With the Reserve Bank holding the cash rate steady on Melbourne Cup day, it looks as though the chequered flag has been waved to signal an end to the easing cycle.
The property market is going bananas, business and consumer confidence have bounced back, employment is pretty steady and even retail spending popped out a positive surprise on October.
All this says the rate cutting scissors can be shelved, which means if you’re thinking about fixing a loan, now is the time to move.
Ratings agency CANSTAR crunched the numbers last week and found the average variable home loan rate is now 5.44%, and the average 3-year fixed rate 5.1%. However, lenders are already starting to ratchet these rates up.
In August, 11 lenders lifted interest rates across 29 different products. But in October, 82 lenders made the move higher on 258 products.
These are decisions by financial institutions that depend on picking rate movements to maximise margins, so their actions are evidence of an easing cycle that has just steadied course.
However, the case for fixing is not just domestic – the trend for global interest rates is up too. All indicators suggest the US Federal Reserve will start to reduce its money printing, or ‘Quantitative Easing’, over the next six months, which will mean higher US interest rates.
And as Europe rises out of its current debt crisis, you guessed it, rates will be inched higher there too.
Why does this matter? Because our banks borrow on international lending markets, and they’ll be only too happy to pass on higher interest costs to customers.
So, as you can see, there are quite a few reasons to expect we’ve reached the bottom of our very easy interest rate cycle, making now a good time to get proactive about loans.
How to approach it
However, it’s not as simple as locking away the average loan and leaving it. CANSTAR’s database shows there is an almost two percent difference between the highest and lowest variable interest rate being offered. Fixed offerings show a similar gap.
This means it’s essential to shop around for the best deal. And then ask for a better one.
One of the keys to getting a deal so good that people ask “how did you get THAT rate?!” is simple relationship management. Here are some tips on grooming your bank manager and keeping them on side.
• Look like a reliable person to lend to. Presentation is everything and first impressions are crucial.
• Be open about your financial position. If you have a steady job with good prospects for secure employment and you can service the loan, then you shouldn’t have any hassles.
• Present a plan on how you’re going to pay back the loan. Provide a family budget which shows how you’re going to live, meet repayments and pay off the loan.
• Be the first to tell them any bad news, rather than have them find out elsewhere.
• Don’t give your bank manager any surprises. The objective is to make it easy for them to say “yes”. Like most of us, they hate surprises and their performance evaluation will decline if their lending has been bad... so they don’t want you to fail!
• Be consistent, reliable and honest when presenting plans and ideas. Their systems will be giving them a pretty clear story about your finances so there is no point trying to beat them at their own game.
• Show the bank how you are going the extra mile and why they should continue to stake their reputation on your determination to be successful.
Approaching the bottom of this interest rate cycle in the right way will ensure that when rates do start to peddle back up hill, you’ll be travelling a little easier.