We are fortunate that from our perspective we get to see, and therefore interpret, certain changes within the banking system that allow us to predict how banks may see the world in the future. Following from the recent interest rate adjustments and the release of the state and federal budgets, we offer the following guideposts we think will be particularly helpful to you.

  • The banks are starting to increase their “buffer rates” when doing their loan serviceability.  This means that your income will be able to secure you a lower loan amount than before. It also means banks are tightening up on lending, that they are predicting a downturn and will not be able to lend as much in the future and that property prices may be expected to drop.
  • Customers can negotiate with their existing lenders to get better rates, meaning the banks are still focussed on “market share” and securing their customer base.
  • The long term discounts being offered to new customers are starting to lessen, whereas transactional short term incentives are being offered (e.g. refinance bonuses).  Banks may not pass on all the cash rate drops, waive fees or forego ongoing revenue sources as before.  This often means they are increasing alternate revenue sources instead of focusing on new loan revenue sources.

The current climate: conditions that influence bank behaviour

  • The period of competition amongst the banks and lenders, vying for business from builders and property-related loans, is coming to the end of the existing cycle.
  • The cash rate is still falling in a weak domestic economic environment.
  • Australia’s Terms of Trade are diminishing with the fall in commodity prices.
  • The international environment is still weak, struggling and unpredictable with the “money printing” programs being scaled back in America, but only beginning in Europe.
  • Domestic and international security situations are unstable, with armed conflicts erupting and terrorist plots being reported around the world.

Tasks you will likely face

  • Raising money to fund development projects will become harder to access with greater focus on minimising the risk to lenders (e.g. demanding higher pre-sales).
  • Getting access, or holding on to existing lines of credit or overdraft facilities.  Banks will want the entire credit limit used immediately rather than just being available to you.
  • Property prices will become unstable, with some areas continuing to boom whilst other areas languish.
  • Affordability will dampen the property market further with people unable to secure escalating loan amounts, increasing the risk in development projects.

Actions you should consider taking

  • Develop a business plan as well as a life plan, outlining your projected living or operating expenses, your current and projected income and debt levels, structures and capacity.
  • Consider restructuring your debts, loans and facilities in a way that benefits you and provides you a safety net for an unstable future.
  • Highlight any risks to your business and lifestyle and begin to develop a mitigating strategy.
  • Speak to Master Builders Financial Services about analysing your existing debt structures, as well as ensuring you have more than one lender involved in your personal and business affairs.
  • Have a goal to begin a relationship with your credit advisor, accountant and Master Builder Relationship manager to better help you plan and navigate through the uncertain times on the horizon.

Please contact our team to discuss this or any other credit-related topics.

[email protected]

Master Builders Financial Services

1300 137 537

Disclaimer:

Chocolate Money trading as Master Builders Financial Services, Australian Credit License #387277.

This article represents the views of the author only and is not to be considered as specific advice.  It is general in nature and your personal circumstances have not been taken into consideration.  Contact Master Builders Financial Services on 1300 137 539 for tailored credit advice.