Ah- Those Big Banks

I thought I would post a thread in response to the general bewilderness and frustration to the recent rate hikes. Especially to Westpac which is fast becoming the "W" word.


Your risk and exposure to a bank higly depends on your loan structure and debt with that particular bank.

If you are worried about interest rate rises: Lock your rates in at a level you can afford.

If you are worried about accessing your equity when you really need it - for whatever reasons: Don't Cross-Collateralise your properties.


Sash has indirectly mentioned a risk strategy that I personally use and I don't think enough people realise it. Especially those new to Investing.

If the interest rate rise by one bank can affect you so acutely, you should not be with one bank.

Mix your banks up and use non-banks. There are many Credit Unions and Building Societies that still offer competitive rates, not to mention banks such as RAMS, ING and Suncorp that offer competitive rates and products.

Some of you may argue that many non-banks are owned by the BIG 4 anyway, but I will argue that they still operate independantly and individually. Servicing criteria is still seperate and so are Interest Rates.

Diversify your lenders and raise some competition to the Big Banks. :)

Regards JO
 
Good post, Jo.
I would add that by spreading the love you can use your discount with 1 bank to influence the second bank with the promise of getting more of your business. You don't necessarily change banks, but they think that you might. :cool:
 
It's sound advice in principal, though sometimes do you have to put your trust in one bank.

e.g. the banks I spoke to refused to give a second mortgage on another bank's deed. So there was no other way to get a 106% loan using equity. Though the prospect of winning/losing multiple mortgages for the properties involved did elicit some good negotiation :)

I'm not with the "bad bank of the month" but I have no doubt they all take their turn. So it's all much of a muchness to me. Sometimes chasing interest rates is a bit like that old joke about changing lanes in traffic. The other lane always seems faster...
 
Great thread Jo!

I agree with all what you have said....it should resonate with people on this forum.

Despite my tongue and cheek dig at Westpac....life is all about choices. Plan an strategy in interest rates and execute early. The Big 4 are not the only alternatives...mixing it up is a great strategy. I feel passionately about corporate ethics....yes a capitalist with leftist leanings.:p I hear that they are setting up a class action against Westpac...I will be donating money if this occurs....pity the ACCC is a toothless tiger!

To further add to Jo's strategy:
1. If you are going into a loan baase it on what it would cost to get out...any more than 1K is too much. This sets your exit strategy in place should you need to change lenders when like Westpac has demonstrated unfair increases.

2. There is still a small window if you must fix to fix on a 1 year rate and ride out the higher rates. Some 1 year rates are still at about 6.3-6.5%...given the variable rates are about 6%...and knowing there will be probably another 2-3 rates increase taking the rate up to 6.7-7.5%....manange your risk now. The next downward cycle is not going to be till about late 2011.

3. Ensure that you keep a buffer via a LOC...do it now as banks will base extending a LOC to you in your serviceability. At higher rates...you need to assess whether you will qualify for more credit?

I took a conscious decision in mid 2009 to fix my rates....given rates are up....I am glad I did this. I intend to buy in 2010....and alot of this will be due to the lower fixed rates (5.24%-5.74%)...had I not fixed...i might not have continued to buy.

Happy investing....and watch out for the sharks in fancy suits and dresses!;)



I thought I would post a thread in response to the general bewilderness and frustration to the recent rate hikes. Especially to Westpac which is fast becoming the "W" word.


Your risk and exposure to a bank higly depends on your loan structure and debt with that particular bank.

If you are worried about interest rate rises: Lock your rates in at a level you can afford.

If you are worried about accessing your equity when you really need it - for whatever reasons: Don't Cross-Collateralise your properties.


Sash has indirectly mentioned a risk strategy that I personally use and I don't think enough people realise it. Especially those new to Investing.

If the interest rate rise by one bank can affect you so acutely, you should not be with one bank.

Mix your banks up and use non-banks. There are many Credit Unions and Building Societies that still offer competitive rates, not to mention banks such as RAMS, ING and Suncorp that offer competitive rates and products.

Some of you may argue that many non-banks are owned by the BIG 4 anyway, but I will argue that they still operate independantly and individually. Servicing criteria is still seperate and so are Interest Rates.

Diversify your lenders and raise some competition to the Big Banks. :)

Regards JO
 
class action ????? on what basis ? stupidity and poor pr ( on the surface) on Westpacs behalf is one thing, but I thought we lived in a free market society ?

I have something I want to sell you, be that a product or service, I set my price and service level and my business lives or dies by that.

Whats next ? A class action because Woolies and Coles decided to have its own brand products ?

ta
rolf
 
probably along the lines of the previous argument - that because traditionally banks have a margin over the official rate then it has become an implied term.

Serious question... if Westpac said stuff you all the rate is now 20% is there anything anybody could do? Or is it just * great I own some Westpac shares * well it's a free market economy so good on em * who cares we need strong banks * they arent a charity you know * serves greedy borrowers right for over extending * sort of mentality?
 
The Big 4 are not the only alternatives...mixing it up is a great strategy.
IMO its a strategy many people can use but not necessarilly a great one because when you split your loans with many lenders you don't have much negotiating power so you won't get a big discount.
You could also be stuck with small amounts of not easily accessible equity here and there. A better strategy IMO would be to have up to 1 mil $ with each lender and to have a cash buffer in case we are out of work or get sick

2. There is still a small window if you must fix to fix on a 1 year rate and ride out the higher rates. Some 1 year rates are still at about 6.3-6.5%...given the variable rates are about 6%...and knowing there will be probably another 2-3 rates increase taking the rate up to 6.7-7.5%....manange your risk now. The next downward cycle is not going to be till about late 2011.

Not a good strategy IMO because most people would already be getting 0.7% off standard variable so the gap is even bigger than you make it sound and they won't benefit by fixing their loans.
The horse has bolted IMO and everyone should know that it's too late to fix their loans now.


The next downward cycle is not going to be till about late 2011.
Really???
IMO None knows what's going to happen in 2 years time but looking at the prospects and the large projects which are about to start in WA my guess would be that our economy would have turned around by then and our resources industry will be booming so interest rates will most likely be stable if not increasing
 
Hiya BV

Im not brave enough to say what rates will do, for if I really knew, Id be writing this from my 120 ft boat, based in Whitsundays or The Florida Keys.............instead of my 3.50 m Sea Sprite with 4 hp outboard on The Nerang River.

Im not a big fan of 1 year fixeds either.........I have seen too mnay young kids get onto those and get a good smack on the way out when the rates pick up

They tend to be priced almost like a hook rate.

havings said all that, they do have a place in diversication of rate maturity risk where you have a pile of loans, AND some good volume of discretionary income.

ta
rolf
 
I'm not with the "bad bank of the month" but I have no doubt they all take their turn. So it's all much of a muchness to me. Sometimes chasing interest rates is a bit like that old joke about changing lanes in traffic. The other lane always seems faster...
Agreed.
Serious question... if Westpac said stuff you all the rate is now 20% is there anything anybody could do? Or is it just * great I own some Westpac shares * well it's a free market economy so good on em * who cares we need strong banks * they arent a charity you know * serves greedy borrowers right for over extending * sort of mentality?
People on variable rates could - and would! - promptly refinance and they'd lose all their business. There's no incentive for Westpac to raise their rates to ridiculous highs. If I owned Westpac shares, I'd be concerned at how much business they'd lose. Apart from the mortgages being refinanced, they'd have seriously damaged their reputation and would likely lose a lot of non-mortgage business, too. There are so many Westpac mortgage holders that the Government would also likely step in and either force Westpac to back down, offer mortgage refinancing subsidies, set up their own bank to take on Westpac mortgagors who can't afford 20%, and/or introduce legislation limiting the magnitude of changes to SVRs with reference to official interest rates, and/or heaps of other measures that I've not yet conceived.

There are many, many mechanisms in existence in our market which render such an action highly unlikely, and would limit the impact if it did eventuate. I think the Australian market actually has a pretty good balance between allowing the free market to operate, and having a Government which is willing and able to protect its citizens. I'm sure everybody can think of examples where it seems to have failed, and yes, it could be improved, but it's obviously a very difficult thing to get right, as evidenced by the fact that the vast majority of countries in the world don't do it as well as Australia does.
 
Just a the hint of one happening will be enough to damage a company's brand. The other thing it may also force the hand of the inept ACCC to act.

Win or lose the action....it is win for Australian public it will check the behaviour of the organisation and force the hand of the govt to act.

class action ????? on what basis ? stupidity and poor pr ( on the surface) on Westpacs behalf is one thing, but I thought we lived in a free market society ?

I have something I want to sell you, be that a product or service, I set my price and service level and my business lives or dies by that.

Whats next ? A class action because Woolies and Coles decided to have its own brand products ?

ta
rolf

BV,

I have used these strategies ...and continue to do and they have served me well. Bear in mind the small amount you make in savings - about 0.1 -0.3% savings across a portfolio is small change compared to what could potentially happen when a bank changes its lending policy. Also, these days banks structure their contracts in such a way the all monies clause applies whether you have single security or not.

If you fix at 6.5% for 1 year in Jan 2010 and given rates are headed up to 7.5% you will break even or do better than just being on variable. I have done some modelling on this. I expect by May rates will be over 7%.

Whilst I can't predict what will happen having a risk focus definitely helps you manage the downside.

Due to me fixing in mid 2009 ....my postive CF of over $1000pw ($52k per annum) will be maitained till at least 2011.
IMO its a strategy many people can use but not necessarilly a great one because when you split your loans with many lenders you don't have much negotiating power so you won't get a big discount.
You could also be stuck with small amounts of not easily accessible equity here and there. A better strategy IMO would be to have up to 1 mil $ with each lender and to have a cash buffer in case we are out of work or get sick



Not a good strategy IMO because most people would already be getting 0.7% off standard variable so the gap is even bigger than you make it sound and they won't benefit by fixing their loans.
The horse has bolted IMO and everyone should know that it's too late to fix their loans now.


Really???
IMO None knows what's going to happen in 2 years time but looking at the prospects and the large projects which are about to start in WA my guess would be that our economy would have turned around by then and our resources industry will be booming so interest rates will most likely be stable if not increasing
 
probably along the lines of the previous argument - that because traditionally banks have a margin over the official rate then it has become an implied term.

Serious question... if Westpac said stuff you all the rate is now 20% is there anything anybody could do? Or is it just * great I own some Westpac shares * well it's a free market economy so good on em * who cares we need strong banks * they arent a charity you know * serves greedy borrowers right for over extending * sort of mentality?

hey Ausprop,

(Had a laugh at your comeback on Grocery Watch btw :))

There is nothing anyone could do but at that rate, I would think people may get physically involved.

Ever hear the story about the guy that was extremely upset with his bank and drove his car through the window of a local branch? I wish I could remember which bank it was.

Regards JO
 
I'm not with the "bad bank of the month" but I have no doubt they all take their turn. So it's all much of a muchness to me. Sometimes chasing interest rates is a bit like that old joke about changing lanes in traffic. The other lane always seems faster...

Agree, to a certain extent. Hyperthetically, if I had my whole Portfolio was with Westpac atm, on variable and over 3mil...I'd be pretty upset about it.

Worse case scenario- they are all Cross-Collateralised.

To add to the point of discounts on packages and the point of negotiation.

It is certainly a sensible option to place two properties with one bank if the discounted rate you receive is far better in a package than just having the one. (For example - most banks give a higher discount for lends over 250k)

If your strategy is to buy more properties and you are heading up into the 1mil in debt mark, this is where you need to think seriously about how you are structuring your loans and how many titles you would like one bank to control.

Regards JO
 
Ever hear the story about the guy that was extremely upset with his bank and drove his car through the window of a local branch? I wish I could remember which bank it was.
My ex kinda did that. The bank insisted he had to go to his home branch to change his pin number so he smashed their door. Got charged and fined of course. Not a sensible thing to do just after you've shown someone your ID.

Mind you I was informed he has done much the same thing rather a few times, to other large organisations as well as individuals, so I think it is 'just him' rather than the bank at fault in this case ...

ETA: they must have changed policy after that come to think of it, my home branch with that bank is in Victoria and I changed my pin in Pirie ...
 
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