Welcome to the finance update for the week ending 11 March, 2023.
It’s hard to believe it’s been a month since the RBA last met, but alas it has been, and yet again they have bumped rates up. There seemed to be a lot of talk late last year that the cycle of increases was nearing an end, however now there are mixed messages about when that will be. It’s frustrating indeed, and with every increase more and more people are being put under financial pressure.
In this week’s newsletter, we look at non-conforming loans. If you have any clients who you think might fit this borrower profile, please send them our way and we’ll make sure they are looked after.
What are they?
People with low credit scores or who have finance needs that are a little out of the ordinary can often have trouble sourcing a home loan. Many lenders now offer what are known as ‘non-conforming loans’ for people in this type of situation.
Here are some of the signs that applicants may not be a ‘perfect match’ for some of the lenders out there:
They don’t have a perfect credit history (e.g. previously declared bankruptcy, missed loan/bill payments in the past)
They have a solid income, but not much of a deposit
Their work means they regularly change jobs (it may look like there’s no stability, but it’s just the nature of the industry)
They have recently started a business or a new job
They are self-employed
Pros
Lender may overlook low credit rating
Lender may be able to access a lower rate after a period of time (where repayments have been made on time)
Cons
Higher interest rate than traditional loans in recognition of higher level of risk
A larger deposit may be necessary than is required for traditional loans
May also require stricter repayment conditions
Do all lenders offer non-conforming loans?
No they do not. Given non-conforming loans are a pathway for borrowers perceived to be a higher risk, many lenders, particularly the major lenders, do not offer a non-conforming solution.
If you have any clients who are battling to obtain finance due to circumstances such as a poor credit rating, have them contact us today and we will do our best to find them a solution that meets their needs and interests.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
Standard Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
