We all wait patiently every month to see what the Reserve Board will do with rates and the media goes into a frenzy with news about what any movement up or down will mean. Well in this week’s show Jane Slack-Smith, from Investors Choice Mortgages, thinks is about time we realised that low interest rates are not a good thing.
Kevin: We say happy birthday today to Jane Slack-Smith, ten years with Investors Choice Mortgages. Congratulations, Jane. That’s a great track record.
Jane: Thank you. Yes, it’s been an incredible journey, and one that I’ve thoroughly enjoyed.
Kevin: Jane is, of course, no stranger to our audience, because we talked to Jane only a matter of a couple of weeks ago about the ultimate guide to renovations. You’re a very skilled lady – into renovation, into home mortgages.
I’m just keen to know from you, Jane, about the current low interest rate environment. Is that such a good thing for the property market?
Jane: Kevin, there are some good aspects and there are some bad aspects. If we concentrate on the good first of all, then obviously, our repayments could be going down and often you actually have to ring your bank and ask them to reduce your repayments or they’ll keep them at the same amount, which a lot of people don’t know.
We’re seeing a lot of competition. We have fixed rates below 4%, we have variable rates below 5%. Banks are offering incredible discounts we’re getting for our clients from what is the market rate, so it’s a really great time to relook at your current mortgages.
The really good thing is if you look at the RD Data report recently, over 40% of people’s properties are worth double what they bought them for. A lot of people are sitting on a lot of equity, their best borrowing capacity now more than ever because the rates are so low and how banks assess them.
From a good point of view as a property person, I guess pulling out some equity and getting ready for the next trend or the next opportunities is a really good thing.
Kevin: I guess a lot of people would be thinking that just because the interest rates are reduced and the banks bring them down, that they’re naturally going to flow that through to your loan, but that’s not the case. You actually have to go to them and say “Hey,” and renegotiate.
Jane: Your repayments are often set. A lot of people have a set repayment per month, and unless you actually ask them to reduce them, then they’re not going to be reduced. But some people have that automatic option built in.
But I guess one of the things when you think about your home is, as well, is that it’s nice to actually get a few repayments or a bit of in redraw ahead. We’re actually seeing Australians who are building more equity in their home and more redrawing in their loan accounts that is putting them in a better savings position, as well.
Kevin: It’s a great low-interest environment, of course, for anyone who has borrowed money, but it’s always an indicator that the economy is not ticking along all that well when the interest rates have to be that low, though, Jane?
Jane: Absolutely. The Reserve Bank is looking at the entire market. We’re looking at iron ore prices, we’re looking at coming off the mining boom, and it’s not just the Sydney property market that’s driving what the RBA’s decisions are. As a great, big look at Australia, things aren’t all that good, and that’s why the RBA is trying to stimulate the economy. So we have to be mindful of that, as well.
I guess from the negative point of view, a lot of the banks are being very cautious and we have ASIC and APRA telling them to be very mindful of how they’re lending out money. I’m finding that banking assessments are getting a lot tougher. We’re finding that banks are – and we’re seeing policy changes now every week – lending over 90% loan-to-value ratio.
Some lenders now require you to have a principal-and-interest loan, or if you’re lending to access equity from your property with an over 80% loan-to-value ratio, they want explanations. With the new way that credit checks are being done, the positive reporting, banks have a lot more information about you. They’re getting a bit tougher on their assessments, as well.
Kevin: Jane, congratulations. Thanks for joining us today, and ten years with Investors Choice Mortgages: that’s a great track record. Great to have you on the show, too. Thank you so much for your time, Jane.
Jane: Thanks a lot, Kevin.