According to BT Financial Group head of equities and gearing solutions Cathy Kovacs, there is always an increased amount of activity from investors with margin loans at this time of year.
“People are deciding whether to fix their loan for another 12 months, and there are also people shopping around for rates,” she said.
Investors also need to decide whether they want to prepay their interest for the next 12 months in order to claim a tax deduction for the 2013 financial year, said Ms Kovacs.
Whether or not to prepay the interest depends on an investor’s cash flow and their views about the future direction of interest rates, she said.
Looking at the margin loan market more broadly, there has been increased competition since the first quarter of 2013, which saw the market grow for the first time since 2008 (albeit only two per cent).
The growth in the market was down to increased confidence from direct investors as share markets improved, said Ms Kovacs.
But with a lot of people looking to refinance their margin loans in a favourable interest rate environment, there is a lot of ‘noise’ that is making it hard to get a clear picture of the market, said Ms Kovacs.
And while margin loans have returned to 2007 levels in the United States (largely as a result of the ‘cheap money’ produced by quantitative easing measures), the Australian market is unlikely to recover fully until there is a sustained period of low volatility, she said.
But BT has noticed a few trends in the market, said Ms Kovacs.
Firstly, fewer people are exiting their margin loans because they have margin loans for “the right reasons” and are confident about their overall investment strategy, she said.
Secondly, investors have deleveraged from a loan-to-value ratio (LVR) ratio of 70 per cent to around 40 per cent – something that is “healthy”, she added.
Ms Kovacs pointed to research conducted by BT that suggested an LVR of 30 per cent is relatively ‘safe’.
“We looked at a broad portfolio over a very long period of time and found that if you had maintained a constant gearing ratio of 30 per cent, you would never have been margin-called,” she said.
