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Borrowers Take Flight

Tuesday, 09th November 2010

The most recent interest rate hike has really made consumers consider every option in relation to their home loans. Some have panicked and put their unit on the market, others have called meetings in their buildings to see how they can cut strata costs but the majority have looked at options with refinancing.

The night of the interest rate hike announcement, Clare Denton of Pyrmont attended her Annual General Meeting. According to Clare it was the first time they had a full room for their meeting. And while it was not on the agenda for discussion, she said most of the people in the room wanted to discuss cutting strata costs. "A lot of people just pay their levies and they actually don't realise what the levies cover," Clare said. "Many believe that the strata manager gets most of the money, forgetting that the majority goes into the maintenance of the building," she said. "The meeting was getting out of control because people were really panicking. Obviously the option to cut strata costs was not viable because without the right management and maintenance on the building, you are just going to lose out when it comes to selling your apartment. You will lose far more in the ultimate sale price if the building is not properly maintained." Peter Taylor from Alexandria contacted Stratalive and asked what would happen if he stopped paying his levies. He said that not only did he get hit with the Reserve Bank rate rise but he has his mortgage with Commonwealth Bank so it was a "double whammy." "What happens if I just stop paying my levies?" Peter asked. "There is not much they can do. It is not like they can kick me out." Sadly for Peter, that is exactly what they can do. Not paying levies is not an option. Falling into arrears with your levies can leave you homeless if the Owners Corporation proceeds down the legal road to recover those monies. Through due process, the Owners Corporation can take control of your apartment and sell it. So where to next? How do you pay for this most recent hike and the real possibility there are more to come? In the five days since last Tuesday’s cash rate move, popular Australian home loan comparison website has experienced a phenomenal jump in overall enquiries as well as those for refinancing and fixed interest rate home loans. The number of consumers requesting a home loan comparison increased 335% on the same period of the week prior. The number of unique website visitors overall increased by 194%. Help Me Choose directs its website visitors to select their loan purpose before embarking on the comparison process, ie. ‘build a new home’, ‘buy a new home’, ‘buy an investment property’, ‘buy my first home’ or ‘refinance an existing home’. One of the next questions asks what type of rate the borrower would like: lowest possible, low introductory, fixed, variable or a mix of fixed and variable. Areas seeing the most noticeable change in activity are ‘refinance an existing home’ and ‘lowest possible’ rate. The number of consumers choosing these options increased 500% and 277%, respectively, during the Wednesday to Sunday period when compared to the week prior. During October 2010, the percentage of those looking to refinance was 30%, a noticeable lift on 26% in October 2009 - the month of the first cash rate rise in this latest series. As at midnight, refinancers now account for 58%. Chief Operating Officer of Help Me Choose, Justin Hanka, notes the lift in website volume began almost immediately after the Reserve Bank of Australia’s surprise announcement. “We rarely see such a quick response by consumers after a cash rate decision becomes public. It’s terrific to observe Australian borrowers already taking flight to home loan industry resources as they seize ownership over their situation and seek to improve it,” he said. “Last week’s unexpected interest rate moves are almost certain to be followed shortly by further rate rises. Now really is an ideal time for mortgage holders to move into action and research other home loan options, so they can rest assured they are doing the best thing by their budget. “Some may find their current home loan is still the most suitable but I can guarantee there are many borrowers for whom the monetary and emotional benefits of switching outweigh the costs. “If someone told you it might be possible to save tens of thousands of dollars by switching to an identical loan that differs only via a lower interest rate and a different lender, why wouldn’t you at least research the market to see if you’re one of the lucky ones?”

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Comment from investor on Tuesday, 09th November 2010

That photo is so apt. That is exactly who I looked at in the mirror this morning! I have just gone into the forum to talk about my predicament. Whatever you do though, as the story above says, do not stop paying your levies. It is the same outcome as stopping payment on your mortgage. Either way the unit will be sold from under you.

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