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Westpac admits to breaching responsible lending obligations and now up for a $35 million civil penalty:

"If approved by the Federal Court, this will represent the largest civil penalty awarded under the National Credit Act."

- recent ASIC media release today 4th September 2018

Read the full ASIC media release here.

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    • By Carol from Vista Financial
      Hi all
      Bit behind the 8 ball and catching up on some posts after a few busy weeks. A lot happening in the mortgage market with rate moves, refinance offers, lending policy changes, the Banking Royal Commission interim report released and more!
      First things first - the RBA.
      Last week to no ones surprise the RBA left rates on hold again:
      "In Australia, money-market interest rates are higher than they were at the start of the year, although they have declined since the end of June. In response, some lenders have increased their standard variable mortgage rates by small amounts, while at the same time reducing mortgage rates for some new loans.
      ...Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Growth in credit extended to owner-occupiers remains robust, but demand by investors has slowed noticeably as the dynamics of the housing market have changed. Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality."
      Full release can be read here
      More on the rest soon, watch this space!
    • By Carol from Vista Financial
      No change again, rate remains on hold:
      "Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Housing credit growth has declined to an annual rate of 5½ per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed. Lending standards are also tighter than they were a few years ago, partly reflecting APRA's earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality." 
      - Statement by Philip Lowe, Governor: Monetary Policy Decision, 4th September 2018
      But as we can see from this past week, this is only one factor used by lenders in determining whether or not to move on rates. Is it to cover cost of wholesale funding or to recoup upcoming fees for civil penalties? Watch this space.
      Full release by RBA available here.
    • By Carol from Vista Financial
      So late yesterday (after I finished my other post, naturally) Westpac announced it will be increasing rates by 0.14% p.a. quoting increased wholesale funding:
      In particular the bank bill swap rate, which is a key wholesale funding rate for mortgages, increased by about 25 basis points between February and March this year and has remained elevated.
      “We initially hoped that this increase would be temporary, and therefore we have incurred these costs over the last six months. The rate changes announced today will not recover these costs..."
      - Official Westpac Media Release, 29 August 2018
      I.e we didn't increase them then, but we are now, and not by the full amount needed cover costs. Interpret that as you may.
      So the big question is when/if this will cause a domino effect with the other big banks? There have been rises in smaller banks but none of the big four, perhaps due to the target already firmly on their backs as a result of the Royal Commission. Will they follow suit hoping that Westpac will take the first wave of anger and disapproval? Or will they stand fast in an effort to claw back a little customer sentiment? (Along with some nicely crafted marketing giving themselves a cheeky gold star of course). No doubt we will find out shortly.
      Bottom line, the only real way to guarantee your rate and repayment is to be on a fixed rate, but they come with restrictions - so do you homework first to see if it is right for you.
      As I have already mentioned elsewhere rates are so low at the moment that when they eventually go up again it will be a shock to the system for many that have only ever known low rate environments. So prepare yourselves. Those of the era of double-digit interest rates know what I mean. The RBA knows it too and have flagged rising rates as something to prepare for. Some economists now argue this recent move by Westpac (and potentially by others) may now delay any increase decisions by the RBA.
      Time will tell.
    • By Carol from Vista Financial
      Here are a few points I wanted to make today in the mortgage space.
      EOFY
      End of financial year is the  busiest and most stressful time in the financial world so if you have purchased property and waiting to settle make sure you have discussed adequate time frames with your lender/broker/conveyancer as things may be slower than usual.
      If you planned to settle before 1 July and have settlement is not already booked in it is unlikely to happen - so check! If you hope to settle just after EOFY, keep in mind any credit assessors will have a backlog of files to look at that they have pushed back so again, check to see you have been given realistic time frames.
      Interest only periods
      This topic is relevant at any time of the year.
      Many people will be shortly coming up to the end of their approved interest only periods, particularly on investment loans (if you have interest only on owner occupied, that is very rare these days!). It will be harder to extend or be granted new interest only periods than when you first applied, so be prepared and don't leave it until the last minute!
      Once upon a time you could have asked for up to 15 years interest only on investment properties... Had 10 and finishing? Well, back in the day it would be a quick call to the bank and here you go, here's another 5 years to keep you going. Sign on the dotted line, done. Gone are those days. If you have an interest only period then you need to be able to demonstrate you can repay the full debt, principal and interest, in the remaining term after your proposed interest only period expires (e.g. if you have 5 years interest only, can you repay the higher minimum payments required to pay the debt back to the bank over the 25 years left?).
      The funny thing, is that this requirement is just plain responsible lending, so is actually nothing new to the industry! A prudent lender/broker/banker should always ensure you are able to pay your debts without financial difficulty, now or in the future.
      Lenders are being more thorough in actually verifying this information now (that should always have been doing) since financial services regulator APRA (the Australian Prudential Regulation Authority) started putting their foot down by tightening requirements to evidence serviceability and by setting a speed limit on investor lending growth in 2014. This was in light of high levels of household debt, low interest rates and concerns over an overheating property market, particularly in Sydney and Melbourne. Banks steadily increased their rates on interest only as an incentive for people to switch to principal and interest (amongst other things some may say), the Banking Royal Commission brought further concerns out into the open, and here we are today. (There is a lot more to this story, but I that is for another post!)
      APRA has recently dialed back on its investor cap policy but overall the responsibility of lenders, brokers and bankers alike remains now highlighted- make sure people can afford what they are doing. It does not matter what role you are in or who you work for, it comes down to the integrity of the individual to be a responsible lender and to do the right thing.
      If you want to understand more about the interest only story, RBA's Assistant Governor (Financial Markets) Christopher Kent spoke to the Housing Industry Association in April this year, and his speech covers off a lot of aspects nicely.
      What you need to do
      No matter what rules are in place, what checks are made or what you are told you can afford on paper, you need to be sure you can afford to repay your debt and you are comfortable with how much your repayments are.
      Check your options with your lender well before the end of your interest only period as the conversion to paying principal and interest can be a rude awakening! If you can't afford them, options include requesting a lower interest rate to reduce overall repayments, or refinancing or requesting a loan term extension so you have more time to repay at lower repayments per month. Reach out and ask for help to navigate your options.
      It is tax time, and we all know sometimes this is the only time we speak to an accountant! So when you meet with them for your tax return, also ask them if having interest only on investment property loans is still a suitable strategy for you. Interest rates are a lot higher and things in your personal circumstance may be a lot different to when you first set up your loan(s) so make sure the structures in place are still relevant to you now.
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