Why you should probably be fixing your interest rate now

Last week I was enjoying lunch with a footballer I do a lot of work with and another banker in Melbourne’s docklands.  As we enjoyed our food I half listened to their conversation about other footballers they both knew; their recent home movements, some of the developments they were doing and how some were getting on at new clubs.  Before long, my footballer friend nodded in my direction and with a smile commented, “we’ve lost him.”  It was true – for the most part I didn’t have a clue who they were talking about.  I do enjoy watching a good game of football but it’s not something I do often and I can likely name more economists and politicians than footy players.  Those that know me well won’t find this surprising as they’re used to me having my head in something about economics, or following international and domestic financial and political trends closely. Apart from the fact that I find it a personal interest, this information impacts our own market and I’ve found it gives me a knack for picking when interest rates might be about to do a big shift (I think it likely bores some friends too when I’m excited about sharing the why!)

Spoiler alert: my hunch is we might be on the cusp of that rate change happening now.

If you’ve had your head in the finance section of the papers recently you would see that CBA and ANZ (and a few other lenders) have flagged they’re raising interest rates on loans for investment property.  The noise from and around these lenders is this rise in investor rates is a response to action by APRA (Australian Prudential Regulation Authority) who regulates the banks, superannuation funds, credit unions and a few other, not insignificant, bits and pieces.  The lenders are being urged to slow their growth in investment loans. Fair enough, you might say, but it got me wondering.  Surely if the purpose was to lower growth in that segment, wouldn’t you simply raise rates to those new investor loans rather than smack your entire client base of investment clients with a rise to the tune of 0.3% in some cases?  Unless they have a broker who is on the ball, the majority of those existing investor clients will stay where they are, and pay significantly more for the privilege.  In short, raising rates like this doesn’t slow growth.  What it does do is increase the amount of money taken in from a lot more clients and gives a convenient justification for doing so.

This got me thinking; I remembered reading about some of the higher funding costs lenders were facing.  Combine that with a desire to raise capital, the recent rise in investor loan rates will only begin to achieve what the lenders are looking to do.  They’re going to have to raise loan rates elsewhere too – most likely everywhere.  What does this mean?  My hunch is that rates are going up.  All those home owners out there patting yourselves on your back because you don’t have an investment loan; pay attention, I’m talking about your home loan rates too.  I think all rates are going to go up in the future.

The biggest clue that tells me I might be right comes from fixed rates.  Fixed rates are not part of the normal interest rate cycle – they don’t move so much in sync with the Reserve Bank’s official interest rate.  Amongst many things, they’re a part prediction of where lenders think rates will be in the future, and as such they’re an excellent indicator to watch.  When I’m studying information that makes me think rates are going to go up significantly I look to the trend in fixed rates, they’re my canary in the coal mine.  Not so long ago, Dark Horse Financial was sourcing 3 year fixed rates from a lender with an interest rate that had a 3 in front of it.  That rate didn’t last long before it started to go up again.  5 year fixed rates have started to move a little, and there’s signs across the board that a number of lenders are creeping that fixed rate up ever so slowly.  Enough are doing it to point to a trend.  That trend is up.  But if you act fast, we can still find good value with quality lenders, offering an excellent low rate over a 3 year fixed term.

This means you have to do something; fix now and relax OR do nothing and likely pay more.  I know what I’m doing.  Get in touch to start the ball rolling now.

The information in this article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified adviser. No material contained within this article or website should be construed or relied upon as providing recommendations in relation to any financial product.  Dark Horse Financial will only provide a recommendation on your personal situation after a detailed review of your specific circumstances and finance needs.

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