2021 saw huge shifts in legislative, economic, governmental and market sentiment. And let’s not forget the cherry on top: a global pandemic.
On the one hand governmental support and encouragement was provided to financial institutions to keep lending, and on the other hand responsible banking laws were prohibiting that process – making it difficult for lenders to fund people under financial pressure. The upshot was that borrowers who needed the funding the most were either turned away or unable to obtain funds quickly enough.
The effect of this climate was a huge uptick in refinancing. Not only were residential home loan rates at a record low – particularly with fixed rates well below 2 per cent, but prime borrowers were in an enviable position of being offered thousands of dollars to switch banks. At the same time, we experienced one of the biggest year-on-year jumps in real estate prices since the 1980s land boom occurred.
Literally ‘overnight’, borrowers were in an unprecedented position where an enormous amount of equity was created in their property portfolios. This spurred the desire to refinance at a better interest rate and/or increase the borrowings against them. It’s worthwhile to stop and note that we have probably never seen a refinancing boom like this.
In 2022, the industry is now preparing for the aftermath of business subsidies ceasing, compounded by an upward trend in interest rates despite the RBA’s current commitment to a static baseline rate. Less well documented is that the quantitative easing program that the RBA has been undertaking will be ending early next year. In short, brokers need to be acutely aware that the refinance bandwagon has stopped.
There are two main ways the finance piece can go: regulatory bodies and the major banks relax their lending criteria, or the non-bank sector capitalises on the increased willingness to finance away from the major four.
Now the interesting thing to note about the non-bank sector is that there’s a distinct shift toward having lower rates, broader product offerings, sustained credit risk flexibility, and a far greater level of consumer acceptance for alternative funding solutions.
Now is the time to stay in tune with your clients and anticipate their circumstances. Tell them what’s happening. Give them solutions (not products) and put into place a game plan to ensure that when the ‘perhaps’ morphs into ‘now’, there’s a solid strategy and action plan in place.
More than ever, now is the time to consider your clients’ requirements holistically – particularly if they’re part of the emerging cohort of self-employed who are going to find it potentially difficult to borrow in their start-up phase and will invariably rely on their professional partner network more than ever to maximise opportunities and avoid getting into a bind.
This article was written by Nick Young and can be found here https://www.theadviser.com.au/blogs/42382-glimpses-into-2022-in-the-wake-of-the-perfect-storm