The Big Four banks have taken control of Australian home loans. What can you do to flex your muscles and get the best possible deal for your property investment loan?

A recent report in the Sydney Morning Herald showed that in the wake of the Global Financial Crisis, the Big Four banks are writing virtually every new mortgage in Australia, whether it’s a home or property investment loan.

Figures released by the Australian Prudential Regulation Authority show the Big Four lenders captured almost 100 per cent of the almost $7 billion of new mortgages written in July. Of this, Commonwealth Bank secured 40 per cent, and Westpac 35 per cent.

Thanks to take-overs and the government loan guarantees that gave the big banks such a massive advantage, they have come out of the Global Financial Crisis far stronger and more dominant than they went into it. Smaller rivals and non-bank home or property investment lenders are simply unable to compete.

As other economies continue with interest rate settings that are close to zero, in Australia, we have seen an increase in the last week to 3.25 per cent. Homeowners and property investors alike are worried about what the future holds now that the Big Four have taken such a grip.

So are you a helpless and simply captive target for the banks? Or can you take action to shift the balance in your favour? We say ‘Yes’ to the second option, and you must take positive ownership of your mortgage finance.

Here are some tips for your consideration:

1. Shop around for the best rates
   Even though the Big Four are dominant, they are still in competition with each other for your home mortgage or property investment loan. Use this to your advantage, and shop around aggressively for the loan type that gives you the best rate. For example, as a potential investor, shop for a basic variable mortgage that is light on features but big on interest rate savings.
2. Be alert to new opportunities and changes in the market
   Right now, the government is introducing support for smaller lenders through investing in residential mortgage-backed securities. This will lead to better rates from small lenders.
3. Have a variable/fixed loan spilt
   The jury is out about whether it is the right time to fix your loans now that rates are rising. One way to hedge your position is to keep your options open, and place a bet each way. You can then shop around and look for the best deal.
4. Borrow to the maximum
   With an investment property, most investors strive to pay in as little as they possibly can as a deposit, and borrow to the maximum, given that all of the interest costs are tax deductible. That is also why we recommend only paying the interest, for example, no capital repayments. In this way, the government allows you to deduct the loan costs of your investment property in your tax assessment.
5. Work with the specialists
   McCarthy Group has excellent relationships with major lenders, and can assist you with the preparation of your finance application, as well as helping you to find the best deal. It is a tough market, but you can come out ahead.
6. Buy some shares in your bank
   This allows you to at least benefit from the strong share growth and dividend policy that the big banks’ dominance means for their shareholders.
7. Always remember that your business is valuable
   Both large and small lenders want your loan on their books. You are the customer. You are in charge. So use your power as a consumer of finance, and put it to work for you.

If you would like to learn more and discuss how McCarthy Group can assist you on investment property loans, click here.

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