Archive for June, 2009
We are currently receiving the worst bank service in memory, from all the major banks. They have slowed the loan process down considerably, and some clients are actually missing their settlement dates and having to extend settlement periods.
The banks are placing profits before people. Approvals times of new loans have blown out by weeks, even months in some cases.
Typical time required to receive a Final Approval (in working days):
NAB 18 days
CBA 13 days
St George 12 days (was 32 days last month)
ANZ 13 days
Westpac 16 days
Why are they slowing the system down?
• Short on cash! They have to borrow from overseas and the cost has increased.
• Lending ratios too high. For every $100 in deposits, the Aust. banks lend out $155. This is one of the highest ratios in the world. The ratings agencies are threatening to reduce their rating from AA to a lower rating. This means they will have to pay more for overseas money.
• Cost cutting: Banks are sacking staff, not hiring. Less staff left to process a lot more work.
• First Home Owners have filled the banks with over 1,500 applications per week (each bank). Unprecedented.
• 30th June is historically the peak season for settlements of property.
• Interest In Advance transactions peak during June, requiring a lot of processing.
• The 5 major banks now have 92% market share of all home loans, up from 75% last year. This is due to all smaller lenders pulling out of the market due to shortage and high cost of funding in this current global credit squeeze.
In Summary,
The major banks now have a bigger market share by default, higher volumes, less profit margin, cutting staff to compensate, and receiving threats of losing their AA rating. These are all incentives to slow the system.
The result: The major banks are deliberately slowing to ride out these current market conditions. The evidence is in Approval times now taking between 4 to 8 weeks, placing our client’s settlements in danger.
To find out how your client can avoid the embarrassment of missing a settlement date, visit our website www.planassist.com.au or call 02 9449 2333 to talk to one of our mortgage specialists.
Short Answer: If it’s a suitable strategy for you, within the next 3 months.
Long Answer:
Historically sticking with the variable rate triumphs over fixing interest rates, just like picking a falling or rising stock on the stock market. You can never pick the exact timing of the market.
Fixing now or in 3 months won’t make too much difference. However, leave it for 12 months and you may lose an opportunity to purchase insurance at a good rate. Most commentators are predicting the fixed rates next year should be in the 7%pa or higher due to more optimism about the future. If it’s the right thing for you, where you have longer term debt or investments, then in the next 3 months may be your best opportunity.
Be Careful – Real Life Examples:
a) Client sold home, Paid out home loan and paid $16,000 break cost in August 2008
$450,000 Home Loan, 5 years fixed at 7.45%pa, 3 years remaining
b) Client was quoted in March 2009: $62,000 break cost
$500,000 Home Loan, 5 years fixed at 7.8%pa, 4.2 years remaining
It’s important to look at your individual situation and assess whether fixed rate loans are a suitable rate-hedge strategy. Basically, if you don’t change property and home loans from year to year, or you have long term investments & loans, it may be the best time to consider changing to a fixed rate loan.
To find out more about fixing your interest rate, call our Plan Assist Mortgage Team on 02 9449 2333.