Powered by MOMENTUM MEDIA
the adviser logo
Broker

Investors should be renegotiating rates, says Aussie broker

by Tas Bindi6 minute read

Now is the time for property investors to renegotiate their rates and improve their cash flow, according to Aussie Parramatta mortgage broker Ross Le Quesne.

While recent interest rate hikes by the big four banks have widened the gap between owner-occupied and investment loan rates, Mr Le Quesne believes that “there is always room for negotiation”, especially as interest rate has one of the biggest effects on cash flow for property investors. 

To continue reading the rest of this article, create a free account
Already have an account? Sign in

Speaking to The Adviser’s sister title, Smart Property Investment, the elite broker highlighted that banks tend to offer more attractive interest rates to new customers, while existing customers are often stuck with previously established higher rates. 

He therefore highlighted that investors “constantly need to review [their] portfolio[s] to make sure that [their] rates are current with what’s currently being advertised to new property investors.” 

Advertisement
Advertisement

He agreed that regulatory changes introduced in 2017 by the Australian Prudential Regulation Authority (APRA) requiring the banks to limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending had resulted in the banks increasing interest-only (IO) loan rates, making it more compelling for investors to switch to principal and interest (P&I) loans.

If property investors switch to P&I loans, then the banks are free to offer more interest-only loans, Mr Le Quesne added. 

However, the Aussie broker said that, before switching loans or renegotiating rates, investors should take into careful consideration future plans for properties in their portfolio.

“Do you plan on refinancing or accessing equity from that property in the next three years? Are you planning to sell that property within the next three years in the case of a three-year fixed rate? Or do you have some other plans?” the broker said. 

“It might be to do a renovation or to add a granny flat, which may change your decision whether you want to fix that particular property, because if you can’t access finance under the new lending guidelines with that particular lender, you may want to keep it variable to open up your options so you don’t get hit with what they call a fixed rate break cost.”

Break costs vary depending on what impact the break has on the bank’s bottom line. 

Mr Le Quesne explained: “If they could lend the same money that they’ve lent out to somebody else and get a higher interest rate from it, then the break cost is not going to be very much. But if it’s in reverse where rates are considerably lower than the rate that you have locked in at the time when you’re looking to break, then the fixed rate break cost will be higher because there’s no way they can lend out to somebody else that money.” 

On the other hand, switching to a fixed rate loan can ensure stable cash flow. The broker noted that, should investors decide to fix all their loans at once for a three-year period, it could have a significant impact on their cash flow upon expiration, as the market is unpredictable and rates could rise. 

Mr Le Quesne argued that a combination of fixed and variable rates would therefore allow investors to spread their risk and have greater flexibility. 

He concluded: “There’s always room for negotiation and it’s about looking at your business case to do that… A lot of lenders with big portfolios are just stuck at the moment because they don’t have the borrowing capacity. Even if [investors] want to change lenders, they can’t at the moment due to the changes in the lending criteria.”

[Related: Major bank chief addresses rate hike profit scrutiny]

Investors should be renegotiating rates, says Aussie broker
mortgage house
TheAdviser logo
mortgage house

Tas Bindi

Tas Bindi

AUTHOR

Tas Bindi is the features editor for The Adviser magazine. 

JOIN THE DISCUSSION

You need to be a member to post comments. Register for free today

MORE FROM THE ADVISER

mark lewis fast ta llosc4

In Memoriam: Mark Lewis, 1963–2022

Mark Lewis passed away on Saturday (13 August). Mr Lewis was a well-known identity in the third-party broker...

READ MORE
anthony waldron mortgage choice ta ithtxm

Broker expertise key for securing right loan: Mortgage Choice

The data, which is derived from a June survey of 1,002 broker customers and conducted by Honeycomb Strategy,...

READ MORE
Mark Bouris new ifa

Brokers need to focus on the ‘value-add’: Mark Bouris

With competition among brokers increasing as the number of brokers rises – coupled with the fact that fewer...

READ MORE
magazine
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more