Three banks raise interest rates.Earth-shattering news, to be sure. This was 2 hours 23 minutes old when I came across it. Since 9:00am this morning, my Inbox had received notification of five other lenders and mortgage managers raising their rates, and a couple even offering NIL application fees as some form of recompense. Let’s face it, folks. ALL financial institutions will raise rates because the money comes from the same place.
Apropos of my earlier post on credit approval ethics versus sales ethics, take a gander at this gem from a major mortgage manager:
Monipower Pack – Discounted LOC and Visa
Borrowers receive a discounted rate on the Monipower LOC and Secured Visa, when they take out a Balanced Securitised of a greater amount. The package also gives borrowers the opportunity to take their LVR above 100%.
Balanced Securitised 7.77%
Secured Visa 7.95%
Property Purchase Price = $280,000 (100% lend = $280K / $0K Deposit )
Term Loan = $260,000 (Bal Sec Variable @ 7.77%)
Line of Credit = $20,000 (Monipower @ 7.95% with secured Visa)
Borrowings (for LVR) = $280,000 (LVR = 100%)
Extra borrowing ability = $10,000 (Visa @ 7.95% – not included in LVR)
Actual Borrowings = $290,000 (103.57%)
• Extra $10,000 available at settlement which can be used for costs (NSW approx $16K)
• FHOG / gifts etc may be used towards deposit (5% Non gen savings)
The Balanced Securitised offers the security of a fixed rate with all of the features of a variable rate.
• 100% Offset can be linked to term loan (fixed or variable)
• Up to $20,000 in additional repayments and free redraw allowed on fixed rate loan
• Fixed rate is set at approval for 180 days
• No rate lock fee, and can refix @ no cost at end of fixed period
• No ongoing fees
• Capitalise LMI to 100%
All things considered, this isn’t a bad deal for someone with a strong, disposable cashflow who is looking to buy a home. The products are Adelaide Bank loan products, but Adelaide Bank isn’t the doing the promotion of the product mix. The troubling aspect for me is the focus on first home buyers, people without genuine savings or even the necessary cash to pay for stamp duty, registration and legals. (Just use the pre-approved $10,000 Visa facility, no wuckers!) Yet this particular mortgage manager is quite prepared to approve lending in excess of the value of the security. Why? To get the sales, that’s why. I can virtually hear the arguments between Sales and Credit right now. I wouldn’t be approving a package like this to anyone with a less than 1.5:1 servicing ratio, yet I know for a fact that this mortgage manager will approve on a 1:1 basis. When rates rise again in December, as I believe they will, such a deal would suddenly become a negative cashflow approval. That’s without taking into account the pre-approved $10,000 VISA limit which you can guarantee will be drawn down completely in no time flat.
I’m not saying there isn’t a place for this style of lending. far from it. What I am saying is that it’s being poorly targetted. Parliamentary inquiries aren’t going to resolve these practices. Only the industry itself can resolve these issues and frankly, the industry doesn’t seem to have a desire to do so. If you think there’s mortgage stress now, dear reader, just wait until December.
The Australian Bureau of Statistics reports total personal finance commitments rose 15.4 per cent in June, seasonally adjusted, to $7.850 billion compared with an upwardly revised $6.800 billion in May.
Total commercial finance, seasonally adjusted, rose 30.0 per cent in June to $48.559 billion, from an upwardly revised $37.347 billion in May.
Lease finance fell 5.2 per cent in June to $520 million compared with a downwardly revised $549 million in May.
Housing finance for owner occupation climbed 6.6 per cent to $16.288 billion in June from an upwardly revised $15.273 billion in May.
There is no possible way this country will avoid another rate rise in December and probably again in March 2008.