Powered by MOMENTUM MEDIA
the adviser logo
Broker

Investors should be renegotiating rates, says Aussie broker

by Tas Bindi5 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. 

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]

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

CEO Sleepout Pepper Money

Mortgage industry raises more than $160k in CEO Sleepout

On 23 June 2022, several CEOs and directors in the mortgage and finance industry spent a night without shelter to...

READ MORE
alex whitlock

New membership program revealed for The Adviser

Members will be able to access exclusive sales and marketing strategy, business intelligence and exclusive market...

READ MORE
Hot property TA

Hot Property: The biggest property headlines from the week 27 June to...

Welcome to The Adviser’s weekly round-up of the headline stories and news that are important not only for the...

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