If the investment cycle still works and some say its broken, then we need to expect to see property prices to fall next year. This will then herald the start of a new cycle.
A few months ago industrial stocks were being hammered but the overall impact was cushioned by strong resource shares. Commodity prices were holding up because of the supposed strong future economic growth in China. That now has collapsed, by the way.
Many investment experts were still preaching the China story as the reason why Australia would be immune from the US credit crunch. At the time I explained that this rationale was fundamentally flawed because simple logic says if China's biggest customer slows then China will follow. Unless China develops infrastructure and their domestic market then they will follow and we are in trouble. Probably something between the two scanarios will play out and we will still have a soft ride ahead.
If US consumers stop spending at big retailers like Walmart, Walmart in turn will not order as much from their Chinese manufacturers, who won't need to buy as much steel from their Chinese steelmaker, who won't buy as much coal or iron ore from their Australian miners - and certainly not at the boom prices of previous years.
But they are building power stationsat a rate of two a week and that suggests to me that domestic demand will soak up a lot of chinese production.
So are property market may fall, but to a lesser degree than in the US, where 3 million properties have been repossessed and there are predictions of another 1 million to come.
The key Standard & Poor's/Case-Shiller housing index of the top 20 US cities came out last week and the results were ugly.
Home prices had their biggest annual drop in July. Average home prices were down 16.3 per cent for the year and more than 20 per cent since their peak in July 2006.
Las Vegas home prices were down 30 per cent, Phoenix by 29 per cent and Miami by 28 per cent. Almost one-third of US households will have negative equity in their homes by the end of the year.
It is very unlikely the Australian residential property market will plunge by anywhere near as much as in the US because we haven't been through a huge construction boom, borrowers haven't leveraged themselves to quite the same extent and we have strong immigration to underpin demand.
But - and it is a big but - the tightening of bank finance will have an impact on residential property values.
The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.
Tightening the criteria for home loans means fewer borrowers will be eligible.
There will be fewer potential buyers and less competition in the market.
On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.
Fewer bidders combined with more homes on the market equals a softening of prices. That is all ahead of us.
At the top end of the market, the tightening of finance is already starting.
The Government support for the non bank lending may soften this credit squeeze by lenders.
Monday, December 15, 2008
Discount home loans you need to know about
Banking packages that used to be called professional packages, that combine a mortgage, transaction account and credit card with the one institution are the best value on the home-lending market.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.
Credit unions get personal
Big banks don't like personal loans, they are small and you can't make a lot of money and there is no security offered. So it's good to have a customer-friendly alternative for those car loans and other unsecured loans.
As the banks losses in other areas start to sink in, banks and other financial institutions have become increasingly reluctant to provide certain types of loans, pulling back on marketing unsecured finance - personal loans and credit cards to get the balance of risk and return redressed.
If you are looking for a loan to finance a car, renovate the home or an overseas holiday, you might have to be prepared for some legwork.
Recent figures show consumer lending has slowed dramatically in recent months. This trend results from a combination of factors including consumers tightening their belts and reducing their borrowings and lenders tightening their lending criteria.
In one example, the Queensland insurance and banking group Suncorp reported its consumer lending business was down more than 6 per cent in the September quarter.
The trend is evident across the industry. Reserve Bank figures show personal lending fell in each of the five months from June to October, a level of weakness that has not been seen for 15 years.
One group of institutions still open for business is credit unions. Their executives believe the times suit the way they do business, providing member services at reasonable cost.
Queensland Police Credit Union executive manager corporate services, Stephen Howell, says: "The credit union sector has been relatively undamaged by large jumps in bad debts the banks have experienced. It is business as usual for us."
SO if you are looking for a personal loan, try your friendly credit union.
As the banks losses in other areas start to sink in, banks and other financial institutions have become increasingly reluctant to provide certain types of loans, pulling back on marketing unsecured finance - personal loans and credit cards to get the balance of risk and return redressed.
If you are looking for a loan to finance a car, renovate the home or an overseas holiday, you might have to be prepared for some legwork.
Recent figures show consumer lending has slowed dramatically in recent months. This trend results from a combination of factors including consumers tightening their belts and reducing their borrowings and lenders tightening their lending criteria.
In one example, the Queensland insurance and banking group Suncorp reported its consumer lending business was down more than 6 per cent in the September quarter.
The trend is evident across the industry. Reserve Bank figures show personal lending fell in each of the five months from June to October, a level of weakness that has not been seen for 15 years.
One group of institutions still open for business is credit unions. Their executives believe the times suit the way they do business, providing member services at reasonable cost.
Queensland Police Credit Union executive manager corporate services, Stephen Howell, says: "The credit union sector has been relatively undamaged by large jumps in bad debts the banks have experienced. It is business as usual for us."
SO if you are looking for a personal loan, try your friendly credit union.
Credit card crime is on the rise. How not to become a victim
Credit and debit card scams are on the rise but you can take steps to stay safe.
According to the first official survey of personal fraud in Australia, about 3 per cent of credit card holders can expect to experience card fraud this year, while nearly 60,000 people could be conned out of their confidential banking details in "phishing" scams.
And don't think it won't happen to you. In the case of card fraud, the Australian Bureau of Statistics study found the vast majority of victims - 70 per cent - were employed, married and Australian-born, with nearly half of them highly educated.
The chief executive of the Australian Bankers' Association, David Bell, says: "So long as there's been money in the system, there's been fraud - it's an ongoing issue. In terms of the quantum, it's relatively small but that's not the point - the point is it should be prevented . . . because not only does it result in financial issues for customers and banks, it also goes to the person's sense of security with their accounts."
Australian Payments Clearing Association data for last year shows fraud remains a fraction of overall payments: 44.5 cents in every $1000 of transactions in the case of credit and charge card fraud, 7.1 cents in every $1000 for debit cards and less than one cent in every $1000 for cheques. However, while cheque and debit card fraud are falling, credit and charge card fraud are rising - up from 36.9 cents the previous year. About 70 per cent of that increase relates to cardholders making purchases overseas via the internet and telephone.
Generally speaking, you won't be held liable for losses to fraud, Bell says, as long as you don't contribute to the loss by your actions.
"So, for example, with a debit card if you were to write your PIN [personal identification number] on the card and you lost it and someone removed funds, it would be a hard ask to get your money back," he says.
However, even if you're not financially liable, there will be a cost in terms of time and inconvenience as you sort out genuine transactions from fraudulent ones, rearrange any direct debits and wait for a new card.
So what can people do to protect themselves from financial fraud? These days it's not just a matter of never signing a blank cheque or making sure no one is "shoulder surfing" while you enter your PIN at the ATM.
Crime agencies and regulators say the increasing technological sophistication of criminals means it's also about safeguarding your computer from hackers and protecting yourself from identity theft when you go online.
DEBIT CARDS
Your PIN is the key to debit card security, Bell says. You should never give it to anyone, even a member of your family. And your bank will never, ever ask you to reveal it.
You should have a different PIN for each financial instrument or channel, such as your debit card, credit card and internet banking.
As with passwords, it doesn't hurt to change your PIN occasionally. But don't use numbers or codes that relate to things such as your birthday or age.
That's why social networking sites such as Facebook and MySpace are causing concern. Some people put sufficient personal information on them that a fraudster can "steal" their identity.
CREDIT CARDS
Never, ever lose sight of your credit card when you're paying.
"When you go to a restaurant, don't hand over your credit card and let someone take it away," Bell says.
Unscrupulous operators can record card details (including its three or four-digit verification code) and then use them for online or phone transactions.
Email is not a secure way to transmit information and if you're going to give your credit card number to somebody over the phone, make sure you know who you're talking to. Make sure you sign your card as soon as you receive it and have your mail collected or diverted if you're expecting a card while you're away.
Having a separate card with a low limit for internet transactions may save you some heartache if your details are intercepted online.
"Having a very large credit limit on a credit card does potentially expose you," Bell says.
The new chip-and-PIN credit cards offer a step up in security but, again, you must protect your PIN.
PHISHING
Criminals hope to catch people when they send out "phishing" emails purporting to be from the bank asking you to confirm your account details, password and PIN, supposedly for a "security upgrade" or some other ruse. The email may even contain a link to a replica website. Crime agencies say you should never click on such a link and it's good practice to always type your financial institution's website address into your browser.
Remember, your bank will never ask you for your password or PIN, Bell says, and certainly not via insecure email.
The ABA, the Australian Securities and Investments Commission and the Australian High Tech Crime Centre have a joint website (protectfinancialid.org.au) that provides more detail on how to protect your financial identity, while the Australian Competition and Consumer Commission's scamwatch.gov.au site offers help in identifying common internet scams.
ONLINE TRANSACTIONS
The Government's Stay Smart Online website, http://www.staysmartonline.gov.au, says you need to protect passwords for online banking and other internet transactions just as much as you would your PIN for a debit card.
That involves making sure your computer is protected by up-to-date anti-virus, anti-spyware and firewall programs and setting your browser security at a sufficiently high level.
It also suggests you should confirm the data is encrypted and safe from prying eyes by looking for the prefix "https://" in the address bar and for a locked padlock symbol at the bottom of your browser window.
Always log out from internet banking when you're finished and go the extra step of also closing your browser.
"If any other windows 'pop up' during an internet banking session, be suspicious, especially if it directs you to another website which then requests your customer identification or password," the website says.
SOCIAL NETWORKING
An Australian Federal Police spokesman says you should configure your web browser so it won't remember the data you enter into forms and you should never select "Remember me on this computer" or similar boxes on websites.
You could even go as far as deleting cookies after your internet session.
If you use social networking sites, treat everything on the site as if it were publicly available information. Don't display your date of birth, address or other personal information. Check the site's privacy settings to make sure they're high enough to resist non-friends finding out too much about you.
Don't accept "friend" invites from people you don't know and don't accept the name of a user at face value - they may not be who you think they are.
Be careful about using applications on these sites as they're run by third-party companies that may also get access to all your personal information.
The growth of identity theft has prompted credit bureau Veda Advantage and security group Secure Sentinel to announce last week a $65-a-year service that alerts individuals by email whenever there's a change in their credit file.
IF YOU BECOME A VICTIM
Tell the police immediately.
* Alert your bank or financial institution.
* Get a copy of your credit report and check it.
* Close all unauthorised accounts.
* Keep all documentation.
Source: Australian Federal Police
According to the first official survey of personal fraud in Australia, about 3 per cent of credit card holders can expect to experience card fraud this year, while nearly 60,000 people could be conned out of their confidential banking details in "phishing" scams.
And don't think it won't happen to you. In the case of card fraud, the Australian Bureau of Statistics study found the vast majority of victims - 70 per cent - were employed, married and Australian-born, with nearly half of them highly educated.
The chief executive of the Australian Bankers' Association, David Bell, says: "So long as there's been money in the system, there's been fraud - it's an ongoing issue. In terms of the quantum, it's relatively small but that's not the point - the point is it should be prevented . . . because not only does it result in financial issues for customers and banks, it also goes to the person's sense of security with their accounts."
Australian Payments Clearing Association data for last year shows fraud remains a fraction of overall payments: 44.5 cents in every $1000 of transactions in the case of credit and charge card fraud, 7.1 cents in every $1000 for debit cards and less than one cent in every $1000 for cheques. However, while cheque and debit card fraud are falling, credit and charge card fraud are rising - up from 36.9 cents the previous year. About 70 per cent of that increase relates to cardholders making purchases overseas via the internet and telephone.
Generally speaking, you won't be held liable for losses to fraud, Bell says, as long as you don't contribute to the loss by your actions.
"So, for example, with a debit card if you were to write your PIN [personal identification number] on the card and you lost it and someone removed funds, it would be a hard ask to get your money back," he says.
However, even if you're not financially liable, there will be a cost in terms of time and inconvenience as you sort out genuine transactions from fraudulent ones, rearrange any direct debits and wait for a new card.
So what can people do to protect themselves from financial fraud? These days it's not just a matter of never signing a blank cheque or making sure no one is "shoulder surfing" while you enter your PIN at the ATM.
Crime agencies and regulators say the increasing technological sophistication of criminals means it's also about safeguarding your computer from hackers and protecting yourself from identity theft when you go online.
DEBIT CARDS
Your PIN is the key to debit card security, Bell says. You should never give it to anyone, even a member of your family. And your bank will never, ever ask you to reveal it.
You should have a different PIN for each financial instrument or channel, such as your debit card, credit card and internet banking.
As with passwords, it doesn't hurt to change your PIN occasionally. But don't use numbers or codes that relate to things such as your birthday or age.
That's why social networking sites such as Facebook and MySpace are causing concern. Some people put sufficient personal information on them that a fraudster can "steal" their identity.
CREDIT CARDS
Never, ever lose sight of your credit card when you're paying.
"When you go to a restaurant, don't hand over your credit card and let someone take it away," Bell says.
Unscrupulous operators can record card details (including its three or four-digit verification code) and then use them for online or phone transactions.
Email is not a secure way to transmit information and if you're going to give your credit card number to somebody over the phone, make sure you know who you're talking to. Make sure you sign your card as soon as you receive it and have your mail collected or diverted if you're expecting a card while you're away.
Having a separate card with a low limit for internet transactions may save you some heartache if your details are intercepted online.
"Having a very large credit limit on a credit card does potentially expose you," Bell says.
The new chip-and-PIN credit cards offer a step up in security but, again, you must protect your PIN.
PHISHING
Criminals hope to catch people when they send out "phishing" emails purporting to be from the bank asking you to confirm your account details, password and PIN, supposedly for a "security upgrade" or some other ruse. The email may even contain a link to a replica website. Crime agencies say you should never click on such a link and it's good practice to always type your financial institution's website address into your browser.
Remember, your bank will never ask you for your password or PIN, Bell says, and certainly not via insecure email.
The ABA, the Australian Securities and Investments Commission and the Australian High Tech Crime Centre have a joint website (protectfinancialid.org.au) that provides more detail on how to protect your financial identity, while the Australian Competition and Consumer Commission's scamwatch.gov.au site offers help in identifying common internet scams.
ONLINE TRANSACTIONS
The Government's Stay Smart Online website, http://www.staysmartonline.gov.au, says you need to protect passwords for online banking and other internet transactions just as much as you would your PIN for a debit card.
That involves making sure your computer is protected by up-to-date anti-virus, anti-spyware and firewall programs and setting your browser security at a sufficiently high level.
It also suggests you should confirm the data is encrypted and safe from prying eyes by looking for the prefix "https://" in the address bar and for a locked padlock symbol at the bottom of your browser window.
Always log out from internet banking when you're finished and go the extra step of also closing your browser.
"If any other windows 'pop up' during an internet banking session, be suspicious, especially if it directs you to another website which then requests your customer identification or password," the website says.
SOCIAL NETWORKING
An Australian Federal Police spokesman says you should configure your web browser so it won't remember the data you enter into forms and you should never select "Remember me on this computer" or similar boxes on websites.
You could even go as far as deleting cookies after your internet session.
If you use social networking sites, treat everything on the site as if it were publicly available information. Don't display your date of birth, address or other personal information. Check the site's privacy settings to make sure they're high enough to resist non-friends finding out too much about you.
Don't accept "friend" invites from people you don't know and don't accept the name of a user at face value - they may not be who you think they are.
Be careful about using applications on these sites as they're run by third-party companies that may also get access to all your personal information.
The growth of identity theft has prompted credit bureau Veda Advantage and security group Secure Sentinel to announce last week a $65-a-year service that alerts individuals by email whenever there's a change in their credit file.
IF YOU BECOME A VICTIM
Tell the police immediately.
* Alert your bank or financial institution.
* Get a copy of your credit report and check it.
* Close all unauthorised accounts.
* Keep all documentation.
Source: Australian Federal Police
Saturday, December 13, 2008
Queensland property sales slump causes real estate sales people to walk
In a sign that price expectations of home sellers are above the market, the Real Estate Institute of Queensland (REIQ) says hundreds of real estate sales staff are leaving the property sales industry as the property market slows across the state.
This ahs also reflected on the Mortgage industry in homes sales transactions, but has a lesser effect in the mortgage industry due to te fact that mortgage lenders can help people with refinancing existing loans when property transactions fall.
The REIQ says this year's sales are down by between 20 and 50 per cent in parts of Queensland and that has led to at least a 25 per cent drop in the number of staff.
It says many of those who have walked away could not cope with the current conditions or the loss of income.
REIQ chairman Peter McGrath says a lot of those who have left have only had experience during a property boom.
"A lot of them haven't got the income they had this time last year and secondly, they find doing the hard work in some cases just too hard for them," he said.
"We were overstaffed to a degree to service the very hectic demands of particularly this time last year, but a lot of those people will come back into the industry.
"This time last year, we were on the most extreme high of turnover that this state has ever seen, so we are feeling the drop.
"We are back to sales levels of 2002/03, which were still reasonable years I must point out, but compared to 2007 they looked very lean years."
This ahs also reflected on the Mortgage industry in homes sales transactions, but has a lesser effect in the mortgage industry due to te fact that mortgage lenders can help people with refinancing existing loans when property transactions fall.
The REIQ says this year's sales are down by between 20 and 50 per cent in parts of Queensland and that has led to at least a 25 per cent drop in the number of staff.
It says many of those who have walked away could not cope with the current conditions or the loss of income.
REIQ chairman Peter McGrath says a lot of those who have left have only had experience during a property boom.
"A lot of them haven't got the income they had this time last year and secondly, they find doing the hard work in some cases just too hard for them," he said.
"We were overstaffed to a degree to service the very hectic demands of particularly this time last year, but a lot of those people will come back into the industry.
"This time last year, we were on the most extreme high of turnover that this state has ever seen, so we are feeling the drop.
"We are back to sales levels of 2002/03, which were still reasonable years I must point out, but compared to 2007 they looked very lean years."
Monday, December 08, 2008
Credit cards holders get the short end of the stick, but whose complaining?
If you are like me and you have a credit card, chance are you are feeling hard done by.
The Government is out there asking people to spend, spend spend, and mortgage rates are dropping like a lead balloon, but we don't get any joy from equality in rate reductions on credit card debt.
I just don't get it. I thought that when the cost of money is going down then the banks would reduce the rates of money for all clients. But business customers and credit card holders seem to be holding up the banks bid to smash profit targets in spite of poor decisions and rampant wage and bonus claims by top level [not top performing] managers.
It would be one thing if nobody cared or was hurting financially right now, or who was facing financial hardship.
It would see obvious that we have a lack of credit card competition, and that may be the answer to our question. With the major players in credit card finance taking a heavy hit in the US recently, and with these guys suffering loses in the US due to a long recession which only looks like getting worse over there, these guys are leaving our markets or taking as much profit as they can muster, and letting our banks get away with what seems to be like daylight robbery when it comes to credit card interest rate charges.
If this was Italy, Governments would fall, in France there would be riots in the streets, in Greece they would be throwing Molotov cocktails, but hey this is Australia. She'd be right Mate!
The Government is out there asking people to spend, spend spend, and mortgage rates are dropping like a lead balloon, but we don't get any joy from equality in rate reductions on credit card debt.
I just don't get it. I thought that when the cost of money is going down then the banks would reduce the rates of money for all clients. But business customers and credit card holders seem to be holding up the banks bid to smash profit targets in spite of poor decisions and rampant wage and bonus claims by top level [not top performing] managers.
It would be one thing if nobody cared or was hurting financially right now, or who was facing financial hardship.
It would see obvious that we have a lack of credit card competition, and that may be the answer to our question. With the major players in credit card finance taking a heavy hit in the US recently, and with these guys suffering loses in the US due to a long recession which only looks like getting worse over there, these guys are leaving our markets or taking as much profit as they can muster, and letting our banks get away with what seems to be like daylight robbery when it comes to credit card interest rate charges.
If this was Italy, Governments would fall, in France there would be riots in the streets, in Greece they would be throwing Molotov cocktails, but hey this is Australia. She'd be right Mate!
Massive market opens for mortagge brokers to ease the pain.
over half the recipients of a recent survet said they were hurting under mortagge stress. The recent mortgage rate reductions would have eased this a little, but this shows how much mortgage brokers who can assist these homeowners are needed right now.
Clients are particularly looking for ways to reduce monthly finance costs and give them some kind of buffer should they need it in the uncertain times ahead.
More than half of the respondents admitted that their mortgage repayments were more than 30 per cent of their gross household income. This used to be the acid test for the maxium borrowing capacity, but these have been stretched to dangerously high levels in the past four years as competition with the banks against mortgage brokers hotted up.
And half of those were feeling mortgage stress. That's about 25% of the total mortgage borrowers.
The Problem is house prices
In the last decade, house prices in Australia had risen to almost nine times the average income. This is from 3 times the average income 40 years ago.
This had left borrowers at significant risk when interest rates rose sharply and house prices remained constant or fell.
The risk could be mitigated by the greater availability of land supply, the use of employment continuation insurance, shared equity mortgages or salary-adjusted mortgages.
But that is for new home buyers.
Mortgage brokers would do better focusing on the needs that already exist. The mortgage stressed homeowner.
Clients are particularly looking for ways to reduce monthly finance costs and give them some kind of buffer should they need it in the uncertain times ahead.
More than half of the respondents admitted that their mortgage repayments were more than 30 per cent of their gross household income. This used to be the acid test for the maxium borrowing capacity, but these have been stretched to dangerously high levels in the past four years as competition with the banks against mortgage brokers hotted up.
And half of those were feeling mortgage stress. That's about 25% of the total mortgage borrowers.
The Problem is house prices
In the last decade, house prices in Australia had risen to almost nine times the average income. This is from 3 times the average income 40 years ago.
This had left borrowers at significant risk when interest rates rose sharply and house prices remained constant or fell.
The risk could be mitigated by the greater availability of land supply, the use of employment continuation insurance, shared equity mortgages or salary-adjusted mortgages.
But that is for new home buyers.
Mortgage brokers would do better focusing on the needs that already exist. The mortgage stressed homeowner.
Mortgage rate fixers are homeowners biggest losers
Mortgage interest fixed-rate borrowers face hefty fees if they want to switch to a standard variable loan right now. The horse has bolted and the banks have to set their rate and costing long term to fix a rate. (
A further massive mortgage interest rate cut this week has made more than 43,000 home borrowers who chose to fix their rate, Australia's biggest mortgage losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments. [This is on teh cards according to Mr Mortgage]
A further home loan rate cut of .5% is expected in February, and there could be more to come to assist home sales and home owners to weather the storm and have money to spend to get the economy from sliding into recession.
We are in for some interesting mortage times ahead!
A further massive mortgage interest rate cut this week has made more than 43,000 home borrowers who chose to fix their rate, Australia's biggest mortgage losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments. [This is on teh cards according to Mr Mortgage]
A further home loan rate cut of .5% is expected in February, and there could be more to come to assist home sales and home owners to weather the storm and have money to spend to get the economy from sliding into recession.
We are in for some interesting mortage times ahead!
Mortgage Rate cuts are hurting those who fixed their home loan rates at the highest point in the mortgage rate cycle
As predicted by Mr Mortgage for the past ten years, those who fix their mortgage rates will lose money.
The people that mortgage rate reductions are hurting most are the one's who recently took other so called experts advice and fixed their home loan mortgage rate, at what has turned out to be, the then highest rate its been this century, whilst watching rates fall to the lowest rates, maybe ever!
As soon as home loan mortgage rates start to climb, banks and the media start to talk up fixed interest rates.
What's wrong with that?
Well if the banks thinks it a good idea, then bet your last dollar that it will be bad for the homeowner. What is good for Banks is not always aligned with what's good for their mortgage customers.
There has only been two occasions that I can recall slim windows for a three year fixed loan to give you any sort of advantage.
About three and seven years ago. Once those tiny windows past fixing your interest rate was a losing proposition.
Unlike the US market were a 30 years fixed was a good idea, and adjustable rate mortgages are a bad thing that has contributed to the pain of the financial credit crisis.
Rates are predicted to fall much further so read my lips. Take the ride down the interest rate elevator as the Reserve Bank pulls on its levers to soften any economic hurt that this looming Global recession may have on your economic situation.
If you must fix, wait till we are at rock bottom, and that could be in 18 months time, and then maybe fix for three years.
Remember we are going through new territory and the landscape is changing and we may be soon seeing the cheapest money ever on offer in two or three years time. Nobody knows.
Enjoy the ride with a variable interest rate or squirm with a fixed one. Its your choice.
Mr Mortgage
The people that mortgage rate reductions are hurting most are the one's who recently took other so called experts advice and fixed their home loan mortgage rate, at what has turned out to be, the then highest rate its been this century, whilst watching rates fall to the lowest rates, maybe ever!
As soon as home loan mortgage rates start to climb, banks and the media start to talk up fixed interest rates.
What's wrong with that?
Well if the banks thinks it a good idea, then bet your last dollar that it will be bad for the homeowner. What is good for Banks is not always aligned with what's good for their mortgage customers.
There has only been two occasions that I can recall slim windows for a three year fixed loan to give you any sort of advantage.
About three and seven years ago. Once those tiny windows past fixing your interest rate was a losing proposition.
Unlike the US market were a 30 years fixed was a good idea, and adjustable rate mortgages are a bad thing that has contributed to the pain of the financial credit crisis.
Rates are predicted to fall much further so read my lips. Take the ride down the interest rate elevator as the Reserve Bank pulls on its levers to soften any economic hurt that this looming Global recession may have on your economic situation.
If you must fix, wait till we are at rock bottom, and that could be in 18 months time, and then maybe fix for three years.
Remember we are going through new territory and the landscape is changing and we may be soon seeing the cheapest money ever on offer in two or three years time. Nobody knows.
Enjoy the ride with a variable interest rate or squirm with a fixed one. Its your choice.
Mr Mortgage
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