up to 80% of rental income (as do most lenders) They now use 60% on high value residential property, 50% in regional areas and 70% on metro area’s. I don’t think this is the first time we will see lenders do this as the market begins to contract and investors start to feel the pinch of renters not able to pay their rent especially in the major cities.
Rates in the last week have remained stable, I think we may have seen the last of the rate movements for a little while here. I think that lenders will continue to monitor and hope for new business. There are many more questions being asked in their assessment of applications though. Especially with commentary being required from me around how and why the quarantine and COVID-19 is expected to affect the borrowers.
The Australian Banking Association says the industry has agreed on the principle, that repayment holidays or deferments put into place by clients affected by quarantine and COVID-19 will not, be treated as adverse credit events and so shouldn’t negatively impact a clients credit report. Providing that the clients were up to date at the time the deferment was put into place.
In other good news parliament passed the Job Keeper bill and with more than $730,000 business’ already registered for assistance. One can hope that the flow on and transition here is smooth. I found this to be a concise explanation about how it works LINK HERE
To end on a positive note I read an article this week about an Aussie farmer in Tassie who ‘inadvertently’ raised the ire of the French. I, as I’m sure you all do, love an Aussie battler, especially when an ‘honest’ mistake helps the little guy win. I’m on board.. who wants to order a case or Rhubarb bubbly.. 😉
Have a great week and stay safe.
JC
Scenarios and interest rates quoted above are suggestions and constitute general advice only.
Justin
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