Australians in the mortgage belt are spending big on DIY home renovations, which rose 5 per cent to its highest level in two years during the September quarter as strong house prices and a tight labour market and high mortgage interest rates encouraged owners to do up their homes themselves. Spending in the quarter climbed to $891 million, its third consecutive rise, according to the Housing Industry Association's Renovation Monitor. Home owners are betting that rising property prices as well as a tight labour market will make renovation worthwhile after three interest rate rises this year curb the supply of new accommodation. "The retention of large capital gains from residential property together with continuing labour market strength is making major renovation projects an enticing proposition," HIA chief economist Harley Dale said. "This is especially the case at a time when land supply constraints, higher interest rates and unjustifiably high government-imposed costs are conspiring to make new residential construction a less appealing option than it should be."A separate report distributed today by the Real Estate Institute of Australia showed average vacancy rates ranging from 1.1 per cent in Canberra to 2.1 per cent in Perth, as higher interest rates restrain borrowing for home construction. According to the September quarter Real Estate Market Facts, annual returns across the country on three bedroom houses ranged between 14.1 per cent and 17.1 per cent over the period from March, 1983, to the present. Some 10,308 households across Australia began major home renovations at an average value of $86,476, the HIA report said. Spending rose fastest in the ACT, where it climbed 68 per cent, with Tasmania second with a 61 per cent rise, while spending fell six per cent in Western Australia, according to the HIA report
Source: AAP
Tuesday, December 19, 2006
Canberra home rental scarcity creates rent rise surge
The residential home rental market in Canberra Australia is now almost impossible to break in to and it's going to get even harder as rents climb, the Real Estate Institute of Australia (REIA) says.New REIA market figures show Canberra has the tightest vacancy rate in Australia, with just 1.1 per cent of properties vacant currently.
Across Australia, vacancy rates are extremely low, in Sydney the rate is 1.7 per cent, in Adelaide 1.5 per cent and the highest rate is in Perth at 2.1 per cent.
REIA ACT President Peter Blackshaw said he has never seen such a shortage of accommodation in the Australian Capital Territory.
"At the moment it's very, very tight - it's certainly the tightest that I've known it and I've lived in Canberra for nearly 20 years and the really alarming thing is it's going to get a lot worse,'' Mr Blackshaw told ABC radio today.
The market is so tight, he said, because there are not enough people investing in residential property, instead they are putting their money into the stock market or other investments.
"The local government takes such a big proportion of the rent through land tax and rates that (residential property) just doesn't make sense as an investment,'' he said.
One way to fix the situation would be to abolish land tax, he said, or at least start cutting it back. If the Government does not start cutting back land tax, Mr Blackshaw said there was a risk some really serious social problems would arise.
"The people who are going to be hurt in this situation are the low income earners because they're going to be outbid by people coming in from outside of Canberra.''
And the difficulty in finding a rental property will not be the only problem for Canberrans, Mr Blackshaw also said rents are starting to rise significantly.
The next time a lease expires or a property becomes vacant, he said, landlords will be able to demand a significant increase on rent, in some instances more than ten per cent.
ACT Chief Minister John Stanhope said the real reason for the low vacancy rate in the ACT is that the economy is so strong.
"The fact is, we are now dealing with the pressures of a busting, booming economy and I think it's fantastic,'' Mr Stanhope told ABC radio.
"I must say I find it ironic that here we are complaining about the incidence that we have this enormously strong economy.''
Mr Stanhope said he was investigating the possibility of reducing land tax and was awaiting advice from both the Skills Commission and the Affordable Housing Taskforce.
Source: AAP
Across Australia, vacancy rates are extremely low, in Sydney the rate is 1.7 per cent, in Adelaide 1.5 per cent and the highest rate is in Perth at 2.1 per cent.
REIA ACT President Peter Blackshaw said he has never seen such a shortage of accommodation in the Australian Capital Territory.
"At the moment it's very, very tight - it's certainly the tightest that I've known it and I've lived in Canberra for nearly 20 years and the really alarming thing is it's going to get a lot worse,'' Mr Blackshaw told ABC radio today.
The market is so tight, he said, because there are not enough people investing in residential property, instead they are putting their money into the stock market or other investments.
"The local government takes such a big proportion of the rent through land tax and rates that (residential property) just doesn't make sense as an investment,'' he said.
One way to fix the situation would be to abolish land tax, he said, or at least start cutting it back. If the Government does not start cutting back land tax, Mr Blackshaw said there was a risk some really serious social problems would arise.
"The people who are going to be hurt in this situation are the low income earners because they're going to be outbid by people coming in from outside of Canberra.''
And the difficulty in finding a rental property will not be the only problem for Canberrans, Mr Blackshaw also said rents are starting to rise significantly.
The next time a lease expires or a property becomes vacant, he said, landlords will be able to demand a significant increase on rent, in some instances more than ten per cent.
ACT Chief Minister John Stanhope said the real reason for the low vacancy rate in the ACT is that the economy is so strong.
"The fact is, we are now dealing with the pressures of a busting, booming economy and I think it's fantastic,'' Mr Stanhope told ABC radio.
"I must say I find it ironic that here we are complaining about the incidence that we have this enormously strong economy.''
Mr Stanhope said he was investigating the possibility of reducing land tax and was awaiting advice from both the Skills Commission and the Affordable Housing Taskforce.
Source: AAP
Sales of News home fall as home buyers stall
New home sales fell in November as interest rates rose for the third time this year stalling new home buyers, new figures show.
The Housing Industry Association's new home sales figures showed that the sale of new homes and units among Australia's largest builders and developers dropped 5.3 per cent last month to 7097 dwellings.
The results follow a 1.3 per cent rise in October to 7434 dwellings.
HIA chief economist Harley Dale said the fall was due largely to the November rate rise, which pushed interest rates up to 6.25 per cent and followed rises in May and August.
"New home sales have well and truly had their wings clipped in 2006 as demand for new housing has suffered a second wave of weakness at the hands of a fresh set of rate rises,'' he said.
He said that, with affordability at record lows, there simply were not enough people who could afford to buy new homes.
The monthly HIA report showed that private detached house sales dropped by 7.5 per cent during the month, reflecting falls in the resource-poor states of NSW and Victoria.
Mr Dale said private, detached house sales were now at their lowest level since December, 2000.
Sales of multi-units rose 8.8 per cent, but were note enough to offset a 16 per cent fall in October.
Detached house sales dropped 28.6 per cent in Victoria and 14 per cent in NSW.
But they rose 14.5 per cent in South Australia, 12.3 per cent in Western Australia, and 4.3 per cent in Queensland.
The new home sales survey is compiled from a sample of the largest 100 residential builders in Australia and is the leading indicator on new housing activity.
Source: AAP
The Housing Industry Association's new home sales figures showed that the sale of new homes and units among Australia's largest builders and developers dropped 5.3 per cent last month to 7097 dwellings.
The results follow a 1.3 per cent rise in October to 7434 dwellings.
HIA chief economist Harley Dale said the fall was due largely to the November rate rise, which pushed interest rates up to 6.25 per cent and followed rises in May and August.
"New home sales have well and truly had their wings clipped in 2006 as demand for new housing has suffered a second wave of weakness at the hands of a fresh set of rate rises,'' he said.
He said that, with affordability at record lows, there simply were not enough people who could afford to buy new homes.
The monthly HIA report showed that private detached house sales dropped by 7.5 per cent during the month, reflecting falls in the resource-poor states of NSW and Victoria.
Mr Dale said private, detached house sales were now at their lowest level since December, 2000.
Sales of multi-units rose 8.8 per cent, but were note enough to offset a 16 per cent fall in October.
Detached house sales dropped 28.6 per cent in Victoria and 14 per cent in NSW.
But they rose 14.5 per cent in South Australia, 12.3 per cent in Western Australia, and 4.3 per cent in Queensland.
The new home sales survey is compiled from a sample of the largest 100 residential builders in Australia and is the leading indicator on new housing activity.
Source: AAP
Pre-paid credit cards to be the next big thing
Pre-paid credit cards could soon become more common than phone cards as providers scramble to meet demand for more flexible payment options.
In recent weeks, MasterCard and Visa have launched a raft of pre-paid cards, hoping to cash in on markets previously beyond their reach - such as children, students and adults who have a poor credit history. Pre-paid cards, which could eventually be available at local convenience stores, allow the user to shop online, over the telephone or in person using credit paid for with cash when the card is purchased.
Users load the card with their desired credit amount, typically less than $1000.
The cards don't require a bank account, and can be given away as a gift, or a kind of electronic pocket money to children, allowing purchases such as music downloads.
Already common in overseas markets - including the US, where they are popular among illegal immigrants unable to open bank accounts - pre-paid cards are relatively new to Australia.
But MasterCard and Visa believe there is growing, unmet demand as credit card-style transactions become increasingly necessary for purchases such as airline tickets, hotel bookings and online items.
Infochoice analyst Denis Orrock says pre-paid cards may also prove popular with shoppers concerned about online security.
"In Australia, they will fill a void for people who want to shop on the Net but aren't comfortable using their credit card," Orrock says.
"With a pre-paid card, you know what you're in for."
MasterCard has launched two pre-paid cards, the Westpac Gift Card, available with pre-paid amounts of between $15 and $800, and the Commonwealth Bank travellers cash card, an ATM card
that allows travellers to withdraw pre-paid cash in foreign currency.
Last month, Visa launched the ANZ Gift Card, following up on its Heritage Building Society card, released in May, and the Visa BoPo, its first general-purpose pre-paid card.
Last month also saw the release of Visa's CashXpress, allowing users to send money overseas, and the Universal Visa Gift Card.
Although they miss out on the interest charges that accrue on a credit balance, card providers make money from the sale of individual cards, which cost around $5 each.
They can also re-invest the prepayments until the money is spent, earning returns on the short-term money market.
Based on US experience, most card users take about three months to spend a balance.
As well, Denis Orrock says card providers can usually bank on small sums of a few dollars each remaining unspent at the card's expiry date, generally around six months after purchase.
Source: Sunday Telegrah
In recent weeks, MasterCard and Visa have launched a raft of pre-paid cards, hoping to cash in on markets previously beyond their reach - such as children, students and adults who have a poor credit history. Pre-paid cards, which could eventually be available at local convenience stores, allow the user to shop online, over the telephone or in person using credit paid for with cash when the card is purchased.
Users load the card with their desired credit amount, typically less than $1000.
The cards don't require a bank account, and can be given away as a gift, or a kind of electronic pocket money to children, allowing purchases such as music downloads.
Already common in overseas markets - including the US, where they are popular among illegal immigrants unable to open bank accounts - pre-paid cards are relatively new to Australia.
But MasterCard and Visa believe there is growing, unmet demand as credit card-style transactions become increasingly necessary for purchases such as airline tickets, hotel bookings and online items.
Infochoice analyst Denis Orrock says pre-paid cards may also prove popular with shoppers concerned about online security.
"In Australia, they will fill a void for people who want to shop on the Net but aren't comfortable using their credit card," Orrock says.
"With a pre-paid card, you know what you're in for."
MasterCard has launched two pre-paid cards, the Westpac Gift Card, available with pre-paid amounts of between $15 and $800, and the Commonwealth Bank travellers cash card, an ATM card
that allows travellers to withdraw pre-paid cash in foreign currency.
Last month, Visa launched the ANZ Gift Card, following up on its Heritage Building Society card, released in May, and the Visa BoPo, its first general-purpose pre-paid card.
Last month also saw the release of Visa's CashXpress, allowing users to send money overseas, and the Universal Visa Gift Card.
Although they miss out on the interest charges that accrue on a credit balance, card providers make money from the sale of individual cards, which cost around $5 each.
They can also re-invest the prepayments until the money is spent, earning returns on the short-term money market.
Based on US experience, most card users take about three months to spend a balance.
As well, Denis Orrock says card providers can usually bank on small sums of a few dollars each remaining unspent at the card's expiry date, generally around six months after purchase.
Source: Sunday Telegrah
Sunday, December 10, 2006
Investment alternatives to repaying the home loan
Paying off a home loan was often said to be the wisest way to go in financial affairs whenever any extra cash came into a household. Far better to pay down the home loan than try to find a better return elsewhere, in shares or investment property. Now, it is not so clear, as new tax concessions make super more attractive.
Choosing the home loan as a place to put spare cash was always the winner when judged simply on the arithmetic.
Paying off a home loan costing, say, 7.75 per cent in interest was the same as earning a guaranteed return of 13.2 per cent elsewhere before tax, for those on the highest tax rate of 41.5 per cent. You had to earn 13.2 per cent to be left with 7.75 per cent after tax.
Even those on the lower tax rate of 31.5 are effectively earning a return of 11.3 per cent on funds used to pay off a home loan.
Such an analysis overlooks a few fine points. Buying shares can bring franking credits that lower your total tax bill, and can deliver a capital gain when sold, albeit watered down by capital gains tax.
Holding the shares for at least 12 months will cut capital gains tax by as much as half the top marginal tax rate, to a rate of 24.5 per cent.
Buying a family home might also deliver a tax-free capital gain - as a "primary place of residence" is free of capital gains tax on sale. If it's an investment property, some capital gains tax will apply.
In the wake of the Government's changes to super, it's a much closer call to make between super or the home loan, with super probably gaining the edge if you want to live adventurously.
Say 50-year-old Ross has an extra $200 a month in his pocket after the rejigging of the tax scales earlier this year. Should he whack it into the home loan or go for something entirely different?
The short answer is that if he and his family like a quiet, contented life, and a guaranteed rate of return, he should go the home loan route; if he wants more adventure, then a field of options opens up before him. There are at least six options, according to MLC's technical manager Andrew Lawless. First, he could put the extra $200 into the mortgage, or instead into a unit trust or managed fund.
Then there is the super option, soon to be free of exit taxes from next July for those over 60. The extra $200 a month going in would be an after-tax sum known as an undeducted contribution.
A smarter move to improve his long-term wealth would be to lift his super contributions to a higher plane altogether by arranging with his boss to salary sacrifice.
By doing this, Ross could put as much as $342 a month in pre-tax salary into super, and still enjoy the same after-tax income. Ross could even lift up his risk and reward a notch, by borrowing $200 to make a total investment of $400 a month into a unit trust, with gearing at a 50 per cent level.
Going up another notch of borrowing, he could gear to a 67 per cent level and invest $600 a month. Playing into the decision mix is the knowledge that from next July tax on super will effectively fall to 15 per cent - a good deal less than his current marginal rate of 41.5 per cent.
Let's assume Ross pays a top rate of 41.5 per cent income tax. His home loan of $250,000 is costing him 7.75 per cent a year in interest and consuming $3000 a month in repayments.
As shown in table 1, after 10 years the best option for Ross would be super with a salary sacrifice kicker. He would have $54,338 to his name, almost $20,000 more than if he had paid off the home loan early in nine years instead of 10 and put the savings into a unit trust. Better, too, than keeping on with the home loan and investing the spare $200 in a unit trust or as an undeducted super contribution, (options 2 and 3) and better than gearing into a unit trust (options 5 and 6).
As MLC's Andrew Lawless says, the appeal of investing in an existing home loan debt falls away when compared with better-returning investments elsewhere, especially super with end benefits due to be tax-free at age 60 from next July.
Yet another strategy exists for the bold. What if Ross converted the home loan to an interest-only loan? He would have $1585 a month ($1385 a month extra) to work as an investment, by losing the obligation to repay the principal component of his home loan.
As table 2 shows, Ross is much further ahead financially - by $180,803 even after repaying the original $250,000 home loan debt. As Lawless says: "The numbers show that superannuation will clearly be the better investment, in a comparison with a home loan."
The argument for super is helped greatly by the changes that from next July will allow withdrawals tax-free for those aged 60, though it may be an irritant to have to work until that age, says financial planner Peter Hogan of Avenue Capital Management.
"Provided you are prepared to keep working until 60, rather than simply to a preservation age likely to be a few years earlier, the opportunity to take out the money tax-free and pay off the mortgage in one lump is quite attractive. In a sense, you could have money in super accruing in a 15 per cent tax environment, where the super fund return could be well in excess of your mortgage repayment costs - it's an appealing option if you think over the long term."
Making a choice between the options hangs on a couple of critical elements, particularly the twin unknowns of interest rates and investment earnings that have been flying high in recent years.
"The whole strategy is very sensitive to interest rates and earning rates, and to marginal income tax rates," Hogan says. "If you are confident that home loan rates will rise higher and investment earning rates cannot be sustained at the levels of the past three years, then you are better off paying down the home loan."
And there are a few other thoughts to consider before making a commitment, according to Colonial First State senior adviser Julie Fox.
"You might not be comfortable in not paying down a mortgage ahead of retirement, and not sure that the Government will stay true to its word on the rules on super," she says.
"We've yet to see all the fine print on the super taxes after next July. It's unlikely that the Government will change its mind, but one has to wait and see."
For younger people, there is the nature of super, which is money locked away until retirement age. Some may prefer to have their wealth readily accessible in a unit trust, to be withdrawn whenever needed, such as in an emergency. Most home loans have redraw facilities that also can be a source of emergency money.
So what's the verdict?
Says Lawless: "You'd be better off paying off the home loan, if you are risk averse and prefer a guaranteed rate of return, or you are not prepared to lock up your money in super.
"But if you are prepared to invest in growth assets, such as shares or a unit trust, you can do a lot better than paying off your home loan."
According to Hogan, if someone is willing to be moderately aggressive in their super investing - say 75 per cent in growth assets of shares and property - then going the super route may well be more attractive.
"If you take a view that home loan rates don't have a long way to move, then pumping your money into super and later paying off your mortgage at 60 could be an option."
Julie Fox says a strategy of investing in super ahead of a home loan will appeal to people who already have substantial equity in their home, and who happen to be close to 60 (when super funds can be withdrawn tax-free).
"A shorter time frame in the strategy would minimise the legislative (government) risk," she says.
Source: The Australian, Tim Blue
Choosing the home loan as a place to put spare cash was always the winner when judged simply on the arithmetic.
Paying off a home loan costing, say, 7.75 per cent in interest was the same as earning a guaranteed return of 13.2 per cent elsewhere before tax, for those on the highest tax rate of 41.5 per cent. You had to earn 13.2 per cent to be left with 7.75 per cent after tax.
Even those on the lower tax rate of 31.5 are effectively earning a return of 11.3 per cent on funds used to pay off a home loan.
Such an analysis overlooks a few fine points. Buying shares can bring franking credits that lower your total tax bill, and can deliver a capital gain when sold, albeit watered down by capital gains tax.
Holding the shares for at least 12 months will cut capital gains tax by as much as half the top marginal tax rate, to a rate of 24.5 per cent.
Buying a family home might also deliver a tax-free capital gain - as a "primary place of residence" is free of capital gains tax on sale. If it's an investment property, some capital gains tax will apply.
In the wake of the Government's changes to super, it's a much closer call to make between super or the home loan, with super probably gaining the edge if you want to live adventurously.
Say 50-year-old Ross has an extra $200 a month in his pocket after the rejigging of the tax scales earlier this year. Should he whack it into the home loan or go for something entirely different?
The short answer is that if he and his family like a quiet, contented life, and a guaranteed rate of return, he should go the home loan route; if he wants more adventure, then a field of options opens up before him. There are at least six options, according to MLC's technical manager Andrew Lawless. First, he could put the extra $200 into the mortgage, or instead into a unit trust or managed fund.
Then there is the super option, soon to be free of exit taxes from next July for those over 60. The extra $200 a month going in would be an after-tax sum known as an undeducted contribution.
A smarter move to improve his long-term wealth would be to lift his super contributions to a higher plane altogether by arranging with his boss to salary sacrifice.
By doing this, Ross could put as much as $342 a month in pre-tax salary into super, and still enjoy the same after-tax income. Ross could even lift up his risk and reward a notch, by borrowing $200 to make a total investment of $400 a month into a unit trust, with gearing at a 50 per cent level.
Going up another notch of borrowing, he could gear to a 67 per cent level and invest $600 a month. Playing into the decision mix is the knowledge that from next July tax on super will effectively fall to 15 per cent - a good deal less than his current marginal rate of 41.5 per cent.
Let's assume Ross pays a top rate of 41.5 per cent income tax. His home loan of $250,000 is costing him 7.75 per cent a year in interest and consuming $3000 a month in repayments.
As shown in table 1, after 10 years the best option for Ross would be super with a salary sacrifice kicker. He would have $54,338 to his name, almost $20,000 more than if he had paid off the home loan early in nine years instead of 10 and put the savings into a unit trust. Better, too, than keeping on with the home loan and investing the spare $200 in a unit trust or as an undeducted super contribution, (options 2 and 3) and better than gearing into a unit trust (options 5 and 6).
As MLC's Andrew Lawless says, the appeal of investing in an existing home loan debt falls away when compared with better-returning investments elsewhere, especially super with end benefits due to be tax-free at age 60 from next July.
Yet another strategy exists for the bold. What if Ross converted the home loan to an interest-only loan? He would have $1585 a month ($1385 a month extra) to work as an investment, by losing the obligation to repay the principal component of his home loan.
As table 2 shows, Ross is much further ahead financially - by $180,803 even after repaying the original $250,000 home loan debt. As Lawless says: "The numbers show that superannuation will clearly be the better investment, in a comparison with a home loan."
The argument for super is helped greatly by the changes that from next July will allow withdrawals tax-free for those aged 60, though it may be an irritant to have to work until that age, says financial planner Peter Hogan of Avenue Capital Management.
"Provided you are prepared to keep working until 60, rather than simply to a preservation age likely to be a few years earlier, the opportunity to take out the money tax-free and pay off the mortgage in one lump is quite attractive. In a sense, you could have money in super accruing in a 15 per cent tax environment, where the super fund return could be well in excess of your mortgage repayment costs - it's an appealing option if you think over the long term."
Making a choice between the options hangs on a couple of critical elements, particularly the twin unknowns of interest rates and investment earnings that have been flying high in recent years.
"The whole strategy is very sensitive to interest rates and earning rates, and to marginal income tax rates," Hogan says. "If you are confident that home loan rates will rise higher and investment earning rates cannot be sustained at the levels of the past three years, then you are better off paying down the home loan."
And there are a few other thoughts to consider before making a commitment, according to Colonial First State senior adviser Julie Fox.
"You might not be comfortable in not paying down a mortgage ahead of retirement, and not sure that the Government will stay true to its word on the rules on super," she says.
"We've yet to see all the fine print on the super taxes after next July. It's unlikely that the Government will change its mind, but one has to wait and see."
For younger people, there is the nature of super, which is money locked away until retirement age. Some may prefer to have their wealth readily accessible in a unit trust, to be withdrawn whenever needed, such as in an emergency. Most home loans have redraw facilities that also can be a source of emergency money.
So what's the verdict?
Says Lawless: "You'd be better off paying off the home loan, if you are risk averse and prefer a guaranteed rate of return, or you are not prepared to lock up your money in super.
"But if you are prepared to invest in growth assets, such as shares or a unit trust, you can do a lot better than paying off your home loan."
According to Hogan, if someone is willing to be moderately aggressive in their super investing - say 75 per cent in growth assets of shares and property - then going the super route may well be more attractive.
"If you take a view that home loan rates don't have a long way to move, then pumping your money into super and later paying off your mortgage at 60 could be an option."
Julie Fox says a strategy of investing in super ahead of a home loan will appeal to people who already have substantial equity in their home, and who happen to be close to 60 (when super funds can be withdrawn tax-free).
"A shorter time frame in the strategy would minimise the legislative (government) risk," she says.
Source: The Australian, Tim Blue
Are you suffering from housing stress?
Most of Australia is officially in "housing stress", with more than a third of family income required to service the average home loan.
The Real Estate Institute of Australia, which compiled the figures, said affordability was consequently now at its lowest point in 16 years, with families in NSW, Queensland and Tasmania hardest hit.
Home owners, on average, now need to spend more than 30 per cent of their income on mortgage repayments, the level at which borrowers are said to be in housing stress.
"First-home buyers are being locked into the rental market due to deteriorating home-loan affordability," REIA president Graham Joyce said yesterday.
"With today's low vacancy rates, rents are going to increase significantly, making it even more difficult for renters to become buyers."
Low housing affordability has been driven by the last property boom and rising interest rates.
Negative gearing laws on investment properties have also contributed to the blowout in housing affordability, as they encourage people to buy multiple properties, forcing up prices at the lower end of the market.
In one reprieve for stretched home owners, the Reserve Bank of Australia left official interest rates unchanged at 6.25 per cent yesterday after raising rates three times this year.
But the September quarter affordability results reflected only two of those rises and affordability was expected to further deteriorate in the December quarter, the Housing Industry Association said.
Any worsening affordability is expected to be halted next year.
Weak gross domestic product figures for the September quarter released yesterday - 0.3 per cent in the period - suggest there will be little house price growth next year.
"Dwelling investment barely grew in the September quarter, reinforcing the point that talk of a housing recovery emerging was premature," said HIA chief economist Harley Dale.
The REIA said home-loan affordability had deteriorated by 4.8 per cent over the year, with 33.8 per cent of income required to service the average national mortgage.
NSW home owners were most stretched - spending 36.4 per cent of income on home loan repayments - followed by Queensland and Tasmania at 34.9 per cent and 33.3 per cent respectively.
Western Australia recorded the biggest decline in affordability over the year on the back of booming house prices in that state, with 32.1 per cent of income required to service the average family income, up 16.6 per cent.
The Northern Territory was most affordable with 20.5 per cent of household income required for loan payments.
Source: Newscorp
The Real Estate Institute of Australia, which compiled the figures, said affordability was consequently now at its lowest point in 16 years, with families in NSW, Queensland and Tasmania hardest hit.
Home owners, on average, now need to spend more than 30 per cent of their income on mortgage repayments, the level at which borrowers are said to be in housing stress.
"First-home buyers are being locked into the rental market due to deteriorating home-loan affordability," REIA president Graham Joyce said yesterday.
"With today's low vacancy rates, rents are going to increase significantly, making it even more difficult for renters to become buyers."
Low housing affordability has been driven by the last property boom and rising interest rates.
Negative gearing laws on investment properties have also contributed to the blowout in housing affordability, as they encourage people to buy multiple properties, forcing up prices at the lower end of the market.
In one reprieve for stretched home owners, the Reserve Bank of Australia left official interest rates unchanged at 6.25 per cent yesterday after raising rates three times this year.
But the September quarter affordability results reflected only two of those rises and affordability was expected to further deteriorate in the December quarter, the Housing Industry Association said.
Any worsening affordability is expected to be halted next year.
Weak gross domestic product figures for the September quarter released yesterday - 0.3 per cent in the period - suggest there will be little house price growth next year.
"Dwelling investment barely grew in the September quarter, reinforcing the point that talk of a housing recovery emerging was premature," said HIA chief economist Harley Dale.
The REIA said home-loan affordability had deteriorated by 4.8 per cent over the year, with 33.8 per cent of income required to service the average national mortgage.
NSW home owners were most stretched - spending 36.4 per cent of income on home loan repayments - followed by Queensland and Tasmania at 34.9 per cent and 33.3 per cent respectively.
Western Australia recorded the biggest decline in affordability over the year on the back of booming house prices in that state, with 32.1 per cent of income required to service the average family income, up 16.6 per cent.
The Northern Territory was most affordable with 20.5 per cent of household income required for loan payments.
Source: Newscorp
Twelve tips to protect yourself and your credit card from online fraud
Online banking fraud is on the rise and there are a number of ways you can protect your credit card and bank accounts if you transact over the internet:
1. Keep your computer secure and the access to it;
2. Don't send credit card or account details by e-mail;
3. Reject any email that asks you to follow a link to website and input account details for verification - even if the website looks authentic, its probably a fake replica
4. Make sure you log out of your online account when finished - especially at work, libraries and net cafes
5. Deal only with established and reputable merchants;
6. Only make payments to secure websites - look for the padlock symbol in the bottom-right of your browser and click for details
7. If using a new site, do business first in a small way;
8. Check your accounts and report discrepancies immediately;
9. Ignore the "remember my password option" on banking and shopping sites
10. Change your password regularly;
11. Cancel any card that has been used fraudulently;
12. Read a company's privacy policy before buying online
1. Keep your computer secure and the access to it;
2. Don't send credit card or account details by e-mail;
3. Reject any email that asks you to follow a link to website and input account details for verification - even if the website looks authentic, its probably a fake replica
4. Make sure you log out of your online account when finished - especially at work, libraries and net cafes
5. Deal only with established and reputable merchants;
6. Only make payments to secure websites - look for the padlock symbol in the bottom-right of your browser and click for details
7. If using a new site, do business first in a small way;
8. Check your accounts and report discrepancies immediately;
9. Ignore the "remember my password option" on banking and shopping sites
10. Change your password regularly;
11. Cancel any card that has been used fraudulently;
12. Read a company's privacy policy before buying online
Mortgage approvals back slide
Demandfor mortgages was subdued in October, data released today showed, as rising interest rates and a patchy housing market curbed enthusiasm from consumers to borrow.
Housing finance approvals for owner occupied housing fell for a second month in a row, easing 0.1 per cent in October, seasonally adjusted.
Market economists had expected a flat result.
The data takes into the account the May and August interest rate rises, but precedes the November rate hike.
source: AAP
Housing finance approvals for owner occupied housing fell for a second month in a row, easing 0.1 per cent in October, seasonally adjusted.
Market economists had expected a flat result.
The data takes into the account the May and August interest rate rises, but precedes the November rate hike.
source: AAP
Property gives the best returns overall
Investors should be devoting at least 20 per cent of their investment portfolio to direct property assets in the retail, office and industrial sectors, a study shows.
The study commissioned by the Australian Direct Property Investment Association (ADPIA) found increasing the direct, or commercial, property component in an investment portfolio significantly reduced risk and the chance of investment loss.
The research looked at the performance of 11 different asset classes over 10 and 20 year periods, such as local and overseas shares, residential and listed property, Australian fixed interest and cash, and managed funds.
"ADPIA's view is we should have at least 20 per cent in direct property," ADPIA immediate past-president and executive committee member Richard Cutler said.
Mr Cutler, who also heads up Macquarie Bank's Direct Property division, said there was a very significant mismatch between the findings and what was happening in the market, with the allocation to commercial property from investors and their advisers declining since the 1980s.
"It (property) is the financial wealth of the world and ... we've got a very low and decreasing allocation to it," he said.
"So common sense says we've got it back to front and this research will really flesh that out."
Atchison Consultants managing director Ken Atchison, who carried out the study for ADPIA, said the decline was caused by a lack of available research, as well as behavioural finance.
"A market goes bad and everybody withdraws – that's the time when you should invest ... it's a classical psychological reaction," Mr Atchison said.
Investment in direct property peaked in the property boom of the late 1980s and early 1990s.
He said the research showed direct property provided strong total returns of 9.5 per cent in the 20 years to June 30, 2006, and 10.5 per cent over the 10-year period, with industrial and retail assets the best performers.
In the 10 years to June 30, direct property also produced the highest levels of income return of any other asset class, at 7.2 per cent, the report found.
According to the study, the asset class also exhibited the lowest volatility of income returns over both periods, a valuable characteristic that made a significant difference to long-term returns because it reduced the chance of making a timing error entering or exiting the market, Mr Atchison said.
He said a fully diversified property portfolio should be made up of "four states, three sectors", being NSW, Victoria, Queensland and Western Australia, and across the office, retail and industrial sectors.
ADPIA represents property industry professionals such as fund managers, custodians and financiers and was set up as the peak industry body in 1999.
Source: AAP
The study commissioned by the Australian Direct Property Investment Association (ADPIA) found increasing the direct, or commercial, property component in an investment portfolio significantly reduced risk and the chance of investment loss.
The research looked at the performance of 11 different asset classes over 10 and 20 year periods, such as local and overseas shares, residential and listed property, Australian fixed interest and cash, and managed funds.
"ADPIA's view is we should have at least 20 per cent in direct property," ADPIA immediate past-president and executive committee member Richard Cutler said.
Mr Cutler, who also heads up Macquarie Bank's Direct Property division, said there was a very significant mismatch between the findings and what was happening in the market, with the allocation to commercial property from investors and their advisers declining since the 1980s.
"It (property) is the financial wealth of the world and ... we've got a very low and decreasing allocation to it," he said.
"So common sense says we've got it back to front and this research will really flesh that out."
Atchison Consultants managing director Ken Atchison, who carried out the study for ADPIA, said the decline was caused by a lack of available research, as well as behavioural finance.
"A market goes bad and everybody withdraws – that's the time when you should invest ... it's a classical psychological reaction," Mr Atchison said.
Investment in direct property peaked in the property boom of the late 1980s and early 1990s.
He said the research showed direct property provided strong total returns of 9.5 per cent in the 20 years to June 30, 2006, and 10.5 per cent over the 10-year period, with industrial and retail assets the best performers.
In the 10 years to June 30, direct property also produced the highest levels of income return of any other asset class, at 7.2 per cent, the report found.
According to the study, the asset class also exhibited the lowest volatility of income returns over both periods, a valuable characteristic that made a significant difference to long-term returns because it reduced the chance of making a timing error entering or exiting the market, Mr Atchison said.
He said a fully diversified property portfolio should be made up of "four states, three sectors", being NSW, Victoria, Queensland and Western Australia, and across the office, retail and industrial sectors.
ADPIA represents property industry professionals such as fund managers, custodians and financiers and was set up as the peak industry body in 1999.
Source: AAP
Low doc home loans on par with income verified interest rates
Adelaide Bank, a major player in the lo doc [low documentation] home loan sector has issued an earnings downgrade after intensifying competition in the mortgage lending sector forced it to remove premium pricing on its low-documentation home loans. The regional bank revised its earnings per share (EPS) growth forecast for fiscal 2007 to between 6c and 9c a share, down from 10c. The downgrade surprised the market and its shares ended down 53c, or 3.9 per cent, at $13.05.
"Competition in the banking sector, in particular the mortgage markets, has continued to intensify this financial year," the bank said.
"As a consequence, the mortgage portfolio is being repriced at a faster rate than had been expected when the 2007 financial year budgets were formulated in May."
CEO-in-waiting Jamie McPhee said the loans affected were all low-documentation loans, which comprised about 35 per cent of the bank's mortgage loan book. "They have been priced historically at a premium to a standard product," Mr McPhee said. "Today's new business is no longer written at a premium and that's the big change."
Mr McPhee said Adelaide Bank was one of the first banks to offer low-documentation loans, which were popular among the self-employed who often did not have the documentation to support a loan application, unlike company workers.
"We were early into the low-doc space, but more of the market has offered them and that premium has been competed away," he said.
Mr McPhee said the bank was also exploring development options, which could impose a short-term burden on EPS growth but increase it in the medium term. "We think there's other opportunities for the bank to take hold of, and those things come at additional cost," he said.
Investments the bank is considering include acquisitions and new product developments.
Last year, AdBank bought Goldman Sachs JB Were's margin lending business and a portfolio funding business.
"These businesses have made a significant contribution to the bank's profit growth and their contribution for the 2007 financial year is in line with or exceeding expectations," the bank said.
AdBank reported a 13 per cent lift in net profit to a record $94.42 million for 2005-06 and achieved EPS growth of 13 per cent to 88.68c. Mr McPhee will replace outgoing AdBank chief executive officer Barry Fitzpatrick when he retires next month.
AAP
"Competition in the banking sector, in particular the mortgage markets, has continued to intensify this financial year," the bank said.
"As a consequence, the mortgage portfolio is being repriced at a faster rate than had been expected when the 2007 financial year budgets were formulated in May."
CEO-in-waiting Jamie McPhee said the loans affected were all low-documentation loans, which comprised about 35 per cent of the bank's mortgage loan book. "They have been priced historically at a premium to a standard product," Mr McPhee said. "Today's new business is no longer written at a premium and that's the big change."
Mr McPhee said Adelaide Bank was one of the first banks to offer low-documentation loans, which were popular among the self-employed who often did not have the documentation to support a loan application, unlike company workers.
"We were early into the low-doc space, but more of the market has offered them and that premium has been competed away," he said.
Mr McPhee said the bank was also exploring development options, which could impose a short-term burden on EPS growth but increase it in the medium term. "We think there's other opportunities for the bank to take hold of, and those things come at additional cost," he said.
Investments the bank is considering include acquisitions and new product developments.
Last year, AdBank bought Goldman Sachs JB Were's margin lending business and a portfolio funding business.
"These businesses have made a significant contribution to the bank's profit growth and their contribution for the 2007 financial year is in line with or exceeding expectations," the bank said.
AdBank reported a 13 per cent lift in net profit to a record $94.42 million for 2005-06 and achieved EPS growth of 13 per cent to 88.68c. Mr McPhee will replace outgoing AdBank chief executive officer Barry Fitzpatrick when he retires next month.
AAP
Mortgage brokers to become top lenders
Mortgage brokers are becoming the first choice for home buyers when they're arranging a loan, a survey shows.
The Mortgage Industry Association of Australia(MIAA)/BankWest home finance survey released today showed more than 41 per cent of recent or intending homebuyers would go to a mortgage broker.
That figure compares with 37.5 per cent who regarded banks as their first preference.
MIAA chief executive Phil Naylor said the figures showed a rise in the public acceptance of brokers.
"Public awareness of brokers is now more than 90 per cent," he said.
It is the first time the survey has shown homebuyers prefer arranging their loan through a broker rather than going straight to a bank.
BankWest's head of broker sales, Phil Colton said the research highlighted that banks really couldn't afford to ignore the broking industry.
The research shows that borrowers preferred brokers mainly because they did all the legwork for customers, but also because they could offer a range of loan options from different lenders.
The MIAA/Bank West survey is conducted twice a year.
Source: AAP
The Mortgage Industry Association of Australia(MIAA)/BankWest home finance survey released today showed more than 41 per cent of recent or intending homebuyers would go to a mortgage broker.
That figure compares with 37.5 per cent who regarded banks as their first preference.
MIAA chief executive Phil Naylor said the figures showed a rise in the public acceptance of brokers.
"Public awareness of brokers is now more than 90 per cent," he said.
It is the first time the survey has shown homebuyers prefer arranging their loan through a broker rather than going straight to a bank.
BankWest's head of broker sales, Phil Colton said the research highlighted that banks really couldn't afford to ignore the broking industry.
The research shows that borrowers preferred brokers mainly because they did all the legwork for customers, but also because they could offer a range of loan options from different lenders.
The MIAA/Bank West survey is conducted twice a year.
Source: AAP
Credit card fraud on the rise in Australia
Credit cards are more than ever set to trumpet the title of "fantastic plastic" this Christmas on predictions of a sharp increase in usage and a parallel rise in card fraud.
Spending on cards will rise by close to 25 per cent over Christmas to top the $17 billion mark for the first time, according to research house Cannex.
The sheer scale of usage could generate headaches on repayments and increase the risk of theft or fraud, simply from greater exposure.
Members Equity Bank said yesterday it was encouraging members to be extra cautious when using cards.
MEB head of workplace business Tony Beck said: "Criminals are getting smarter and the incidence of fraud is increasing."
Cannex said the country's 13.1 million-plus credit cards will each swipe about $1280.
Encouraging the use of plastic are discount deals to win debt transfers from competing cards.
In the past six months, Cannex has found eight more cards offering to transfer balances at zero interest on existing debt, making a total of 15 to do so.
A "whopping" 73 more cards offer balance transfers at an interest rate on debt of less than 5 per cent, or better than half the usual rate. A total of 106 cards will offer such a rate.
Cannex reported that "lenders are lining up with their fishing nets ready to catch customers who have maxed-out over the festive season and are searching for an escape route".
To make spending easier, 21 cards were offering an interest rate of less than 10 per cent and 54 had rates under 13 per cent - eight of which did not charge an annual fee; a total of 28 cards were not charging an annual fee.
Cannex research analyst Garfield Wright said people spent up to 25 per cent more in December than they did for the other 11 months of the year.
"For the past three years, Australia's annual pattern of credit card usage has been predictable, with spending soaring in December as credit cards are well and truly given a workout," Mr Wright said.
January, however, was a different story as consumers came to terms with the credit card debt that needed to be paid off.
"There will be a completely different kind of New Year's resolution made this January."
The Australian Bankers Association reminded consumers yesterday that any debt on a card needed to be repaid.
But it said most borrowers did so, pointing to Reserve Bank of Australia figures for the past three Christmas periods that showed borrowers repaid 99.6 per cent of their debt over December and January.
Last Christmas was a good one, with RBA figures showing credit card holders made repayments that exceeded transactions by $638 million.
Source: The Australian, Tim Blue
Spending on cards will rise by close to 25 per cent over Christmas to top the $17 billion mark for the first time, according to research house Cannex.
The sheer scale of usage could generate headaches on repayments and increase the risk of theft or fraud, simply from greater exposure.
Members Equity Bank said yesterday it was encouraging members to be extra cautious when using cards.
MEB head of workplace business Tony Beck said: "Criminals are getting smarter and the incidence of fraud is increasing."
Cannex said the country's 13.1 million-plus credit cards will each swipe about $1280.
Encouraging the use of plastic are discount deals to win debt transfers from competing cards.
In the past six months, Cannex has found eight more cards offering to transfer balances at zero interest on existing debt, making a total of 15 to do so.
A "whopping" 73 more cards offer balance transfers at an interest rate on debt of less than 5 per cent, or better than half the usual rate. A total of 106 cards will offer such a rate.
Cannex reported that "lenders are lining up with their fishing nets ready to catch customers who have maxed-out over the festive season and are searching for an escape route".
To make spending easier, 21 cards were offering an interest rate of less than 10 per cent and 54 had rates under 13 per cent - eight of which did not charge an annual fee; a total of 28 cards were not charging an annual fee.
Cannex research analyst Garfield Wright said people spent up to 25 per cent more in December than they did for the other 11 months of the year.
"For the past three years, Australia's annual pattern of credit card usage has been predictable, with spending soaring in December as credit cards are well and truly given a workout," Mr Wright said.
January, however, was a different story as consumers came to terms with the credit card debt that needed to be paid off.
"There will be a completely different kind of New Year's resolution made this January."
The Australian Bankers Association reminded consumers yesterday that any debt on a card needed to be repaid.
But it said most borrowers did so, pointing to Reserve Bank of Australia figures for the past three Christmas periods that showed borrowers repaid 99.6 per cent of their debt over December and January.
Last Christmas was a good one, with RBA figures showing credit card holders made repayments that exceeded transactions by $638 million.
Source: The Australian, Tim Blue
Monday, December 04, 2006
Australians are spenders not savers
Most Australians lack a disciplined approach to saving money, but spending it is another matter, new figures show.
A survey conducted for online superannuation fund Max Super found that one in four of the 798 Australians surveyed kept nothing at all from their income to put towards their savings.
Only half of the respondents sometimes put part of their income towards their savings.
Max Super chief executive Andrew Barlow said many Australians were out for instant gratification and were willing to take on debt instead of saving for things in advance.
"This is great when you have years of income ahead of you, but may become an issue upon retirement," he said.
The survey found that three out of four respondents stated that over 50 per cent of their income went towards day to day living expenses.
Mr Barlow said it appeared many people were exhausting their pay packet on their household living costs and credit card bills instead of saving.
"It seems Australians feel confident spending their money, as the unemployment rate is at an all time low and property wealth has increased massively," he said.
The latest official figures show that unemployment fell to a 30-year low of 4.6 per cent in October, and combined with wages growth, the supportive economic conditions have encouraged Australians to spend and borrow more.
Retail spending continued to climb in October, rising 0.8 per cent to $18.372 billion, while credit card borrowings also continued to trend upwards with no sign abating.
In September, Australians had $37.176 billion on credit with credit limits surpassing a total $100 billion for the first time ever.
While the impact of the third interest rate hike for the year in November – which pushed the official rate up to 6.25 per cent – is still to be seen, borrowing for housing has continued to increase, although at a slower rate.
Reserve Bank of Australia figures showed that housing credit grew by 0.8 per cent in October to be up by 14 per cent over the year.
Mr Barlow said that while buying a home was a priority for most people, he said consumers should aim to put aside 10 per cent of their income towards their savings, and split it across both short-term and long-term investments.
"For instance, you might consider saving part in quick access investments for those emergencies in life, while salary sacrificing a component to your super to build up for needs later in life," he said.
Mr Barlow said it was unrealistic to expect people to budget down to the last cent or to deprive themselves of the odd luxury.
"However, what we do encourage is the concept of `paying yourself first' and taking good care of your finances now, for later," he said.
Source AAP
A survey conducted for online superannuation fund Max Super found that one in four of the 798 Australians surveyed kept nothing at all from their income to put towards their savings.
Only half of the respondents sometimes put part of their income towards their savings.
Max Super chief executive Andrew Barlow said many Australians were out for instant gratification and were willing to take on debt instead of saving for things in advance.
"This is great when you have years of income ahead of you, but may become an issue upon retirement," he said.
The survey found that three out of four respondents stated that over 50 per cent of their income went towards day to day living expenses.
Mr Barlow said it appeared many people were exhausting their pay packet on their household living costs and credit card bills instead of saving.
"It seems Australians feel confident spending their money, as the unemployment rate is at an all time low and property wealth has increased massively," he said.
The latest official figures show that unemployment fell to a 30-year low of 4.6 per cent in October, and combined with wages growth, the supportive economic conditions have encouraged Australians to spend and borrow more.
Retail spending continued to climb in October, rising 0.8 per cent to $18.372 billion, while credit card borrowings also continued to trend upwards with no sign abating.
In September, Australians had $37.176 billion on credit with credit limits surpassing a total $100 billion for the first time ever.
While the impact of the third interest rate hike for the year in November – which pushed the official rate up to 6.25 per cent – is still to be seen, borrowing for housing has continued to increase, although at a slower rate.
Reserve Bank of Australia figures showed that housing credit grew by 0.8 per cent in October to be up by 14 per cent over the year.
Mr Barlow said that while buying a home was a priority for most people, he said consumers should aim to put aside 10 per cent of their income towards their savings, and split it across both short-term and long-term investments.
"For instance, you might consider saving part in quick access investments for those emergencies in life, while salary sacrificing a component to your super to build up for needs later in life," he said.
Mr Barlow said it was unrealistic to expect people to budget down to the last cent or to deprive themselves of the odd luxury.
"However, what we do encourage is the concept of `paying yourself first' and taking good care of your finances now, for later," he said.
Source AAP
Mortgage lender goes for broke to expand results.
Australian Mortgage Broker and lender Aussie Home Loans Group's aggressive expansion has helped bump up its annual profit despite stagnant east coast housing markets.
The mortgage lender and broker formed by John Symond yesterday posted a 44 per cent rise in net annual profit for 2005-06 to $19.7 million.
Aussie said it processed more than $10 billion worth of housing loan applications throughout the year, with the average loan size increasing to $242,000, which is higher than the Australian Bureau of Statistics average of $221,000.
Mr Symond told AAP that even though the Perth residential property market was "going gangbusters", challenging conditions in NSW had made the overall situation tough.
But he said the unlisted Aussie Home Loans was able to maintain profit growth, employing more people and rolling out more branches. "Our mortgage writers don't write any more business but there's more of them and we're touching more people," Mr Symond said.
In the year to June 30, Aussie increased its sales force by 19 per cent to 600 mortgage advisers.
"We have also very successfully rolled out about 14 new franchise businesses at a rate of about one a month," Mr Symond said.
"These have mostly been in parts of regional Australia we have not serviced before, so more consumers are being touched by the Aussie brand."
Aussie's credit card business was also growing fast and now had more than 100,000 customers, Mr Symond said.
Aggressive growth would continue in 2007 through the rollout of more franchise businesses and the establishment of new products.
Capital expenditure over the next 12 months was expected to hit about $10 million.
As for the group's future profitability, Mr Symond said Aussie had a "confident view of the medium term".
This month's quarter of a percentage point interest rate rise to 6.25 per cent had caused more caution in the housing market, Mr Symond said.
But he felt another rate rise was unlikely.
"We might have reached the top of the cycle this time and I'm hopeful the Reserve Bank will see no reason for an increase next year - unless of course inflation gets ugly again.
"And if the economy was to slow I don't think they'll hesitate in bringing rates back down.
"The market is certainly going to hurt for a few years to come.
"Consumer debt is at astronomical levels, so people won't go out and randomly spend.
"That's what the RBA want and that's what the RBA will probably get."
Source: AAP
The mortgage lender and broker formed by John Symond yesterday posted a 44 per cent rise in net annual profit for 2005-06 to $19.7 million.
Aussie said it processed more than $10 billion worth of housing loan applications throughout the year, with the average loan size increasing to $242,000, which is higher than the Australian Bureau of Statistics average of $221,000.
Mr Symond told AAP that even though the Perth residential property market was "going gangbusters", challenging conditions in NSW had made the overall situation tough.
But he said the unlisted Aussie Home Loans was able to maintain profit growth, employing more people and rolling out more branches. "Our mortgage writers don't write any more business but there's more of them and we're touching more people," Mr Symond said.
In the year to June 30, Aussie increased its sales force by 19 per cent to 600 mortgage advisers.
"We have also very successfully rolled out about 14 new franchise businesses at a rate of about one a month," Mr Symond said.
"These have mostly been in parts of regional Australia we have not serviced before, so more consumers are being touched by the Aussie brand."
Aussie's credit card business was also growing fast and now had more than 100,000 customers, Mr Symond said.
Aggressive growth would continue in 2007 through the rollout of more franchise businesses and the establishment of new products.
Capital expenditure over the next 12 months was expected to hit about $10 million.
As for the group's future profitability, Mr Symond said Aussie had a "confident view of the medium term".
This month's quarter of a percentage point interest rate rise to 6.25 per cent had caused more caution in the housing market, Mr Symond said.
But he felt another rate rise was unlikely.
"We might have reached the top of the cycle this time and I'm hopeful the Reserve Bank will see no reason for an increase next year - unless of course inflation gets ugly again.
"And if the economy was to slow I don't think they'll hesitate in bringing rates back down.
"The market is certainly going to hurt for a few years to come.
"Consumer debt is at astronomical levels, so people won't go out and randomly spend.
"That's what the RBA want and that's what the RBA will probably get."
Source: AAP
Mortgage lenders defies trend to post a big profit
Australian Mortgage Lender Aussie Home Loans Group's aggressive expansion has helped bump up its annual profit despite stagnant east coast housing markets.
The mortgage lender and broker formed by John Symond yesterday posted a 44 per cent rise in net annual profit for 2005-06 to $19.7 million.
Aussie said it processed more than $10 billion worth of housing loan applications throughout the year, with the average loan size increasing to $242,000, which is higher than the Australian Bureau of Statistics average of $221,000.
Mr Symond told AAP that even though the Perth residential property market was "going gangbusters", challenging conditions in NSW had made the overall situation tough.
But he said the unlisted Aussie Home Loans was able to maintain profit growth, employing more people and rolling out more branches. "Our mortgage writers don't write any more business but there's more of them and we're touching more people," Mr Symond said.
In the year to June 30, Aussie increased its sales force by 19 per cent to 600 mortgage advisers.
"We have also very successfully rolled out about 14 new franchise businesses at a rate of about one a month," Mr Symond said.
"These have mostly been in parts of regional Australia we have not serviced before, so more consumers are being touched by the Aussie brand."
Aussie's credit card business was also growing fast and now had more than 100,000 customers, Mr Symond said.
Aggressive growth would continue in 2007 through the rollout of more franchise businesses and the establishment of new products.
Capital expenditure over the next 12 months was expected to hit about $10 million.
As for the group's future profitability, Mr Symond said Aussie had a "confident view of the medium term".
This month's quarter of a percentage point interest rate rise to 6.25 per cent had caused more caution in the housing market, Mr Symond said.
But he felt another rate rise was unlikely.
"We might have reached the top of the cycle this time and I'm hopeful the Reserve Bank will see no reason for an increase next year - unless of course inflation gets ugly again.
"And if the economy was to slow I don't think they'll hesitate in bringing rates back down.
"The market is certainly going to hurt for a few years to come.
"Consumer debt is at astronomical levels, so people won't go out and randomly spend.
"That's what the RBA want and that's what the RBA will probably get."
AAP
The mortgage lender and broker formed by John Symond yesterday posted a 44 per cent rise in net annual profit for 2005-06 to $19.7 million.
Aussie said it processed more than $10 billion worth of housing loan applications throughout the year, with the average loan size increasing to $242,000, which is higher than the Australian Bureau of Statistics average of $221,000.
Mr Symond told AAP that even though the Perth residential property market was "going gangbusters", challenging conditions in NSW had made the overall situation tough.
But he said the unlisted Aussie Home Loans was able to maintain profit growth, employing more people and rolling out more branches. "Our mortgage writers don't write any more business but there's more of them and we're touching more people," Mr Symond said.
In the year to June 30, Aussie increased its sales force by 19 per cent to 600 mortgage advisers.
"We have also very successfully rolled out about 14 new franchise businesses at a rate of about one a month," Mr Symond said.
"These have mostly been in parts of regional Australia we have not serviced before, so more consumers are being touched by the Aussie brand."
Aussie's credit card business was also growing fast and now had more than 100,000 customers, Mr Symond said.
Aggressive growth would continue in 2007 through the rollout of more franchise businesses and the establishment of new products.
Capital expenditure over the next 12 months was expected to hit about $10 million.
As for the group's future profitability, Mr Symond said Aussie had a "confident view of the medium term".
This month's quarter of a percentage point interest rate rise to 6.25 per cent had caused more caution in the housing market, Mr Symond said.
But he felt another rate rise was unlikely.
"We might have reached the top of the cycle this time and I'm hopeful the Reserve Bank will see no reason for an increase next year - unless of course inflation gets ugly again.
"And if the economy was to slow I don't think they'll hesitate in bringing rates back down.
"The market is certainly going to hurt for a few years to come.
"Consumer debt is at astronomical levels, so people won't go out and randomly spend.
"That's what the RBA want and that's what the RBA will probably get."
AAP
Mortgage loans lift as home sales bounce off the low.
New home sales rose last month thanks to strong improvements in housing markets in New South Wales, Victoria and Queensland markets, figures show.
The latest Housing Industry Association's (HIA) new home sales survey shows sales of new homes and units by Australia's largest builders and developers rose by 1.3 per cent in October to 7434 dwellings.
That followed a fall of 3 per cent to a 21 month low of 7342 dwellings in September.
The survey also found that new house sales increased by 4.6 per cent in October while sales of multi-unit fell by 16 per cent.
HIA executive director of economics and housing Simon Tennent said the results reflected the dual nature of the nation's economic growth and housing affordability across the states.
"New home sales were resilient in the eastern states as house prices continue to grow in line with consumer prices," he said.
New South Wales, Victoria and Queensland detached housing sales were up strongly, while the accelerating house prices and land constraints in Western Australia meant the new home sales market continued to struggle, he said.
In October, detached house sales fell by 21.9 per cent in WA and 0.9 per cent in South Australia but rose by 16.7 per cent in NSW, 15 per cent in Victoria and 8.5 per cent in Queensland.
"The real test will be in the first quarter of 2007 when the combined affect of three interest rate rises start to squeeze household budgets, particularly in the resource-poor states," Mr Tennent said.
The Reserve Bank of Australia lifted interest rates this month by 25 basis points to 6.25 per cent.
That followed hikes by the same amount in May and August.
Economists say it is not likely that the RBA will lift rates again at the first board meeting of the year in February as the RBA will want to see how the three hikes have trickled through the economy.
Source: AAP
The latest Housing Industry Association's (HIA) new home sales survey shows sales of new homes and units by Australia's largest builders and developers rose by 1.3 per cent in October to 7434 dwellings.
That followed a fall of 3 per cent to a 21 month low of 7342 dwellings in September.
The survey also found that new house sales increased by 4.6 per cent in October while sales of multi-unit fell by 16 per cent.
HIA executive director of economics and housing Simon Tennent said the results reflected the dual nature of the nation's economic growth and housing affordability across the states.
"New home sales were resilient in the eastern states as house prices continue to grow in line with consumer prices," he said.
New South Wales, Victoria and Queensland detached housing sales were up strongly, while the accelerating house prices and land constraints in Western Australia meant the new home sales market continued to struggle, he said.
In October, detached house sales fell by 21.9 per cent in WA and 0.9 per cent in South Australia but rose by 16.7 per cent in NSW, 15 per cent in Victoria and 8.5 per cent in Queensland.
"The real test will be in the first quarter of 2007 when the combined affect of three interest rate rises start to squeeze household budgets, particularly in the resource-poor states," Mr Tennent said.
The Reserve Bank of Australia lifted interest rates this month by 25 basis points to 6.25 per cent.
That followed hikes by the same amount in May and August.
Economists say it is not likely that the RBA will lift rates again at the first board meeting of the year in February as the RBA will want to see how the three hikes have trickled through the economy.
Source: AAP
Tuesday, October 31, 2006
How to make your real estate investment property work harder for you
An investment property is just like any other business: it needs to be well-managed and focused on its target market for the best returns.
While the recent turnaround in rental vacancy rates across most Australian states has made life a little easier for many landlords, the likelihood of interest rate rises in the near future means there is no room for complacency.
Here's how to ensure a property pulls its weight.
Leave it to the experts
Whether you are new to property investment or an old hand, a good property manager can make a huge difference to your bottom line.
Seasoned property investors agree that employing the services of an experienced, professional managing agent is money well spent.
Buyers' advocate Janet Spencer of Buyer Solutions rates a good property manager as one that keeps a keen eye on maintenance issues and provides regular feedback to landlords, thus allowing plenty of time to budget and plan for future expenditures such as replacing carpets or repainting.
Core services include rent collection, routine inspections and co-ordination of maintenance requests. Importantly, a property manager can act as an intermediary buffer zone between the owner and the tenant.
Fees generally range from between 6 to 9 per cent of gross rental income and - as with most services - you get what you pay for.
Inspections and body corporate.
Regular inspections are vital for landlords, particularly the estimated 30 per cent who manage their own property. Inspections can alert owners to minor maintenance issues that could develop into major problems if left unattended.
In Victoria, landlords can inspect their properties every six months. But more frequent inspections may be possible if the tenant agrees. In NSW, rented properties can be inspected up to a maximum of four times a year, with seven days' notice to the tenant required.
There is probably nothing duller than a body corporate meeting, but such meetings are also vital sources of information for landlords. This is where they can learn about problematic tenants, the budget for future maintenance costs, such as exterior painting or landscaping, and any potential levies.
Time for an upgrade?
Sometimes you have to spend money to make money.
Routine upgrades to your property can translate into quality tenants, rental increases and a shorter vacancy time between tenancies.
Gerri Keays, national property management executive at Ray White Australia, says tenants have become more savvy and are increasingly demanding properties that are well-maintained and come with fixtures and fittings that are reasonably up to date. "Vertical blinds that have been around for 30 years are not going to add value to your property," Keays says. The same can be said about dated kitchens, brightly coloured walls and shag-pile carpet.
Sophie Lyon, general manager of property management at Philip Webb Real Estate, agrees. "Many tenants we see these days are choosing to rent as opposed to having to rent," she says. "They are not prepared to take just anything."
Rental review.
Raising the rent is an obvious way to increase the return on your investment, particularly in the current hotly contested rental market where vacancy rates in Melbourne and Sydney average 2 per cent or less. In the 12 months to June 2006, the increase in the median rent outpaced the annual CPI increase of 4 per cent in many areas of these cities, with rises of more than 7 per cent recorded for two-bedroom apartments in popular suburbs of Sydney.
That said, raising the rent could be counterproductive if your property remains vacant for more than a few weeks.
Anthony Atra, a leasing agent with Century 21 Cityline Realty, which specialises in the keenly sought areas of inner Sydney and the eastern suburbs, says if your inner-city property is taking more than two weeks to rent out, it is probably overpriced.
Deductions and insurance.
While the Australian Tax Office has recently stepped up its targeting of property investors who claim expenses inappropriately, there are also plenty of landlords who underestimate what they can legitimately claim. This will be particularly important for those investors who have seen the value of their tax deductions reduced as their marginal tax rates have fallen.
Expenses for which there may be an immediate deduction include advertising for tenants, bank charges, body corporate fees, travel and car expenses for collecting rent or property inspections and certain depreciable assets that cost less than $300 (see right). For further information download the Rental Property Report 2006 at the ATO website (see http://www.ato.gov.au and search for rental).
Finally, loss of rent is a common problem - particularly when tenants fall into arrears - but landlord insurance can cover this expense. Several insurers offer protection against malicious or accidental damage by tenants, theft by tenants, legal expenses and legal liability. But read the fine print, excesses vary widely as does the time you are covered for rent loss.
While the recent turnaround in rental vacancy rates across most Australian states has made life a little easier for many landlords, the likelihood of interest rate rises in the near future means there is no room for complacency.
Here's how to ensure a property pulls its weight.
Leave it to the experts
Whether you are new to property investment or an old hand, a good property manager can make a huge difference to your bottom line.
Seasoned property investors agree that employing the services of an experienced, professional managing agent is money well spent.
Buyers' advocate Janet Spencer of Buyer Solutions rates a good property manager as one that keeps a keen eye on maintenance issues and provides regular feedback to landlords, thus allowing plenty of time to budget and plan for future expenditures such as replacing carpets or repainting.
Core services include rent collection, routine inspections and co-ordination of maintenance requests. Importantly, a property manager can act as an intermediary buffer zone between the owner and the tenant.
Fees generally range from between 6 to 9 per cent of gross rental income and - as with most services - you get what you pay for.
Inspections and body corporate.
Regular inspections are vital for landlords, particularly the estimated 30 per cent who manage their own property. Inspections can alert owners to minor maintenance issues that could develop into major problems if left unattended.
In Victoria, landlords can inspect their properties every six months. But more frequent inspections may be possible if the tenant agrees. In NSW, rented properties can be inspected up to a maximum of four times a year, with seven days' notice to the tenant required.
There is probably nothing duller than a body corporate meeting, but such meetings are also vital sources of information for landlords. This is where they can learn about problematic tenants, the budget for future maintenance costs, such as exterior painting or landscaping, and any potential levies.
Time for an upgrade?
Sometimes you have to spend money to make money.
Routine upgrades to your property can translate into quality tenants, rental increases and a shorter vacancy time between tenancies.
Gerri Keays, national property management executive at Ray White Australia, says tenants have become more savvy and are increasingly demanding properties that are well-maintained and come with fixtures and fittings that are reasonably up to date. "Vertical blinds that have been around for 30 years are not going to add value to your property," Keays says. The same can be said about dated kitchens, brightly coloured walls and shag-pile carpet.
Sophie Lyon, general manager of property management at Philip Webb Real Estate, agrees. "Many tenants we see these days are choosing to rent as opposed to having to rent," she says. "They are not prepared to take just anything."
Rental review.
Raising the rent is an obvious way to increase the return on your investment, particularly in the current hotly contested rental market where vacancy rates in Melbourne and Sydney average 2 per cent or less. In the 12 months to June 2006, the increase in the median rent outpaced the annual CPI increase of 4 per cent in many areas of these cities, with rises of more than 7 per cent recorded for two-bedroom apartments in popular suburbs of Sydney.
That said, raising the rent could be counterproductive if your property remains vacant for more than a few weeks.
Anthony Atra, a leasing agent with Century 21 Cityline Realty, which specialises in the keenly sought areas of inner Sydney and the eastern suburbs, says if your inner-city property is taking more than two weeks to rent out, it is probably overpriced.
Deductions and insurance.
While the Australian Tax Office has recently stepped up its targeting of property investors who claim expenses inappropriately, there are also plenty of landlords who underestimate what they can legitimately claim. This will be particularly important for those investors who have seen the value of their tax deductions reduced as their marginal tax rates have fallen.
Expenses for which there may be an immediate deduction include advertising for tenants, bank charges, body corporate fees, travel and car expenses for collecting rent or property inspections and certain depreciable assets that cost less than $300 (see right). For further information download the Rental Property Report 2006 at the ATO website (see http://www.ato.gov.au and search for rental).
Finally, loss of rent is a common problem - particularly when tenants fall into arrears - but landlord insurance can cover this expense. Several insurers offer protection against malicious or accidental damage by tenants, theft by tenants, legal expenses and legal liability. But read the fine print, excesses vary widely as does the time you are covered for rent loss.
What you can claim.
Besides loan interest, rental property expenses for which you can claim a tax deduction include:
- advertising for tenants,
- bank charges,
- body corporate fees,
- borrowing expenses,
- council rates,
- decline in value of depreciating assets,
- gardening and lawn mowing,
- insurance,
- land tax,
- pest control,
- property agent fees or commissions,
- repairs and maintenance,
- stationery,
- telephone,
- water charges, and
- travel undertaken to inspect the property or to collect the rent.
Source: Australian Tax Office [ATO]
The right manager makes a difference.
After 10 years of buying and selling properties and dealing with all sorts of tenant issues, Margaret Steel believes finding the right property manager is crucial to success in property investment.
"It really makes it so much easier if you have someone who is able to foresee maintenance issues and head off problems," says Steel, whose residential investment portfolio consists of nine two-bedroom properties, eight of which are part of two refurbished older-style inner-city apartment blocks.
Steel has been with the same property management firm since she began buying properties in the mid-1990s, just before Melbourne's last big real-estate boom. During this time the energetic mother of two has avoided any major problems with her tenants, encouraging them by way of a personal letter to report all maintenance issues, however minor.
"A lot of tenants don't like to be seen to be whingeing, but it is better to have a leaking tap reported and fixed than to have to replace the parquetry when a tenant leaves", she says.
Steel, who built her property portfolio on the advice of buyers' advocate Janet Spencer says she regularly upgrades her properties, paying close attention to carpets and benchtops. "We figure it is worth [it] in order to get a good tenant who will stay," Steel says.
Source: The Melbourne Age
Home loan mortgage Interest rates could go higher
The stage is set for a November home loan interest rate rise and possibly another rise in mortgage rates in 2007, with a solid rise in consumer prices in the third quarter pointing to inflation pressures in the domestic economy.
An Australian Bureau of Statistics (ABS) report showed the nation's consumer price index (CPI) rose 0.9 per cent in the quarter, for an annual rate of 3.9 per cent. In the June quarter, the CPI rose 1.6 per cent. The median market forecast for the headline CPI was for a rise of 0.8 per cent in the CPI in the September quarter, for an annual pace of 3.8 per cent.
Commonwealth Bank chief economist Michael Blythe said the suggested the central bank would raise rates next month. "Clearly we're still waiting to see what those key underlying measures are, but all indications are that it will be high enough to tick off that November rate rise," he said.
Westpac bank senior economist Andrew Hanlan said the figures confirmed that inflation was a challenge for the economy and the Reserve Bank of Australia (RBA).The RBA's inflation comfort zone for inflation is 2 to 3 per cent. The RBA would likely have to adjust rates following its November 7 board meeting, Mr Hanlan said."We need to see the Reserve Bank nudge things higher and we expect that in November," he said.But depending on how entrenched inflation is in the economy, Mr Hanlan said there is still a risk still that the central bank could raise rates again in February.Mr Hanlan said inflation is being impacted by rising global prices."Those rising global prices are feeding through to the whole pricing chain and we saw that earlier in the week with the producer price index rising quite a bit," he said. RBC senior economist Su-Lin Ong also said the results would put pressure on the RBA to raise rates for a third time this year. "The data and the details today support another hike from the Reserve Bank, most likely in November," she said.
"It (would be) a pretty prudent move given that there are clearly some underlying pressures in the economy." Source AAP
An Australian Bureau of Statistics (ABS) report showed the nation's consumer price index (CPI) rose 0.9 per cent in the quarter, for an annual rate of 3.9 per cent. In the June quarter, the CPI rose 1.6 per cent. The median market forecast for the headline CPI was for a rise of 0.8 per cent in the CPI in the September quarter, for an annual pace of 3.8 per cent.
Commonwealth Bank chief economist Michael Blythe said the suggested the central bank would raise rates next month. "Clearly we're still waiting to see what those key underlying measures are, but all indications are that it will be high enough to tick off that November rate rise," he said.
Westpac bank senior economist Andrew Hanlan said the figures confirmed that inflation was a challenge for the economy and the Reserve Bank of Australia (RBA).The RBA's inflation comfort zone for inflation is 2 to 3 per cent. The RBA would likely have to adjust rates following its November 7 board meeting, Mr Hanlan said."We need to see the Reserve Bank nudge things higher and we expect that in November," he said.But depending on how entrenched inflation is in the economy, Mr Hanlan said there is still a risk still that the central bank could raise rates again in February.Mr Hanlan said inflation is being impacted by rising global prices."Those rising global prices are feeding through to the whole pricing chain and we saw that earlier in the week with the producer price index rising quite a bit," he said. RBC senior economist Su-Lin Ong also said the results would put pressure on the RBA to raise rates for a third time this year. "The data and the details today support another hike from the Reserve Bank, most likely in November," she said.
"It (would be) a pretty prudent move given that there are clearly some underlying pressures in the economy." Source AAP
First time home buyers will struggle with house prices
First time home buyers would find it increasingly difficult to purchase a home in Melbourne as property prices moved back to record highs, an industry group warned.
The higher house prices combined with further interest rate hikes being touted as a done deal, and the planned reduction in the state government assistance could see a movement back to regional areas where median prices fell significantly over the last quarter.
According to data released by the Real Estate Institute of Victoria today, the Melbourne real estate market has continued its steady appreciation with a rise in the median price of 1.5 per cent since the June quarter.REIV chief executive Enzo Raimondo said if this trend continued Melbourne's median house price would return to the all-time high of $380,000 recorded in December 2003.
The September Melbourne quarterly median price rose to $377,000 up $5,500 from a revised June quarter. "This quarter's price data shows that all the fundamentals of the Melbourne property market are on track, the median price is steadily appreciating, stock availability at auctions has increased 11 per cent on 2005 and the clearance rate is up five per cent," Mr Raimondo said.
However he said the news was not good for those trying to break into the market. "The steady appreciation continues to affect affordability," Mr Raimondo said. "The most recent ABS data showed that first home buyers have reduced from 19.88 per cent of the local market in June to 17.76 per cent in August. "Further (interest) rate increases, taxes and charges and the planned reduction in the state government assistance for first home buyers in the middle of next year will only make it harder for young families. "This could push young families back to regional areas like Greater Shepparton in the central north were median prices for properties dropped by almost five per cent.
Geelong's median house price fell by 4.6 per cent and Ballarat's dipped 0.5 per cent. Greater Bendigo's median house price was up 3.2 per cent.Newport in Melbourne's inner west was the only area to make the top 20 growth suburbs in both quarters.
Doncaster, a leafy eastern suburb, recorded the biggest increase in median house price up 16.1 per cent to $520,000 while Melbourne's northern suburb of Broadmeadows reported a 13.4 per cent increase to $216,000.
Article source: AAP
The higher house prices combined with further interest rate hikes being touted as a done deal, and the planned reduction in the state government assistance could see a movement back to regional areas where median prices fell significantly over the last quarter.
According to data released by the Real Estate Institute of Victoria today, the Melbourne real estate market has continued its steady appreciation with a rise in the median price of 1.5 per cent since the June quarter.REIV chief executive Enzo Raimondo said if this trend continued Melbourne's median house price would return to the all-time high of $380,000 recorded in December 2003.
The September Melbourne quarterly median price rose to $377,000 up $5,500 from a revised June quarter. "This quarter's price data shows that all the fundamentals of the Melbourne property market are on track, the median price is steadily appreciating, stock availability at auctions has increased 11 per cent on 2005 and the clearance rate is up five per cent," Mr Raimondo said.
However he said the news was not good for those trying to break into the market. "The steady appreciation continues to affect affordability," Mr Raimondo said. "The most recent ABS data showed that first home buyers have reduced from 19.88 per cent of the local market in June to 17.76 per cent in August. "Further (interest) rate increases, taxes and charges and the planned reduction in the state government assistance for first home buyers in the middle of next year will only make it harder for young families. "This could push young families back to regional areas like Greater Shepparton in the central north were median prices for properties dropped by almost five per cent.
Geelong's median house price fell by 4.6 per cent and Ballarat's dipped 0.5 per cent. Greater Bendigo's median house price was up 3.2 per cent.Newport in Melbourne's inner west was the only area to make the top 20 growth suburbs in both quarters.
Doncaster, a leafy eastern suburb, recorded the biggest increase in median house price up 16.1 per cent to $520,000 while Melbourne's northern suburb of Broadmeadows reported a 13.4 per cent increase to $216,000.
Article source: AAP
Credit card holders are being dealt a poor hand
Credit card users who miss an American Express credit card payment will be hit with higher interest rates.
In an Australian first, American Express is applying a form of risk-rating to its customer base that will result in a sliding scale of rates.
Miss one credit card minimum payment, and you lose any promotional rate you were enjoying.
Miss three payments within 12 months and your current rate increases by 4 per cent per annum.
Miss two consecutive payments, or four separate ones within 12 months, and your rate goes up to 25.99 per cent for at least the next 12 months. At the end of that time, Amex has discretion over whether it will lower your rate.
Effectively, the company is relegating those they assess as high-risk to a punitive rate. Or, in Amex's words, "we are setting credit card rates at the customer level rather than the traditional approach of setting rates by product".
This represents a departure from how credit card interest rates have been set in the past. Until recently, if you missed a payment on your credit card, the worst that could happen was you'd be hit with a flat fee. "We'll see the Australian market move to risk-based pricing over time," predicts Denis Orrock of InfoChoice. "Whether it be through a universal change to the reporting structure, to allow ratings agencies to carry it out, or institutions doing their own risk profiling.
"Consumer groups are concerned vulnerable consumers will be hardest hit by the change. Carolyn Bond of the Consumer Law Centre in Victoria says the new Amex policy goes against the industry trend to responsible lending."Amex is going in the direction of penalising people in financial difficulty, rather than looking at different ways they can assist," Bond says. "If you can't afford your payments at the standard credit card interest rates rate [typically about 17 or 18 per cent], then you're not going to be able to afford them at 26 per cent."Cardholders could be locked into a vicious circle of crippling debt with such high rates.
Defaults of 90 days or more affect a person's credit history. "You start to see real problems emerge," says Dr Nick Coates of the Australian Consumers Association. "Customers struggling to maintain everyday expenses with the [recent] interest rate rise and petrol prices will probably start to load up their credit cards first. We've seen cash-outs and credit card debt before the last rate rise at an all-time monthly high, suggesting there are a lot of people under stress. They're the sorts of consumers who will be caught by a sliding scale."Risk-based pricing is common practice in the US, where lending institutions are allowed considerably more access to credit records than they are in Australia.
"One of the reasons we haven't had more discriminatory rates for credit cards is because it's difficult to price risk at the outset," says Nicola Howell, the director of the Centre for Credit and Consumer Law at Griffith University. "That's one of the arguments for more detailed credit reporting."
Orrock says Amex is in effect conducting its own risk profiling. "What you're seeing is that Amex probably wants to cherry-pick their customer base by separating the good from the bad. This is a pretty easy way to roll your default risk customers up into a fairly aggressive interest rate for one year."
Nina Rinella, an Amex spokeswoman, says the company is simply trying to make sure its customers showing responsible payment behaviour are not subsidising irresponsible customers. "The vast majority of our customers have good payment behaviour, and they're not going to be [affected]," she says. Rinella says that Amex is simultaneously offering 60 per cent of its customers, who pay on time, a reduced rate that could be "as low as 12.99 per cent".
There are still some question marks over Amex's new policy.
The NSW Office of Fair Trading is considering the implications of the new policy under the consumer credit code, which imposes some restrictions on default charges.
The company says it is above board. "American Express sought the advice of several leading barristers who agreed that the policy complies with the consumer credit code," Rinella says."Any change in interest rate resulting from our policy is based on a review of the customer's account history ... [and is] made irrespective of whether the customer is in default at that particular time."
Prior to any interest rate changes we would have communicated to a customer multiple times through letters, statement messages, SMS alerts and/or phone calls," she says.
Coates also cites the Consumer Law Centre of Victoria's 2004 Unfair Fees report, which questioned the legality of excessively high default fees."I'm surprised that [Amex] is looking at this already," he says. "I would have thought that there are some issues to be resolved about so-called penalty fees and penalty rates in Australia before these sliding scales could be introduced." The report argued that if the penalty being charged is disproportionate to the actual administrative costs of default and is coupled with unconscionable contract provisions (such as unfair bargaining power), the fees could be illegal.
No one has challenged the banks in court on late fees yet. But there is evidence of a shift in policy in the United Kingdom, with its Office of Fair Trading recently outlawing sliding scale hikes by imposing a low, flat-rate limit on late fees for credit cards.
Andrew Willink of Cannex doubts that many Australian institutions will follow Amex's policy. He likens it to insurance, where customers who make few or no claims are rewarded with lower premiums (and vice versa). "It's a behaviour rate," he says. "If you behave in a regular pattern according to the contract, you'll benefit from the fact that your interest rate is lower."
But the system will introduce more complexity, he says."With finance products now, fees and interest rates are blurring together, so you don't know [the true cost] - and that's the difficult thing," he says.
Consumer groups are concerned the move may prompt other institutions to introduce similar rate hikes."We don't want to see this system being developed in Australia," Coates says. "We believe that it disadvantages struggling consumers who are over-committed with their debt."To avoid trouble, understand all your credit card terms and conditions."
Make sure you're very aware of what arrangements are in place if you do default," Howell says."Research of behavioural economics indicates that people always take a positive view of how they're going to behave.
They don't expect they're going to default, therefore they don't pay much attention to what the default arrangements are. So be realistic about your credit card use."
Source: The Melbourne Age
In an Australian first, American Express is applying a form of risk-rating to its customer base that will result in a sliding scale of rates.
Miss one credit card minimum payment, and you lose any promotional rate you were enjoying.
Miss three payments within 12 months and your current rate increases by 4 per cent per annum.
Miss two consecutive payments, or four separate ones within 12 months, and your rate goes up to 25.99 per cent for at least the next 12 months. At the end of that time, Amex has discretion over whether it will lower your rate.
Effectively, the company is relegating those they assess as high-risk to a punitive rate. Or, in Amex's words, "we are setting credit card rates at the customer level rather than the traditional approach of setting rates by product".
This represents a departure from how credit card interest rates have been set in the past. Until recently, if you missed a payment on your credit card, the worst that could happen was you'd be hit with a flat fee. "We'll see the Australian market move to risk-based pricing over time," predicts Denis Orrock of InfoChoice. "Whether it be through a universal change to the reporting structure, to allow ratings agencies to carry it out, or institutions doing their own risk profiling.
"Consumer groups are concerned vulnerable consumers will be hardest hit by the change. Carolyn Bond of the Consumer Law Centre in Victoria says the new Amex policy goes against the industry trend to responsible lending."Amex is going in the direction of penalising people in financial difficulty, rather than looking at different ways they can assist," Bond says. "If you can't afford your payments at the standard credit card interest rates rate [typically about 17 or 18 per cent], then you're not going to be able to afford them at 26 per cent."Cardholders could be locked into a vicious circle of crippling debt with such high rates.
Defaults of 90 days or more affect a person's credit history. "You start to see real problems emerge," says Dr Nick Coates of the Australian Consumers Association. "Customers struggling to maintain everyday expenses with the [recent] interest rate rise and petrol prices will probably start to load up their credit cards first. We've seen cash-outs and credit card debt before the last rate rise at an all-time monthly high, suggesting there are a lot of people under stress. They're the sorts of consumers who will be caught by a sliding scale."Risk-based pricing is common practice in the US, where lending institutions are allowed considerably more access to credit records than they are in Australia.
"One of the reasons we haven't had more discriminatory rates for credit cards is because it's difficult to price risk at the outset," says Nicola Howell, the director of the Centre for Credit and Consumer Law at Griffith University. "That's one of the arguments for more detailed credit reporting."
Orrock says Amex is in effect conducting its own risk profiling. "What you're seeing is that Amex probably wants to cherry-pick their customer base by separating the good from the bad. This is a pretty easy way to roll your default risk customers up into a fairly aggressive interest rate for one year."
Nina Rinella, an Amex spokeswoman, says the company is simply trying to make sure its customers showing responsible payment behaviour are not subsidising irresponsible customers. "The vast majority of our customers have good payment behaviour, and they're not going to be [affected]," she says. Rinella says that Amex is simultaneously offering 60 per cent of its customers, who pay on time, a reduced rate that could be "as low as 12.99 per cent".
There are still some question marks over Amex's new policy.
The NSW Office of Fair Trading is considering the implications of the new policy under the consumer credit code, which imposes some restrictions on default charges.
The company says it is above board. "American Express sought the advice of several leading barristers who agreed that the policy complies with the consumer credit code," Rinella says."Any change in interest rate resulting from our policy is based on a review of the customer's account history ... [and is] made irrespective of whether the customer is in default at that particular time."
Prior to any interest rate changes we would have communicated to a customer multiple times through letters, statement messages, SMS alerts and/or phone calls," she says.
Coates also cites the Consumer Law Centre of Victoria's 2004 Unfair Fees report, which questioned the legality of excessively high default fees."I'm surprised that [Amex] is looking at this already," he says. "I would have thought that there are some issues to be resolved about so-called penalty fees and penalty rates in Australia before these sliding scales could be introduced." The report argued that if the penalty being charged is disproportionate to the actual administrative costs of default and is coupled with unconscionable contract provisions (such as unfair bargaining power), the fees could be illegal.
No one has challenged the banks in court on late fees yet. But there is evidence of a shift in policy in the United Kingdom, with its Office of Fair Trading recently outlawing sliding scale hikes by imposing a low, flat-rate limit on late fees for credit cards.
Andrew Willink of Cannex doubts that many Australian institutions will follow Amex's policy. He likens it to insurance, where customers who make few or no claims are rewarded with lower premiums (and vice versa). "It's a behaviour rate," he says. "If you behave in a regular pattern according to the contract, you'll benefit from the fact that your interest rate is lower."
But the system will introduce more complexity, he says."With finance products now, fees and interest rates are blurring together, so you don't know [the true cost] - and that's the difficult thing," he says.
Consumer groups are concerned the move may prompt other institutions to introduce similar rate hikes."We don't want to see this system being developed in Australia," Coates says. "We believe that it disadvantages struggling consumers who are over-committed with their debt."To avoid trouble, understand all your credit card terms and conditions."
Make sure you're very aware of what arrangements are in place if you do default," Howell says."Research of behavioural economics indicates that people always take a positive view of how they're going to behave.
They don't expect they're going to default, therefore they don't pay much attention to what the default arrangements are. So be realistic about your credit card use."
Source: The Melbourne Age
Monday, October 23, 2006
Home loans grow as UK house prices hit new high.
Mortgage sizes grow as house prices in England and Wales surged an annual 11.5 per cent in October, taking asking prices to a record high, a survey showed today, in a further sign higher borrowing costs have not stifled demand.
The Rightmove house price index showed prices rose 2.0 per cent in October month-on-month, pushing the annual rate to its highest level this year. The figures were not adjusted to take into account seasonal changes in the market.
The asking price for an average house rose to 218,954 pounds (AU$541,232) in October, up from 214,566 in the previous month and beating the previous record of 217,580 pounds set in July.
The Rightmove data is in tune with other surveys showing the housing market shrugging off a Bank of England rate rise to 4.75 per cent in August. Most economists expect benchmark borrowing rates to rise further to 5.0 per cent next month.
"We have never (before) had a sustained low inflation, low interest rate economy combined with widespread home ownership," said Miles Shipside, commercial director at Rightmove, a leading property Web site.
"These unique conditions help push prices higher and higher. However, supply of houses coming onto the market is dropping as prices increase, because fewer home owners can afford to trade up."
Rightmove said the rise in prices was driven by a growing shortage of supply but added many first-time buyers are being priced out of the market given wage rises under five per cent while house price inflation runs above 10 per cent.
Asking prices in London and the southeast continued to lead the pack. Average London prices rose an annual 19 per cent to 335,507 pounds.
City bonuses and a surge in foreign interest have exaggerated gains in London's most desirable boroughs.
Rightmove said the cost of an average home in London's exclusive neighbourhood Kensington and Chelsea.
Source: Reuters
The Rightmove house price index showed prices rose 2.0 per cent in October month-on-month, pushing the annual rate to its highest level this year. The figures were not adjusted to take into account seasonal changes in the market.
The asking price for an average house rose to 218,954 pounds (AU$541,232) in October, up from 214,566 in the previous month and beating the previous record of 217,580 pounds set in July.
The Rightmove data is in tune with other surveys showing the housing market shrugging off a Bank of England rate rise to 4.75 per cent in August. Most economists expect benchmark borrowing rates to rise further to 5.0 per cent next month.
"We have never (before) had a sustained low inflation, low interest rate economy combined with widespread home ownership," said Miles Shipside, commercial director at Rightmove, a leading property Web site.
"These unique conditions help push prices higher and higher. However, supply of houses coming onto the market is dropping as prices increase, because fewer home owners can afford to trade up."
Rightmove said the rise in prices was driven by a growing shortage of supply but added many first-time buyers are being priced out of the market given wage rises under five per cent while house price inflation runs above 10 per cent.
Asking prices in London and the southeast continued to lead the pack. Average London prices rose an annual 19 per cent to 335,507 pounds.
City bonuses and a surge in foreign interest have exaggerated gains in London's most desirable boroughs.
Rightmove said the cost of an average home in London's exclusive neighbourhood Kensington and Chelsea.
Source: Reuters
Home loan lenders in interest rate war for your mortgage business
Home loan lenders want your business now and are prepared to pay for it!
Many major banks are slashing margins to lower the effective mortgage interest rates to attract new home buyers and mortgage refinance business.
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP
Many major banks are slashing margins to lower the effective mortgage interest rates to attract new home buyers and mortgage refinance business.
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP
Friday, October 20, 2006
Credit Complaints on the rise
The chief credit industry complaint resolution service wants to make membership to it mandatory for lenders and brokers, following a rise in consumer complaints.
The number of complaints from consumers to the Credit Ombudsman Service (COS) jumped to 766 in 2005/06 from 685 in the previous year, a rise of about 11 per cent.
But most complaints, 526, were directed to non-members of COS. Complaints about COS members actually decreased significantly to 271 in 2005/06 from 397 in 2004/05.
This occurred as the number of contacts to COS rose sharply.
Chairman Graeme Matthews said the increased ratio of inquiries to complaints against its members was evidence of the increased effectiveness of its internal dispute resolution procedures.
Mr Matthews said 92 per cent of complaints received last year were resolved after facilitated negotiation or conciliation between the consumer and COS member.
Only 8 per cent of complaints required a determination by the Credit Ombudsman to resolve the dispute.
Mr Matthews said he is concerned about the growing number of complaints about non-members and called on state governments to make it mandatory for credit companies to join an external dispute resolution scheme like COS.
"Unless each participant is a member of COS or another external dispute resolution scheme, the consumer may be left without a remedy.
"This is clearly unacceptable as it hinders comprehensive coverage of the credit marketplace."
The vast majority of complaints to COS in 2005/06 were about standard loans (77 per cent).
About half of last year's complaints were about brokers and just over a third about lenders.
The biggest cause of complaints was a failure of a credit provider to disclose fees or commissions.
By the end of June 2006, COS had 6517 members, up from 5802 in the previous year.
Source: AAP
The number of complaints from consumers to the Credit Ombudsman Service (COS) jumped to 766 in 2005/06 from 685 in the previous year, a rise of about 11 per cent.
But most complaints, 526, were directed to non-members of COS. Complaints about COS members actually decreased significantly to 271 in 2005/06 from 397 in 2004/05.
This occurred as the number of contacts to COS rose sharply.
Chairman Graeme Matthews said the increased ratio of inquiries to complaints against its members was evidence of the increased effectiveness of its internal dispute resolution procedures.
Mr Matthews said 92 per cent of complaints received last year were resolved after facilitated negotiation or conciliation between the consumer and COS member.
Only 8 per cent of complaints required a determination by the Credit Ombudsman to resolve the dispute.
Mr Matthews said he is concerned about the growing number of complaints about non-members and called on state governments to make it mandatory for credit companies to join an external dispute resolution scheme like COS.
"Unless each participant is a member of COS or another external dispute resolution scheme, the consumer may be left without a remedy.
"This is clearly unacceptable as it hinders comprehensive coverage of the credit marketplace."
The vast majority of complaints to COS in 2005/06 were about standard loans (77 per cent).
About half of last year's complaints were about brokers and just over a third about lenders.
The biggest cause of complaints was a failure of a credit provider to disclose fees or commissions.
By the end of June 2006, COS had 6517 members, up from 5802 in the previous year.
Source: AAP
Bleak time for Tasmania's housing industry as mortgage interest rate rise bites.
There has been a call for the First Home Owners' Grant to be increased to help stem Tasmania's housing industry downturn.
Housing Industry Association state executive director Stuart Clues said climbing mortgage interest rates and high real estate prices were locking Tasmanian first home buyers out of the market. He said forecasts of a 5 per cent fall in housing starts in Tasmania for the coming year would see the situation worsen.
"Tasmania has the lowest percentage of first home buyers entering the market, accounting for 14 to 15 per cent of home loan approvals, compared with 19 per cent in other states," he said.
"Tasmanian families are spending close to 20 per cent of their income on paying the mortgage, when 10 years ago the figure was more like 10 to 12 per cent."
Mr Clues said with a further interest rate increase predicted for November, young families looking to buy their first house were hardest hit.
"The First Home Owners Grant has not increased despite rising house prices and interest rates," he said.
Despite low numbers of first home buyers entering the market, Mr Clues said the HIA's predicted 5 per cent fall in housing starts in Tasmania in 2006-07 was less than predicted for other states.
"New housing starts have fallen by less in Tasmania than in Australia as a whole over the past couple of years," he said.
"Housing starts in Tasmania fell by 9 per cent to a level of 2561 in 2005-06.
"A further fall of 5 per cent will see the cycle bottom at 2444 starts."
However, expenditure on renovations hit a new record high last financial year and is predicted to grow by 6 per cent to $652 million in 2006-07.
The housing industry contributes more than $1 billion a year to Tasmania's economy and renovations are a key factor – about 40 per cent of building work in Tasmania is renovations, compared with 20 per cent in other states.
Housing Industry Association state executive director Stuart Clues said climbing mortgage interest rates and high real estate prices were locking Tasmanian first home buyers out of the market. He said forecasts of a 5 per cent fall in housing starts in Tasmania for the coming year would see the situation worsen.
"Tasmania has the lowest percentage of first home buyers entering the market, accounting for 14 to 15 per cent of home loan approvals, compared with 19 per cent in other states," he said.
"Tasmanian families are spending close to 20 per cent of their income on paying the mortgage, when 10 years ago the figure was more like 10 to 12 per cent."
Mr Clues said with a further interest rate increase predicted for November, young families looking to buy their first house were hardest hit.
"The First Home Owners Grant has not increased despite rising house prices and interest rates," he said.
Despite low numbers of first home buyers entering the market, Mr Clues said the HIA's predicted 5 per cent fall in housing starts in Tasmania in 2006-07 was less than predicted for other states.
"New housing starts have fallen by less in Tasmania than in Australia as a whole over the past couple of years," he said.
"Housing starts in Tasmania fell by 9 per cent to a level of 2561 in 2005-06.
"A further fall of 5 per cent will see the cycle bottom at 2444 starts."
However, expenditure on renovations hit a new record high last financial year and is predicted to grow by 6 per cent to $652 million in 2006-07.
The housing industry contributes more than $1 billion a year to Tasmania's economy and renovations are a key factor – about 40 per cent of building work in Tasmania is renovations, compared with 20 per cent in other states.
Mortgage interest rate rise in November on the cards
The pace of Australia's economic growth is expected to pick up over the next few months, increasing the chances of another mortgage home loan interest rate rise this year, a survey reveals.
The Westpac-Melbourne Institute's leading index of economic activity, which indicates the likely pace of activity three to nine months from now, was rose 0.7 index points in August bringing the annualised rate of growth to 6.1 per cent, compared to 6.5 per cent in July.
Despite the moderation, the result was well above the index's long term trend of 4.1 per cent.
Westpac chief economist Bill Evans said the leading index pointed to strong growth in the economy over the next few months.
"The Reserve Bank has also alluded to surprising strength in tax receipts, which is also pointing to a stronger economy than depicted by the official national accounts that measured the pace of growth over the year to June 2006 as an insipid two per cent."
Mr Evans expects the central bank will lift the official rate by a quarter of a percentage point to 6.25 per cent following a board meeting on November 7.
Mr Evans said growth in the coincident index was being underpinned by rising employment. "Growth in the index has now almost returned to trend following a weak first half of 2006," he said.
"This is pointing to better growth conditions in the second half of 2006. Employment continues to be the real driver of the index."
Mr Evans also forecast economic growth in the second half of this year to pick up to around four per cent, as net exports add to growth for the first time in 19 quarters.
But as non-farm inventories are rebuilt, farm inventories will be drawn down and farm production will fall due to the current drought.
"The impact on growth from the drought could be as severe as 2002/03 when growth was reduced by around one per cent," Mr Evans said.
The index also showed that half of the four monthly components increased in August. Share prices grew by 2.6 per cent while real money supply gained by 0.9 per cent.
However, this was partly offset by a 12.6 per cent drop in dwelling approvals and US industrial production fell by 0.1 per cent.
Three out of the four quarterly components also increased. Overtime worked, core manufacturing material prices, and real corporate gross operating surpluses increased, while the productivity measure declined.
The growth rate of the coincident index, which provides information on a weighted average of six economic series that are typically coincident with economic activity, rose 0.7 index points in August to an annualised 3.1 per cent from 2.8 per cent in June.
Source: AAP
The Westpac-Melbourne Institute's leading index of economic activity, which indicates the likely pace of activity three to nine months from now, was rose 0.7 index points in August bringing the annualised rate of growth to 6.1 per cent, compared to 6.5 per cent in July.
Despite the moderation, the result was well above the index's long term trend of 4.1 per cent.
Westpac chief economist Bill Evans said the leading index pointed to strong growth in the economy over the next few months.
"The Reserve Bank has also alluded to surprising strength in tax receipts, which is also pointing to a stronger economy than depicted by the official national accounts that measured the pace of growth over the year to June 2006 as an insipid two per cent."
Mr Evans expects the central bank will lift the official rate by a quarter of a percentage point to 6.25 per cent following a board meeting on November 7.
Mr Evans said growth in the coincident index was being underpinned by rising employment. "Growth in the index has now almost returned to trend following a weak first half of 2006," he said.
"This is pointing to better growth conditions in the second half of 2006. Employment continues to be the real driver of the index."
Mr Evans also forecast economic growth in the second half of this year to pick up to around four per cent, as net exports add to growth for the first time in 19 quarters.
But as non-farm inventories are rebuilt, farm inventories will be drawn down and farm production will fall due to the current drought.
"The impact on growth from the drought could be as severe as 2002/03 when growth was reduced by around one per cent," Mr Evans said.
The index also showed that half of the four monthly components increased in August. Share prices grew by 2.6 per cent while real money supply gained by 0.9 per cent.
However, this was partly offset by a 12.6 per cent drop in dwelling approvals and US industrial production fell by 0.1 per cent.
Three out of the four quarterly components also increased. Overtime worked, core manufacturing material prices, and real corporate gross operating surpluses increased, while the productivity measure declined.
The growth rate of the coincident index, which provides information on a weighted average of six economic series that are typically coincident with economic activity, rose 0.7 index points in August to an annualised 3.1 per cent from 2.8 per cent in June.
Source: AAP
Low mortgage interest rates drive gain in new home starts
Low mortgage interest rates are boosting the new home buyers and home building companies. The construction of new privately-owned residences increased nearly six percent last month compared to August, according to a joint report by the U.S. Census Bureau and the Department of Housing and Urban Development. The report also showed housing starts to be 19.9 percent below the August 2005 rate.
New home starts have slowed from the unsustainable levels of the last few years but the market has proven to resilient.
As long a long-term mortgage rates remaining low and there is a continued job growth across most industries the housing marketing will be in good shape, especially at the high end of the market.
New home starts have slowed from the unsustainable levels of the last few years but the market has proven to resilient.
As long a long-term mortgage rates remaining low and there is a continued job growth across most industries the housing marketing will be in good shape, especially at the high end of the market.
Friday, October 13, 2006
National Australia Bank to bid for RAMS home loans
The National Australia Bank is said to to in the process of making a bid for Major Non bank home loan mortgage lender RAMS.
Most loans written by RAMS now comme from the mortgage broker channel, and this is of obvious interest to the NAB.
THis move could also give NAB the option of growing their mortgage business through the RAMS franchise model.
In any even Nab would benefit from greater distribution with many RAMS offices in Towns and locations where it is not currently represented.
NAB was one of the first Australian Banks to get into securitiesed lending when it bought into HomeSide in the US, and then brought the mortgage lending brand back to Australia.
And that brings up another question. What would happen to the HomeSide brand?
Most loans written by RAMS now comme from the mortgage broker channel, and this is of obvious interest to the NAB.
THis move could also give NAB the option of growing their mortgage business through the RAMS franchise model.
In any even Nab would benefit from greater distribution with many RAMS offices in Towns and locations where it is not currently represented.
NAB was one of the first Australian Banks to get into securitiesed lending when it bought into HomeSide in the US, and then brought the mortgage lending brand back to Australia.
And that brings up another question. What would happen to the HomeSide brand?
Queensland bank, investment and insurance group Suncorp-Metway looks set to secure one of the largest takeovers in Australian corporate history with its $7.9 billion bid for general insurer Promina Group.
The board of Promina - which owns brands such as AAMI and Australia's Pensioners Insurance Agency - has said it is "favourably disposed" to the conditional offer.
The Brisbane, Queensland based bank, insurance and wealth management group has offered 0.2618 of its shares and $1.80 cash per Promina share, valuing Promina at $7.87 billion.
The news pushed Promina shares into new record territory, with the stock jumping almost 19 per cent to an intraday high of $7.70. The shares were up 66 cents at $7.14 at 1534 AEST.
Suncorp gained 90 cents or 4 per cent to $23.20 by that time.
If approved, it will be the largest takeover in the financial services sector since the Commonwealth Bank's $9.1 billion purchase of Colonial Ltd in 2000.
Outside of that sector, the size of the deal compares with BHP Billiton's $9.2 billion buyout of WMC Resources in 2005.
Both insurers remained tight-lipped about the deal today short of issuing statements confirming the bid, after market speculation about a possible takeover pushed Promina shares more than 6 per cent higher yesterday.
Suncorp has said the merger gives it an expanded national presence, improved geographic diversity and a significant boost to its presence in the wealth management and life insurance markets.
"The proposal is in line with its strategy to pursue value accretive acquisitions which meet its investment criteria, create value for shareholders and enhance earnings per share," Suncorp has said.
The offer brings a sense of confirmation to months of speculation about a round of consolidation among Australia's top four insurers.
However, Suncorp itself was considered one of the more likely takeover targets.
With Promina eager to move ahead with the merger, the companies are progressing with due diligence and negotiations for a formal merger agreement.
But approval from Australian and New Zealand regulators could still remain potential barriers to the acquisition.
CommSec analyst Carlos Castillo has said there are unlikely to be many rival bids emerging from the woodwork with competition constraints likely to keep most players at bay.
"This has been something that's been in the pipeline for quite a while," he said.
"It's (the market) obviously not factoring anyone else coming in and making a bigger offer and trumping Suncorp.
"I think that's pretty unlikely because Suncorp is the one that can extract the most synergies out of an acquisition of Promina.
"Any other potential bidders, if they want to pay more, then they're really going to be doing so for strategic reasons not because they feel they can get more value out of the acquisition than Suncorp."
The move will have ramifications for the broader financial sector with Insurance Australia Group (IAG) - Australia's second largest insurer by earned premium behind QBE - standing to benefit from the transaction.
"If this takeover goes ahead then it's hard to see anyone being able to buy IAG without further competition concerns being raised unless they're an offshore person who has no participation in the market at the moment," Mr Castillo said.
Deutsche Bank analyst James Coghill has said the disruption a merger is likely to cause Promina and Suncorp would improve IAG's attractiveness in the medium-term.
"In terms of alternative bids, we see limited scope given competition constraints for IAG, and lower synergy potential from QBE, Wesfarmers and Allianz," Mr Coghill said.
"Furthermore, both QBE and Allianz have the ability to acquire offshore at more attractive multiples."
Bank of Queensland managing director David Liddy has said the merger is good news for his bank.
"It's a positive from our point of view, we stick to the view that we are a bank and what we are trying to do is get more Bank of Queensland customers in Queensland," he said.
Mr Liddy has said the regional bank performed well after Suncorp's $1.26 billion acquisition of general insurance business GIO from AMP in 2001.
Source: AAP
The board of Promina - which owns brands such as AAMI and Australia's Pensioners Insurance Agency - has said it is "favourably disposed" to the conditional offer.
The Brisbane, Queensland based bank, insurance and wealth management group has offered 0.2618 of its shares and $1.80 cash per Promina share, valuing Promina at $7.87 billion.
The news pushed Promina shares into new record territory, with the stock jumping almost 19 per cent to an intraday high of $7.70. The shares were up 66 cents at $7.14 at 1534 AEST.
Suncorp gained 90 cents or 4 per cent to $23.20 by that time.
If approved, it will be the largest takeover in the financial services sector since the Commonwealth Bank's $9.1 billion purchase of Colonial Ltd in 2000.
Outside of that sector, the size of the deal compares with BHP Billiton's $9.2 billion buyout of WMC Resources in 2005.
Both insurers remained tight-lipped about the deal today short of issuing statements confirming the bid, after market speculation about a possible takeover pushed Promina shares more than 6 per cent higher yesterday.
Suncorp has said the merger gives it an expanded national presence, improved geographic diversity and a significant boost to its presence in the wealth management and life insurance markets.
"The proposal is in line with its strategy to pursue value accretive acquisitions which meet its investment criteria, create value for shareholders and enhance earnings per share," Suncorp has said.
The offer brings a sense of confirmation to months of speculation about a round of consolidation among Australia's top four insurers.
However, Suncorp itself was considered one of the more likely takeover targets.
With Promina eager to move ahead with the merger, the companies are progressing with due diligence and negotiations for a formal merger agreement.
But approval from Australian and New Zealand regulators could still remain potential barriers to the acquisition.
CommSec analyst Carlos Castillo has said there are unlikely to be many rival bids emerging from the woodwork with competition constraints likely to keep most players at bay.
"This has been something that's been in the pipeline for quite a while," he said.
"It's (the market) obviously not factoring anyone else coming in and making a bigger offer and trumping Suncorp.
"I think that's pretty unlikely because Suncorp is the one that can extract the most synergies out of an acquisition of Promina.
"Any other potential bidders, if they want to pay more, then they're really going to be doing so for strategic reasons not because they feel they can get more value out of the acquisition than Suncorp."
The move will have ramifications for the broader financial sector with Insurance Australia Group (IAG) - Australia's second largest insurer by earned premium behind QBE - standing to benefit from the transaction.
"If this takeover goes ahead then it's hard to see anyone being able to buy IAG without further competition concerns being raised unless they're an offshore person who has no participation in the market at the moment," Mr Castillo said.
Deutsche Bank analyst James Coghill has said the disruption a merger is likely to cause Promina and Suncorp would improve IAG's attractiveness in the medium-term.
"In terms of alternative bids, we see limited scope given competition constraints for IAG, and lower synergy potential from QBE, Wesfarmers and Allianz," Mr Coghill said.
"Furthermore, both QBE and Allianz have the ability to acquire offshore at more attractive multiples."
Bank of Queensland managing director David Liddy has said the merger is good news for his bank.
"It's a positive from our point of view, we stick to the view that we are a bank and what we are trying to do is get more Bank of Queensland customers in Queensland," he said.
Mr Liddy has said the regional bank performed well after Suncorp's $1.26 billion acquisition of general insurance business GIO from AMP in 2001.
Source: AAP
Thursday, October 12, 2006
Reverse Mortgages. Are they a cause for concern for our aged?
vphSeveral consumer groups are calling for better protection for aged homeowners being sold reverse mortgages to fund their retirement.
Australia's ageing population are mostly asset rich but cash poor. And most have one asset that has doubled or trebled in value in the last few years, and that’s the family home.
Reverse mortgages have been available in the US for decades, and some banks tried to market them in Australia in the nineties with limited success.
Their time and need has now come, as the cash strapped baby boomers head to retirement with little superannuation or other assets to support them in retirement.
In 2004, about $250 million was lent through reverse mortgages. Last year, it was $650 million. According to Kieran Dell, executive director of the industry body Senior Australians Equity Release Association of Lenders (SEQUAL), that's just the beginning.
"It wouldn't surprise me if it exceeded a billion dollars in this calendar year," he says, adding that it could reach up to $5 billion in the next few years.
"You won't see the rump of those baby boomers hitting retirement and then spending their superannuation for another 10 years. So it's going from a small base but it is growing very fast."
But the Australian Consumers Association has called for regulation of the sector, concerned that pushy selling practices could put them in an unfair position.
Launched during the boom when house values were screaming up, many property markets are now falling while interest rates are rising.
"Reverse mortgages are an emotive issue," says Denis Orrock, the general manager of InfoChoice.
"Slogans such as 'nothing to pay till you die' hardly aid the industry's quest for recognition as a legitimate financial tool for senior citizens."
Horror stories from Britain of aged pensioners being evicted from their homes as their reverse mortgage debt exceeded the homes' value stalled the market here in the 1980s. Yet new demographics and lifestyle considerations are pushing more people to consider going back into debt.
Life expectancy is longer, lifestyle expectations are higher and Australia's ageing population needs more money to live on. There are a lot of retirees who own their own homes and many who are under-funded for retirement. People leaving the workforce now have an average of only $125,000 in super, so borrowing against the family home can look like an attractive option.
But in doing so, borrowers take on a major risk. In an environment of sluggish property growth and higher interest rates, the debt compounds rapidly and may leave once-secure home owners with little to call their own or pass on to their beneficiaries.
Depending on how the funds are accessed, Centrelink may assess the money under the income test and reduce the age pension.
Any mortgage broker can sell a reverse mortgage, whether or not they submit to an Australian Securities and Investments Commission-approved dispute resolution system such as the Banking and Financial Services Ombudsman. Sales are commission-based, which means the bigger the loan, the greater the broker fee. Commission figures are closely guarded, but those the ACA knows about average from 1.2 to 2.3 per cent. If there is a combination of an upfront commission and a trail fee, the inital fee may be 0.7 to 1 per cent and the ongoing trail 0.2 to 0.4 per cent.
"You don't want a situation where inappropriate advice is given by a broker or a planner because of the size of the commission they're earning," says Nick Coates, an ACA senior policy officer.
In the absence of regulation, best practice in the area is guided by a voluntary industry code developed by SEQUAL, which represents about 95 per cent of providers. It requires members to include a no-negative equity guarantee in their contracts. This is meant to ensure that no one will lose their home over a reverse mortgage.
Because it's a voluntary code, a proven breach doesn't carry the force of law. The penalty is expulsion from SEQUAL or, as Dell puts it "a public relations disaster".
But the equity guarantee is not iron-clad. It is conditional on a borrower meeting all the terms and conditions of the loan, which may include, for example, maintenance and regular home valuations at the borrower's cost.
"We still have concerns that there are ways in which the contracts can avoid a no-negative-equity guarantee if the customer was found to be in default," Coates says.
"If you hadn't done some simple administrative tasks like paid your council rates or reported on the state of your property each year you could technically be in default, which means they could reserve the right to say the [guarantee] doesn't apply.
"Most financial institutions when questioned about that say, we're reasonable and won't apply it. Sure, they may well be reasonable but it still provides a gap for those that aren't reasonable. There's no guarantee."
The products are complicated, and many borrowers have trouble understanding all their ramifications. Dianne Carmody, general manager, Banking and Financial Services Ombudsman, says it has received only a small handful of complaints relating to reverse mortgages from SEQUAL members but all related to borrowers misunderstanding the terms and conditions.
Paul Gillett, a solicitor with the Consumer Legal Service in Victoria, has had many calls from clients who don't understand the products. "They're a relatively new product and people are prone to misunderstanding their nature," he says. "The negative side is that providers may be taking advantage of people in this regard."
SEQUAL's code requires people to consult a lawyer, and strongly encourages them to seek licensed financial advice and to talk to their beneficiaries as well. The association argues that making financial advice mandatory could actually disadvantage certain people. Some consumer groups agree, concerned that unscrupulous planners may push higher loan amounts or products people don't need. In addition, the financial advice would be yet another cost borne by the borrower.
With reverse mortgages, it's a case of borrower beware. "The borrower needs to understand the structure of the loan, the impact it may have on future equity and the impact it will have on their estate,'" Orrock says. "They also need to ensure that they only draw down the amount they require and not be coerced into taking a large lump sum.
"The lenders should at all times provide the borrower with an accurate picture as to how the loan will perform under conservative conditions moderate property growth and a higher interest rate environment. This will ensure the borrower can understand the concept of capitalisation of interest.
"Finally, the borrower needs to seek independent legal and financial advice."
Impact on Centrelink benefitsThe first $40,000 is not counted as an asset for 90 days. If the money is placed into a bank account, it is subject to the deeming provisions of the income test. Where more than $40,000 is borrowed, the amount in excess is counted as an asset with the $40,000 being counted after 90 days. If the whole amount is immediately spent, the rule will not apply unless the funds are spent on assets or an income stream. Where the loan is drawn down on a regular basis there is no effect on the income. Some reverse mortgage providers offer regular payments by holding the proceeds of the loan in an offset account. The balance of the account is classed as an asset and subject to the deeming provisions but the interest charged on the loan may be reduced.
Source: The Institute of Chartered Accountants in Australia
Australia's ageing population are mostly asset rich but cash poor. And most have one asset that has doubled or trebled in value in the last few years, and that’s the family home.
Reverse mortgages have been available in the US for decades, and some banks tried to market them in Australia in the nineties with limited success.
Their time and need has now come, as the cash strapped baby boomers head to retirement with little superannuation or other assets to support them in retirement.
In 2004, about $250 million was lent through reverse mortgages. Last year, it was $650 million. According to Kieran Dell, executive director of the industry body Senior Australians Equity Release Association of Lenders (SEQUAL), that's just the beginning.
"It wouldn't surprise me if it exceeded a billion dollars in this calendar year," he says, adding that it could reach up to $5 billion in the next few years.
"You won't see the rump of those baby boomers hitting retirement and then spending their superannuation for another 10 years. So it's going from a small base but it is growing very fast."
But the Australian Consumers Association has called for regulation of the sector, concerned that pushy selling practices could put them in an unfair position.
Launched during the boom when house values were screaming up, many property markets are now falling while interest rates are rising.
"Reverse mortgages are an emotive issue," says Denis Orrock, the general manager of InfoChoice.
"Slogans such as 'nothing to pay till you die' hardly aid the industry's quest for recognition as a legitimate financial tool for senior citizens."
Horror stories from Britain of aged pensioners being evicted from their homes as their reverse mortgage debt exceeded the homes' value stalled the market here in the 1980s. Yet new demographics and lifestyle considerations are pushing more people to consider going back into debt.
Life expectancy is longer, lifestyle expectations are higher and Australia's ageing population needs more money to live on. There are a lot of retirees who own their own homes and many who are under-funded for retirement. People leaving the workforce now have an average of only $125,000 in super, so borrowing against the family home can look like an attractive option.
But in doing so, borrowers take on a major risk. In an environment of sluggish property growth and higher interest rates, the debt compounds rapidly and may leave once-secure home owners with little to call their own or pass on to their beneficiaries.
Depending on how the funds are accessed, Centrelink may assess the money under the income test and reduce the age pension.
Any mortgage broker can sell a reverse mortgage, whether or not they submit to an Australian Securities and Investments Commission-approved dispute resolution system such as the Banking and Financial Services Ombudsman. Sales are commission-based, which means the bigger the loan, the greater the broker fee. Commission figures are closely guarded, but those the ACA knows about average from 1.2 to 2.3 per cent. If there is a combination of an upfront commission and a trail fee, the inital fee may be 0.7 to 1 per cent and the ongoing trail 0.2 to 0.4 per cent.
"You don't want a situation where inappropriate advice is given by a broker or a planner because of the size of the commission they're earning," says Nick Coates, an ACA senior policy officer.
In the absence of regulation, best practice in the area is guided by a voluntary industry code developed by SEQUAL, which represents about 95 per cent of providers. It requires members to include a no-negative equity guarantee in their contracts. This is meant to ensure that no one will lose their home over a reverse mortgage.
Because it's a voluntary code, a proven breach doesn't carry the force of law. The penalty is expulsion from SEQUAL or, as Dell puts it "a public relations disaster".
But the equity guarantee is not iron-clad. It is conditional on a borrower meeting all the terms and conditions of the loan, which may include, for example, maintenance and regular home valuations at the borrower's cost.
"We still have concerns that there are ways in which the contracts can avoid a no-negative-equity guarantee if the customer was found to be in default," Coates says.
"If you hadn't done some simple administrative tasks like paid your council rates or reported on the state of your property each year you could technically be in default, which means they could reserve the right to say the [guarantee] doesn't apply.
"Most financial institutions when questioned about that say, we're reasonable and won't apply it. Sure, they may well be reasonable but it still provides a gap for those that aren't reasonable. There's no guarantee."
The products are complicated, and many borrowers have trouble understanding all their ramifications. Dianne Carmody, general manager, Banking and Financial Services Ombudsman, says it has received only a small handful of complaints relating to reverse mortgages from SEQUAL members but all related to borrowers misunderstanding the terms and conditions.
Paul Gillett, a solicitor with the Consumer Legal Service in Victoria, has had many calls from clients who don't understand the products. "They're a relatively new product and people are prone to misunderstanding their nature," he says. "The negative side is that providers may be taking advantage of people in this regard."
SEQUAL's code requires people to consult a lawyer, and strongly encourages them to seek licensed financial advice and to talk to their beneficiaries as well. The association argues that making financial advice mandatory could actually disadvantage certain people. Some consumer groups agree, concerned that unscrupulous planners may push higher loan amounts or products people don't need. In addition, the financial advice would be yet another cost borne by the borrower.
With reverse mortgages, it's a case of borrower beware. "The borrower needs to understand the structure of the loan, the impact it may have on future equity and the impact it will have on their estate,'" Orrock says. "They also need to ensure that they only draw down the amount they require and not be coerced into taking a large lump sum.
"The lenders should at all times provide the borrower with an accurate picture as to how the loan will perform under conservative conditions moderate property growth and a higher interest rate environment. This will ensure the borrower can understand the concept of capitalisation of interest.
"Finally, the borrower needs to seek independent legal and financial advice."
Impact on Centrelink benefitsThe first $40,000 is not counted as an asset for 90 days. If the money is placed into a bank account, it is subject to the deeming provisions of the income test. Where more than $40,000 is borrowed, the amount in excess is counted as an asset with the $40,000 being counted after 90 days. If the whole amount is immediately spent, the rule will not apply unless the funds are spent on assets or an income stream. Where the loan is drawn down on a regular basis there is no effect on the income. Some reverse mortgage providers offer regular payments by holding the proceeds of the loan in an offset account. The balance of the account is classed as an asset and subject to the deeming provisions but the interest charged on the loan may be reduced.
Source: The Institute of Chartered Accountants in Australia
Wednesday, October 11, 2006
Mortgage Homeowners in arrears growing
Homeowners who bought during the property boom are almost twice as likely to fall behind in their mortgage repayments.
A six-monthly review by the Reserve Bank of Australia found there had been a "modest'' increase in the number of home loans three month in arrears. The greatest increase was seen in New South Wales where prices were highest and have fallen back, followed by South Australia, Victoria and Queensland.
Some of the blame was directed towards the big banks which were accused of relaxing lending criteria.
This however can be disputed on the grounds that the boom peaked three years ago, when lending was strictly that it is said to be today. The other variable is that many of the non conforming lenders have less strict guidelines than the banks, offering loans to borrowers with bad credit.
In fact the six-monthly review found new loans to buy property sourced three to four years ago - the top of the housing boom - had a higher rate of arrears than new loans in other times. Almost 30 per cent of Australians are paying off their home. "Borrowers that took out a loan in 2003 and 2004 are more likely to have bought at around the peak of the market,'' the RBA said. ``And with the higher level of interest rates, have had less opportunity to build up repayment buffers.'' The RBA said the introduction of "low-doc loans'' -- mortgages where the homeowner or home buyer has to provide little information -- had raised the risk of running into the red. "The higher arrears rate is hardly surprising given the general lowering of credit standards that has occurred since the mid 1990s,'' the report said.
The average loan is now $230,652 and the minimum repayment now consumes about 27.7 per cent of a household's income. That figure is lower than in 1989, when rates were 17 per cent, when 30.4 per cent of income had to be spent.
But Commsec chief economist Craig James said that while arrears rate had increased, it was still at an historic low. "The RBA acknowledges that household finances have been stretched by recent developments -- code words for higher interest rates and petrol prices,'' Mr James said. "The bank believes that balance sheets are in good shape, especially given that people have generally adopted a more cautious approach to their finances.''
Source: Herald Sun
A six-monthly review by the Reserve Bank of Australia found there had been a "modest'' increase in the number of home loans three month in arrears. The greatest increase was seen in New South Wales where prices were highest and have fallen back, followed by South Australia, Victoria and Queensland.
Some of the blame was directed towards the big banks which were accused of relaxing lending criteria.
This however can be disputed on the grounds that the boom peaked three years ago, when lending was strictly that it is said to be today. The other variable is that many of the non conforming lenders have less strict guidelines than the banks, offering loans to borrowers with bad credit.
In fact the six-monthly review found new loans to buy property sourced three to four years ago - the top of the housing boom - had a higher rate of arrears than new loans in other times. Almost 30 per cent of Australians are paying off their home. "Borrowers that took out a loan in 2003 and 2004 are more likely to have bought at around the peak of the market,'' the RBA said. ``And with the higher level of interest rates, have had less opportunity to build up repayment buffers.'' The RBA said the introduction of "low-doc loans'' -- mortgages where the homeowner or home buyer has to provide little information -- had raised the risk of running into the red. "The higher arrears rate is hardly surprising given the general lowering of credit standards that has occurred since the mid 1990s,'' the report said.
The average loan is now $230,652 and the minimum repayment now consumes about 27.7 per cent of a household's income. That figure is lower than in 1989, when rates were 17 per cent, when 30.4 per cent of income had to be spent.
But Commsec chief economist Craig James said that while arrears rate had increased, it was still at an historic low. "The RBA acknowledges that household finances have been stretched by recent developments -- code words for higher interest rates and petrol prices,'' Mr James said. "The bank believes that balance sheets are in good shape, especially given that people have generally adopted a more cautious approach to their finances.''
Source: Herald Sun
Is the National Australia Bank about to sell its credit card unit?
The National Australia Bank won’t comment on speculation it may sell its $3 billion credit card business, prompting analysts to ponder the merits of such a move.
But Geoff Driver, general manager of Australian Foundation Investment Company, said a "review" did not necessarily imply a sale.
He said it would be impossible to judge the merits of any prospective sale without seeing the detail of the propositions.
On the basis that a major bank like the NAB could not operate without offering credit cards, for growing its customer bases and up-selling and cross selling many feel that they would be really thinking about some distribution arrangement.
If a sale were to proceed an overseas player in the Australian banking sector would be the potential buyer, with Citibank, HSBC and GE as possible contenders.
NAB comes last in the big four Australian banks as an issuer of credit cards in Australia, and the credit card offers are ranked poorly compared with the Commonwealth bank and Westpac offerings.
Interestingly, Citigroup have set a goal to take NAB's place as the nation's fourth-largest issuer of credit cards. Competition for market share has driven card interest rates down, trimming the margin that made cards profitable.
Some cards are now available with interest rates as low as 8.99 per cent, well down on the rates of 16 to 18 per cent applying on almost all cards only a few years ago.
But Geoff Driver, general manager of Australian Foundation Investment Company, said a "review" did not necessarily imply a sale.
He said it would be impossible to judge the merits of any prospective sale without seeing the detail of the propositions.
On the basis that a major bank like the NAB could not operate without offering credit cards, for growing its customer bases and up-selling and cross selling many feel that they would be really thinking about some distribution arrangement.
If a sale were to proceed an overseas player in the Australian banking sector would be the potential buyer, with Citibank, HSBC and GE as possible contenders.
NAB comes last in the big four Australian banks as an issuer of credit cards in Australia, and the credit card offers are ranked poorly compared with the Commonwealth bank and Westpac offerings.
Interestingly, Citigroup have set a goal to take NAB's place as the nation's fourth-largest issuer of credit cards. Competition for market share has driven card interest rates down, trimming the margin that made cards profitable.
Some cards are now available with interest rates as low as 8.99 per cent, well down on the rates of 16 to 18 per cent applying on almost all cards only a few years ago.
National Australia Bank says home loan interest rates on hold until 2007
The National Australia Bank (NAB) says its latest analysis of the business climate consolidates the view that official mortgage home loan interest rates will remain on hold for the rest of the year.
For September, the bank's measure of business conditions indicates that they have recovered just a little after two months of decline.
A pick-up in the retail sector has been offset by weaker construction sector especially new homes, land development and building apartments and home units.
Some improvement in Victoria, including home building, has been balanced by softer conditions in New South Wales and Queensland.
Business confidence has remained unchanged after falling sharply in recent months.
So on balance the NAB feels that the official cash rate as set by the Reserve Bank of Australia will remain steady until at least the early part of 2007. This is good news for small business and homeowners with mortgages to repay as well as prospective home buyers.
For September, the bank's measure of business conditions indicates that they have recovered just a little after two months of decline.
A pick-up in the retail sector has been offset by weaker construction sector especially new homes, land development and building apartments and home units.
Some improvement in Victoria, including home building, has been balanced by softer conditions in New South Wales and Queensland.
Business confidence has remained unchanged after falling sharply in recent months.
So on balance the NAB feels that the official cash rate as set by the Reserve Bank of Australia will remain steady until at least the early part of 2007. This is good news for small business and homeowners with mortgages to repay as well as prospective home buyers.
Sunday, September 03, 2006
Victim nabs suspected thief of his credit card
A little bit of his own detective work and some luck helped a sharp-eyed victim of credit card fraud catch the man police say charged up a giant TV and several appliances on his stolen credit card.
As Joel Guimares, 25, drove by the Dunkin’ Donuts on Route 9 in Framingham yesterday on the way to work, he recognized the man he watched on a Target store security video recording using Joel's credit card to buy a flat-screen TV, convection oven, coffeemaker and other items.
“I was following the guy, and I was calling the police at the same time,” said Guimares, who lives in Framingham. “He ended up driving by the police headquarters, and they got him there.”
The suspect, Donald Larsen, 34, a manager at a Whole Foods Market, was charged with larceny of property worth more than $250 and credit card misuse.
Guimares got a call Monday from his credit card company about the possible misuse of his credit card. He had lost his wallet at the same Dunkin’ Donuts where he spotted the suspect.
The credit card company told him someone had spent about $2,000 at the Target on Route 30. Guimares said he went there and asked to see the security video recording.
He watched, but did not recognize the man buying the television.
But yesterday, while driving to his job at the Framingham Saab dealership, he recognized the face he saw.
Larsen drove away, Guimares followed and called the police with the license plate number, and Larsen was arrested.
As Joel Guimares, 25, drove by the Dunkin’ Donuts on Route 9 in Framingham yesterday on the way to work, he recognized the man he watched on a Target store security video recording using Joel's credit card to buy a flat-screen TV, convection oven, coffeemaker and other items.
“I was following the guy, and I was calling the police at the same time,” said Guimares, who lives in Framingham. “He ended up driving by the police headquarters, and they got him there.”
The suspect, Donald Larsen, 34, a manager at a Whole Foods Market, was charged with larceny of property worth more than $250 and credit card misuse.
Guimares got a call Monday from his credit card company about the possible misuse of his credit card. He had lost his wallet at the same Dunkin’ Donuts where he spotted the suspect.
The credit card company told him someone had spent about $2,000 at the Target on Route 30. Guimares said he went there and asked to see the security video recording.
He watched, but did not recognize the man buying the television.
But yesterday, while driving to his job at the Framingham Saab dealership, he recognized the face he saw.
Larsen drove away, Guimares followed and called the police with the license plate number, and Larsen was arrested.
Hands off the RBA [Reserve Bank of Australia]
Lower mortgage home loan interest rates are important to homeowners and home buyers and all the industries that rely on them, but is the Howard Government trying to manipulate the Reserve Bank of Australia's decisions on interest rates for politic advantage?
The fine balance of economic power between our elected government, which controls fiscal policy, and the appointed Reserve Bank, which controls interest rates, has never been an easy one and it is certainly not likely to get any easier as economic conditions get more difficult.
But separating politics from mortgage home loan interest rates is one of the best things that has ever happened to the Australian economy.
As the past 15 consecutive years of economic growth provides good testament to, Reserve Bank independence has served us very well and far better than if the Federal Treasurer still had his hands "on all of the levers" as Paul Keating once boasted.
Rather than setting interest rates with votes in mind, the RBA has a simple measure of its success, to encourage a high rate of economic growth without endangering its 2 per cent to 3 per cent inflation target.
By contrast, politics is all about securing power.
When governments had control of interest rates, they were set with votes in mind and the economy second. If there was a line-ball decision to be made, votes won and the economy lost out.
However, it is very clear from the recent comments of the retiring Reserve Bank governor that the road that an independent central bank has to follow is sometimes a rocky one.
Politicians find it hard not to take credit for what the bank does right and to complain bitterly when it does things that they see as impairing their popularity.
Indeed, just a few weeks ago the Treasurer started talking about what "we" look at when "we" set interest rates, implying that he had something to do with it. He does not. Similarly, the RBA governor's recent comments make clear his distress at the Prime Minister's interest rate claims during the last election.
Going into a period of greater economic uncertainty, these pressures are only going to increase.
Already the bank has made it clear the economic stimulus provided by Canberra's tax cuts was a factor in forcing its hand to increase interest rates, in order to offset the inflationary pressures resulting from the tax cuts.
This puts the Government in a challenging position as it is now on notice that further vote buying tax cuts could result in vote shedding interest rate increases.
The last thing our economy needs is for open warfare, or indeed angst behind closed doors, to develop between the RBA and the Government.
One of Peter Costello's best decisions was to formalise the agreement between the Government and the RBA on the conduct of monetary policy.
It is in all our interests that this agreement be honoured in both its letter and intent.
Source: Courier Mail. Tim Hughes is a director of Value Capital Management.
The fine balance of economic power between our elected government, which controls fiscal policy, and the appointed Reserve Bank, which controls interest rates, has never been an easy one and it is certainly not likely to get any easier as economic conditions get more difficult.
But separating politics from mortgage home loan interest rates is one of the best things that has ever happened to the Australian economy.
As the past 15 consecutive years of economic growth provides good testament to, Reserve Bank independence has served us very well and far better than if the Federal Treasurer still had his hands "on all of the levers" as Paul Keating once boasted.
Rather than setting interest rates with votes in mind, the RBA has a simple measure of its success, to encourage a high rate of economic growth without endangering its 2 per cent to 3 per cent inflation target.
By contrast, politics is all about securing power.
When governments had control of interest rates, they were set with votes in mind and the economy second. If there was a line-ball decision to be made, votes won and the economy lost out.
However, it is very clear from the recent comments of the retiring Reserve Bank governor that the road that an independent central bank has to follow is sometimes a rocky one.
Politicians find it hard not to take credit for what the bank does right and to complain bitterly when it does things that they see as impairing their popularity.
Indeed, just a few weeks ago the Treasurer started talking about what "we" look at when "we" set interest rates, implying that he had something to do with it. He does not. Similarly, the RBA governor's recent comments make clear his distress at the Prime Minister's interest rate claims during the last election.
Going into a period of greater economic uncertainty, these pressures are only going to increase.
Already the bank has made it clear the economic stimulus provided by Canberra's tax cuts was a factor in forcing its hand to increase interest rates, in order to offset the inflationary pressures resulting from the tax cuts.
This puts the Government in a challenging position as it is now on notice that further vote buying tax cuts could result in vote shedding interest rate increases.
The last thing our economy needs is for open warfare, or indeed angst behind closed doors, to develop between the RBA and the Government.
One of Peter Costello's best decisions was to formalise the agreement between the Government and the RBA on the conduct of monetary policy.
It is in all our interests that this agreement be honoured in both its letter and intent.
Source: Courier Mail. Tim Hughes is a director of Value Capital Management.
More Homeowners are changing over to fixed interest rate mortgage loans
The number of home-buyers locking in their mortgages to a fixed interest rate, rather than the variable rate, to avoid the possinblity of a still higher interest rate burden has nearly doubled during the past year.
Australians borrowed a total of $20.53 billion during June in a sign of a rebound in the national property market. The surge was led by people buying investment properties to take advantage of the tax breaks on offer last year.
The property finance results showed people borrowed 2 per cent more during June compared with the month before.
Nearly 64,000 houses were bought despite the Reserve Bank of Australia raising rates just one month earlier.
The number of new mortgages taken out and fixed for two years has started to climb, according to the Australian Bureau of Statistics' figures.
During June, 10,963 loans were fixed, which accounted for 16.7 per cent of all the mortgages.
The result was up from just 10.3 per cent last year, showing home-buyers were concerned about the future movements of interest rates.
Economists said yesterday the 2 per cent rise in borrowing levels was further justification for the RBA's August rate rise.
The double blow of two rate increases is expected to cool the national appetite to borrow money.
TD Securities chief economist Stephen Koukoulas said there was room for growth in the housing market over the next few months. "Housing finance commitments are continuing to power ahead," he said. "The level of interest rates were no constraint to stronger levels of activity."
Mr Koukoulas said the level of investment in housing should move even higher later this year.
But one downside in the finance figures was a sustained fall in the number of first home buyers.
Of all of the purchases, 17 per cent were first-time buyers - the lowest for a year. CommSec economist Craig James said the size of mortgages was forcing those who rent to stay put.
The average home loan is now $227,800 in Australia.
The value has fallen over the past six months and is growing at the slowest rate in nearly five years.
"First home buyers are heading for the exit doors, with the exodus likely to continue in coming months," Mr James said.
"First home buyers are caught between a rock and a hard place. Mortgages are more expensive, causing buyers to retreat to the sidelines."
Economists said the growth in borrowings would not overly concern the RBA because it would have factored it into the decision to raise rates. The next rate movement is still expected to be in November.
Souce: Newscorp
Australians borrowed a total of $20.53 billion during June in a sign of a rebound in the national property market. The surge was led by people buying investment properties to take advantage of the tax breaks on offer last year.
The property finance results showed people borrowed 2 per cent more during June compared with the month before.
Nearly 64,000 houses were bought despite the Reserve Bank of Australia raising rates just one month earlier.
The number of new mortgages taken out and fixed for two years has started to climb, according to the Australian Bureau of Statistics' figures.
During June, 10,963 loans were fixed, which accounted for 16.7 per cent of all the mortgages.
The result was up from just 10.3 per cent last year, showing home-buyers were concerned about the future movements of interest rates.
Economists said yesterday the 2 per cent rise in borrowing levels was further justification for the RBA's August rate rise.
The double blow of two rate increases is expected to cool the national appetite to borrow money.
TD Securities chief economist Stephen Koukoulas said there was room for growth in the housing market over the next few months. "Housing finance commitments are continuing to power ahead," he said. "The level of interest rates were no constraint to stronger levels of activity."
Mr Koukoulas said the level of investment in housing should move even higher later this year.
But one downside in the finance figures was a sustained fall in the number of first home buyers.
Of all of the purchases, 17 per cent were first-time buyers - the lowest for a year. CommSec economist Craig James said the size of mortgages was forcing those who rent to stay put.
The average home loan is now $227,800 in Australia.
The value has fallen over the past six months and is growing at the slowest rate in nearly five years.
"First home buyers are heading for the exit doors, with the exodus likely to continue in coming months," Mr James said.
"First home buyers are caught between a rock and a hard place. Mortgages are more expensive, causing buyers to retreat to the sidelines."
Economists said the growth in borrowings would not overly concern the RBA because it would have factored it into the decision to raise rates. The next rate movement is still expected to be in November.
Souce: Newscorp
Mortgage Manager and Financial Services Giant adds fees to build bottom line
By increasing fee incomes, the James Packer-backed Mortgage Manager, Mortgage funder, and Funds Manager and is gaining traction as a mainstream financial services group.
Challenger Fiancial Services yesterday announced an increase of 28 per cent in statutory net profit, after tax and before significant items, to $153 million.
Funds management fees, a steady, predictable income stream, grew from $218 million, or 67 per cent of Challenger's net income, to $315 million.
"Fees now account for roughly 70 per cent of net income," said Michael Tilley, managing director of Challenger, trumpeting what he sees as one of the more significant achievements of his tenure.
Challenger now categorises its business into mortgage management, funds management, asset management and financial planning. It was formerly categorised under annuities, wealth management and mortgages.
Since he took over as CEO of Challenger in August 2004, Mr Tilley has made a concerted effort to break with the past.
The funds management group has diversified the portfolio, backing its annuities into more fixed income and infrastructure.
At the same time, it embraced Macquarie's specialist funds model, selling a listed and unlisted infrastructure fund. Yesterday, Challenger took another step in that direction when Mr Tilley said it was sounding out the market about the launch of a listed property trust, capitalised at over $500 million.
Challenger will take a stake of up to 40 per cent in the new fund, but the underlying purpose is to further rebalance the portfolio backing the company's annuity book. More than half is still invested in property, while Challenger has 21 per cent in infrastructure and the remainder mostly in fixed interest.
The target is to move to a mix where property, infrastructure and fixed interest take 30 per cent each, and equities take 10 per cent.
Funds management was another bright spot for Challenger. Chris Cuffe, who built Colonial First State's money management machine, spearheaded the growth of Challenger's funds management group until he quit in February to join not-for-profit microfinance group Opportunity Australia. Mr Cuffe said at the time he was leaving the group in good shape.
"We broke through the break-even point (with funds management)," Mr Tilley said yesterday. "In 2005, for more than half the year, we were losing money."
But after acquiring HSBC's local asset management operation and increasing assets organically, the funds management group gained sufficient assets to generate a profit.
Funds management earnings before interest and tax switched from a $10 million loss last year to a $24 million gain.
Challenger Fiancial Services yesterday announced an increase of 28 per cent in statutory net profit, after tax and before significant items, to $153 million.
Funds management fees, a steady, predictable income stream, grew from $218 million, or 67 per cent of Challenger's net income, to $315 million.
"Fees now account for roughly 70 per cent of net income," said Michael Tilley, managing director of Challenger, trumpeting what he sees as one of the more significant achievements of his tenure.
Challenger now categorises its business into mortgage management, funds management, asset management and financial planning. It was formerly categorised under annuities, wealth management and mortgages.
Since he took over as CEO of Challenger in August 2004, Mr Tilley has made a concerted effort to break with the past.
The funds management group has diversified the portfolio, backing its annuities into more fixed income and infrastructure.
At the same time, it embraced Macquarie's specialist funds model, selling a listed and unlisted infrastructure fund. Yesterday, Challenger took another step in that direction when Mr Tilley said it was sounding out the market about the launch of a listed property trust, capitalised at over $500 million.
Challenger will take a stake of up to 40 per cent in the new fund, but the underlying purpose is to further rebalance the portfolio backing the company's annuity book. More than half is still invested in property, while Challenger has 21 per cent in infrastructure and the remainder mostly in fixed interest.
The target is to move to a mix where property, infrastructure and fixed interest take 30 per cent each, and equities take 10 per cent.
Funds management was another bright spot for Challenger. Chris Cuffe, who built Colonial First State's money management machine, spearheaded the growth of Challenger's funds management group until he quit in February to join not-for-profit microfinance group Opportunity Australia. Mr Cuffe said at the time he was leaving the group in good shape.
"We broke through the break-even point (with funds management)," Mr Tilley said yesterday. "In 2005, for more than half the year, we were losing money."
But after acquiring HSBC's local asset management operation and increasing assets organically, the funds management group gained sufficient assets to generate a profit.
Funds management earnings before interest and tax switched from a $10 million loss last year to a $24 million gain.
Friday, July 28, 2006
Credit card fraud. What to do if you believe that you are a victim.
If you suspect at any time that you are he victim of credit card fraud, you need to take immediate action.
It's vital to call your card issuer immediately - all banks will have 24-hour emergency phone lines for this purpose - and explain what's happened and why you feel you have been defrauded.
Also inform the police as this could speed up refunds for any unauthorised use.
If someone else makes a purchase with your card before you inform your bank, the most you will be liable to pay is a token fee. The bank will wear the cost.
However, most banks may waive this fee.
On the otherhand, if you have acted negligently - for example, you've stored details of your PIN in the wallet holding your card - your bank may not refund the money.
It's vital to call your card issuer immediately - all banks will have 24-hour emergency phone lines for this purpose - and explain what's happened and why you feel you have been defrauded.
Also inform the police as this could speed up refunds for any unauthorised use.
If someone else makes a purchase with your card before you inform your bank, the most you will be liable to pay is a token fee. The bank will wear the cost.
However, most banks may waive this fee.
On the otherhand, if you have acted negligently - for example, you've stored details of your PIN in the wallet holding your card - your bank may not refund the money.
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