Expert Advice with Todd Hunter. 25/01/2017
Every now and again, I get a bad feeling in my stomach that things are just not right. And I’m getting that feeling now about the mortgage world. Usually when I get this feeling, it’s when I travel to a new investing location to buy houses and something jumps out at me as not being right. Understandably, I don’t proceed and invest there myself, so I wouldn’t buy there for client either. And my gut is usually right!
Well, I am getting that feeling again.
So what has happened to make me feel this way? Over the past few months, there have been small comments made by some economists that have been ambiguous. We have now hit 6 months of no economic growth, yet no one is saying we are in a recession. The definition of a recession is two consecutive quarters of no growth. We are experiencing the lowest interest rates we have ever experienced but they aren’t low due to Australia being in a great place. Low rates signify a slow economy, with the low rates being a way to stimulate the economy. And then there’s the Trump factor. Good or bad, he is an ‘unknown’ currently.
Now in the last few weeks, the majority of banks and lenders have increased their fixed rates by as much as 0.6%. As well as many of the lenders increasing their variable rate by 0.08%-0.15%. Either the banks are trying to gain margin back on their lending or they are seeing troubled waters ahead. I think it’s a bit of both.
On top of this, some lenders have also changed their lending policies for investors. It would appear they are either over exposed in certain suburbs or are trying to reduce their lending to investors. Policy changes such as no longer accepting negative gearing and only approving loans to investors who can service the debt without using rent. Meaning they only want to lend to borrowings with a strong level of servicing.
As negative as that sounds, I see this as a positive. We will instantly see the Sydney and Melbourne property markets come to a halt. This will occur when the interest rate increase becomes mainstream, meaning when the RBA increase rates themselves. It may well also slow a few other property markets around the country as well.
Now for myself, I like to invest in property cycles where the market is dead or just emerging. It means that I have zero competition from other purchasers and I can negotiate a great deal. This turning of the tides will present more locations that I can invest in, in the years ahead. And that can only be a good thing.
Unfortunately, there are many cities and regions across the country that have seen significant capital growth that was only fuelled by low interest rates. These locations will become apparent when the rates start to rise, as their property markets will see instant negative growth. True colours will shine!
So what should investors be doing now to combat the interest rates as well as capitalise on new markets that will start to present themselves?
Look at fixing your interest rates, even if that means you need to refinance to a different lender to get a better rate. If you have equity that you can tap into, then apply for the extra funds at the same time and let the funds sit in an Offset account ready for you to pounce on an awesome deal. Remember, in a turning market, cash is king!
Todd Hunter is director, buyer’s agent and location researcher for Sydney-based wHeregroup. He is an active property investor himself and amassed a portfolio of 50 properties by the age of 31. For more of Todd's musings, visit the wHeregroup blog.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.