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BLOG: Why the royal commission could put power back in the hands of property investors
We're still in the middle of the royal commission where a spotlight is being placed on the behaviours of the banks and whether they're acting appropriately or not. This royal commission might just give it the shake-up it needs to put power back in the hands of property investors.
There should be and there will be hopefully a mindset shift back to how banking used to be, and banking used to be about the customer. And I think it's lost its way over the last couple of decades where banking and bankers are all about the profit and value back to shareholders, that is, dividends. And I think that attitude may have compromised some actions and behaviours of the banks in a very negative way.
Making sure that we're looked after, as well as the shareholders of the banks, and let's all remember we've got superannuation. we want healthy and profitable banks, so can we have our cake and eat it? Can we get banking back to how it used to be back in the 80s? You know, back then, it was more about helping the consumer out, wasn't it?
It is getting harder for investors, and it's probably going to stay hard for quite some time. In many ways a lot of the regulation put in by the regulators, and I think in the outcome of the royal commission, there will be some new benchmarks, some legislation, some regulation put in place to better map and monitor the actions in the activities of the banks.
In many ways, it's good for investors because it's probably putting a fat end to, say, serviceability that they should have anyway that often is overlooked because people are just chasing the next dollar. That’s good in some ways, but it has got to come down to the serviceability of the consumer and making sure you’re not getting rorted. One of the biggest things the royal commission is that people are actually getting outright rorted, and that's not cool.
So, why I want to write about the royal commission, and the lending environment is that a lot of that will shape the decisions that investors make, and then when we look at our portfolio, obviously a lot of conversations we have is trying to crystal ball what's going to happen to the market.
If you're shifting from interest only to principal and interest there's a lot of macro and micro economic factors involved in that, plus your own circumstances. If you're looking to shift from variable rate to fixed rate, again, there's a lot of reasons why. There's a lot of different moving parts, which might shape your decision: your portfolio, where is it at, expiry of interest rates, what's going on in the economy, et cetera, et cetera. So, so much there. Often, you've just got to go, “this feels like the right thing to do”.
The big burning question: Are rates going to go up or are rates going to go down? And for the sake of listeners, there's to sort of rates, right. There is the cash rate, which is the benchmark used to determine by the RBA, and that gets assessed the first Tuesday of every single month. And that's a really indicator of what's going on the economy, et cetera, et cetera. We've got no control over that.
And the bank interest rate. So, the bank interest rate is very different than the cash rate, and there is often a lot of disparity between the two. Banks will argue that their rate fluctuations all comes down to the cost of capital.
In relation to our portfolio, we have ... they're all variable rates. We don't have any fixed at the moment on our portfolio. I think there's about 19 loans across a portfolio. And just give you some idea are the lowest is 4.79 per cent through to our highest of 5.86 per cent. So, clearly a percentage difference from our bottom to our top rate. So, there's a fair bit of margin there, disparity between the two bottom and high.
The opportunity for us is to have a look at how we can get those higher interest rates down. And you can do that by either renegotiating the rate directly to the banks, and they are probably just going to say no.
We can shift from an interest only variable rate to a fixed rate, and we can therefore get some savings there on interest rate. Or we can shift to a principal and interest rate, fixed or variable, and even get better savings there as well, but we don't want to start paying down the principal on these loans right now. Potential for us in the future to do so. So the conversations we're having is around shifting to fixed rate, two- or three-year fixed rate.
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