serviceability rates

[tobe]

A question for the brokers out there.

With reserve rates now close to where they were during the GFC, banks will be passing on variable interest rate cuts (hopefully) and also cut their 'servicing' or plug rates they use for assessment of capacity.

Apart from ING, who have a 'floor' assessment rate of 8%, does anyone know of any other lenders who might be passing on the rate cut to their variable loans, but not thier serviceability rate?

 

[Aaron_C]

From what I've seen the ones that don't seem to cut their serviceability rate that much are Citibank and Heritage.

 

[Jamie M]

I don't think STG have dropped their assessment rate for a couple of rate cuts now.

Cheers

Jamie

 

[Peter_Tersteeg]

It's a bit all over the place, but HomeSide did drop their assessment rate out of cycle a fortnight ago. In some ways it's the new point of difference in a competitive market - some banks will lend more.

If rates are low for a long time it'll be interesting to see if ING decides to reverse their policy and go below their 8% floor. It's killing their affordability compared to some of the others right now.

 

[Aaron_C]

If rates are low for a long time it'll be interesting to see if ING decides to reverse their policy and go below their 8% floor. It's killing their affordability compared to some of the others right now.

If they weren't getting enough business they would've dropped it by now so they must be getting some deals. I doubt any investor on this forum would qualify of course.

 

[tobe]

I don't think STG have dropped their assessment rate for a couple of rate cuts now.

Cheers

Jamie

Bank of Melbourne released the new serviceability late last week when they reduced rates. They still service on 3 year fixed plus .5% and variable 8.09% minus any discounts.

that would be the same as St George?

 

[buzzlightyear]

Fascinating & very insightful.

So how does this compare to serviceability rates when we had the last interest rate reductions post GFC1? Is this the same or is this a different phenomenon?

If widespread, this lack of drop of serviceability would be a critical factor in people not being able to get into debt or more debt, even if they wanted to.

Do these serviceability rates apply to LVRs at around 80% or do they change if you want a 60%LVR?

 

[Aaron_C]

Thing is, most of the time the actual serviceability rate isn't that important in determining whether you can afford the loan or not. The main killer is the other mortgage repayments of other banks - and whether the lender takes them at current rate or at a higher rate. Also, with lower rate these days those lenders which take other debts at current repayments come out way ahead. This is why lenders like CBA that have a low headline servicing rate, are no good for property investors.

 

[tobe]

Fascinating & very insightful.

So how does this compare to serviceability rates when we had the last interest rate reductions post GFC1? Is this the same or is this a different phenomenon?

If widespread, this lack of drop of serviceability would be a critical factor in people not being able to get into debt or more debt, even if they wanted to.

Do these serviceability rates apply to LVRs at around 80% or do they change if you want a 60%LVR?

For most lenders, the serviceability rate applies to every LVR. Some lenders make the higher LVR stuff service at a higher ratio.

In terms of last time, (GFC) rates dropped, and so did serviceability. It coincided with the boost, so everyone who previously either didnt have enough income, or didnt have a deposit were suddenly eligible for a home loan. Bank turnaround times went from 24 to 48 hours to 2 to 3 weeks.

 

[Peter_Tersteeg]

Fascinating & very insightful.

So how does this compare to serviceability rates when we had the last interest rate reductions post GFC1? Is this the same or is this a different phenomenon?

If widespread, this lack of drop of serviceability would be a critical factor in people not being able to get into debt or more debt, even if they wanted to.

Do these serviceability rates apply to LVRs at around 80% or do they change if you want a 60%LVR?

As an example on servicing rates:

* Just getting into the GFC, in June 2008, Westpac's servicing rate was 10.36%. Their pro pack delivery rate was 9.37% (I think).
* GFC recovery at November 2009, Westpac's servicing rate was 7.61%. Pro pack delivery rate was 6.31%.
* Today, Westpac's servicing rate is 6.71%. Delivery rate is 5.81% for $250k+ or 5.76% for 500k+.

The rates quoted above are their standard published rates at that time without any extra negotiation. My records may not be 100% accurate, but they're close.

Servicing rate doesn't change with LVR, but some lenders do change it based on the discounts their offering. Whilst important in the overall calculation, there are also other factors which can play a large role. To continue using Westpac as the example:

* Westpac's servicing rate is generally lower when compaired to other lenders.
* Westpac also apply an additional 10% margin into their calculations which also affects the outcome.

What this means is that Westpac tends to have a 'sweet spot' where they work better than many lenders. It's not at the top nor at the bottom end of an individuals borrowing capacity, but somewhere in the middle. Like every lender they also have varying policies which may make them a better or worse lender to be dealing with at any given point.

 

[Marty McDonald]

It's getting silly with the gap between delivery and servicing rates getting to be up to 2.62%.

I also find it strange that more lenders don't take a middle ground view on other banks debts. Whats wrong with the loan amount at buffer rate but allowing I.O. repayments?

We should start our own bank

 

[knightm]

It's getting silly with the gap between delivery and servicing rates getting to be up to 2.62%.

I also find it strange that more lenders don't take a middle ground view on other banks debts. Whats wrong with the loan amount at buffer rate but allowing I.O. repayments?

We should start our own bank

yep im in the middle of trying to refi and getting hammered on servicing rates (1 wage, 4 young kids, newly built ppor) so trying with St G 3yr fixed which seems to be the best atm. Any other fixed servicing rates lower than them that people know of???

 

[Mick C]

yep im in the middle of trying to refi and getting hammered on servicing rates (1 wage, 4 young kids, newly built ppor) so trying with St G 3yr fixed which seems to be the best atm. Any other fixed servicing rates lower than them that people know of???

St George, AMP , advantage and NAB-- if you don't service on any one of these 4 lenders serviceability rate...you have pretty much no chance anywhere else..

 

[Peter_Tersteeg]

yep im in the middle of trying to refi and getting hammered on servicing rates (1 wage, 4 young kids, newly built ppor) so trying with St G 3yr fixed which seems to be the best atm. Any other fixed servicing rates lower than them that people know of???

If you've already got a few IPs, AMP & HomeSide will likely beat St George in servicing. Have you approached a broker about this? Scatter gun applications to various banks is a very bad strategy. Getting (extremely) general advice on the forum probably isn't going to work either.