Isn’t the Interest Rate Important ?

Every Bank deals with different types of clients and the way they manage any associated risk varies from Lender to Lender. Banks are in the business of making a profit. One of the ways they make money is by lending money at the lowest possible risk.

They manage this risk by setting Credit Guidelines that will give them the clients they want. These Guidelines can be manipulated so they can keep abreast of their exposure to the various markets. For example in an area where a Lender  feels they have too much exposure or perhaps not enough, a simple change in the LVR ( Loan Valuation Ratio) can drive a result. They can change their calculators, increase living expenses, increase the weighting for existing debt and even reclassify security types.  All of these measures will reduce the borrowing capacity without you ever knowing. What the public sees is the interest rate. In fact this happened recently when APRA (Australian Prudential and Regulatory Authority) directed the Major Banks to limit their investment lending portfolios to no more than 10% growth year on year.  APRA was concerned about the escalating property prices across the country, principally Sydney and Melbourne. Faced with hefty fines for non-compliance the Banks responded quickly with a raft of changes that were designed to reduce the borrowing capacity of Investors. The Banks altered their servicing calculators to reflect higher repayments on existing debts while reclassifying some income types. The most obvious change however, was the increase in the interest rate for all Investor loans and Interest Only loans. These changes, along with a myriad of others, have a direct influence on your ability to borrow.

If there is any other info you’d like me to search out and share in the world of Financial Services then please let me know. Or, if you have any other pressing needs in my area, feel free to reach out on (0432) 132-123.

Thanks,

Arthur