Mortgage Interest Rates to Fall

Australia's mortgage interest rates are set to fall in February, with many experts predicting that further rate cuts may be expected later in the year.

Mortgage Rates are too high and have to come down.

I have been saying that Mortgage rates are too high ever since the RBA raised its official cash rate in November 2010. 

But then again I have also been saying that land prices are way too high, and have been for ten years, and this is the main reason why established homes are higher than they should be. So to lower housing prices, I guess that the RBA's intention may have been to quell demand for new home construction loans.
Whatever their reasoning high mortgage rates have lowered home building starts dramatically through 2011.

Why has housing demand disappeared?
So what happened to the pent up housing demand? Its seems to have evaporated.
I recall experts saying that there was a housing shortfall of 200,000 dwellings. Well nobody is saying that anymore.
And as we build less homes, house prices are falling, and home sales taking longer?
2012 is shaping up to be a time when home buyers can get real value for money, and home sellers are going to have to lower their house price expectations, yet again.
The bottom line is that the best time to buy a home is when everybody else is try to sell a home.

Home buyers Tip
So if you are considering buying a home in 2012, then take your time, and wait for a bargain in house price, location and quality.
Also, only consider buying a home with a long term view of home ownership. Longer than 5 years.
Whilst history tells us that the long term trend in house prices is up, in this housing market there may be a protracted period of prices flat-lining or trending lower. Protect your investment by shopping hard and negotiating on price.

Author: Rick Adlam, Mr Mortgage

Japanese Banks Target Australian Home Loan markets

Mega Japanese Banks are preparing to launch a surprise attack on the mortgage profit margins of Australia's big four banks. Why this sneaky raid will succeed

The big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world. Meanwhile Japanese banks have been in operating successfully in a recession economy for twenty years. In fact the interest rates they operate on are puny compared to Australian Home loan interest rates and bank margins. So its natural that they want a piece of the action.

Some say that Japanese banks could get a $100 billion of the Australian home loan market in double quick time. I agree.
At the coming February RBA board meeting most financial analysts are punting on a further rate cut to the official cash rate. That normally translates to a similar reduction in mortgage interest rates. However some of the big four banks are hinting at not passing on all of the rate difference, citing rising funding costs as the reason.
A cynic might suggest that the real reason is maintaining profit levels in a shrinking home loan & credit card finance by Australians.

Japanese banks are all cashed up with nowhere to lend

Japanese lenders are brimming with low cost cash because of the recession, and the Japanese savings ethic.
Australian banks on the other hand also pay puny interest rates, but lend that money out at fat profit margins.

Australia's trillion dollar mortgage pie. How big a slice can the Japanese hope to get?

Australia's trillion dollar home loan market looks ripe for the picking.
Snaring just a 10% slice of Australia's Mortgage pie would give the Japanese Banks a $100 billion dollar windfall.

A Japanese Bank raid a cakewalk for four good reasons.

1. Australians have no loyalty to their banks. Aussies love to hate banks. But they don't love them that much.
2. Australian home owners and home buyers will change lenders, and they do so often.
3. Money talks. Australian home buyers and homeowners are hurting financially, mainly because they paid too much for property on the basis of low interest rates, high loan to value ratios on loans and other lax lending practices.
4. Ready-made sales channels. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
5. Japanese banks could also operate an online Australian mortgage channel, as this is how a lot of Australians looking to refinance do their research these days.

2012 may prove to be a tough year for mortgage lenders in Australia, and that means a better deal for Aussie home loan borrowers.

That has to be good news for the real estate industry and the home building sector, who have both had a rough 2011.

Summary

The impending Japanese Bank home loan invasion may be the tonic Australia needs to reinvigorate real competition in home loans, the mortgage broker sector, the new home building industry and the housing market, and put a creator in Australia's big four profits at the same time. So are Australian home loans turning Japanese? Yes I think so.

Mortgage repayments: Why NSW has nearly half of Australia's home loan battlers

According to a Moody's latest investment report, New South Wales has 44 per cent of Australia's entire home loan delinquencies, and mortgagors in Sydney's fringe suburbs are most likely to lose their homes through mortgage stress.

Most of those are in Sydney's outer regions where more about 2.5 per cent of mortgages are more than 30 days behind in repayments, a Moody's Investors Service report said.

Australia's mortgage market is generally performing well, but not as well as four years ago

Australia's mortgage market has always performed well, with just a National figure of about 1.3 percent of mortgages in default due to slow mortgage repayments.
This figure is about ten times better than the US experience over the past two years, but is not as good as it was four years ago.

So why is Sydney having suburbs with double the National average?

1.  Overvalued house prices. Show me struggling homeowners and I'll show you overvalued homes. Many home buyers have paid too much for their homes and will suffer the most.
2. Commuting expenses. When you are in the outer suburbs you will be travelling longer to get to work, and that means high transport, car and petrol expenses, so you have less to spend on your mortgage. Rising petrol prices have not helped.
3. Starting families too early. Having kids is expensive and it means that many partners choose to stay home to care for their children. Starting a family may have been unplanned or seemed affordable two years a go with record low interest rates and the baby bonus. But the baby bonus doesn't go far and the the mortgage keeps rising. You cannot make mortgage repayment and feed a family on one income these days, so both partners need to be income earners.

The RBA tipped to raise interest rates

The troubles may be in front of those now struggling to meet mortgage commitments as the RBA is widely tipped to raise mortgage interest rates by up to 1.25% over the next twelve months and the Major banks looking to raise rates over this figure.
Softening house prices in these suburbs will not assist mortgage stressed homeowners to sell their way out of debt, so people behind in mortgage repayments will have to learn to tighten their belts over the next few years.

Mr Mortgage Advice. If you are struggling with mortgage repayments now, I suggest that you switch to a non bank mortgage lender with lower mortgage interest rates, and maybe a discounted one year mortgage rate to help you through the next twelve months. The major banks want to raise rates in addition to any Reserve Bank rate increases, so your need to out of that scenario now.

Greedy banks to raise your mortgage interest rates above the RBA moves

CBA, Westpac, NAB and ANZ are tipped to raise mortgage rates over any RBA rate rises to fatten record profits.

Homeowners and home buyers are being warned to brace for their favourite bank to lift their mortgage interest rates by more than any rate rise from the RBA.
So if the Reserve Bank of Australia sees a rate rise as important, then expect a double whammy from the bank you have your mortgage loan with.
The RBA is widely tipped to lift rates by 0.25 of a percentage point next week, but your bank may ask you to pay more on your home loan, with some saying they will up rates by a total of 0.4%. [Mr Mortgage disagrees with this view by the way.]
Ant increase in mortgage rates will hurt mortgage stressed homeowners and put off a lot of home buyers, but the banks don't see this as their problem.
They have been writing heaps of quality loans, and now see this as a time to lock in the good times and not worry about writing new business.
So the big banks can afford to lose a lot of mortgage customers and still make a killing with the their extra margins in place on the remaining mortgage loans.

We have all heard the Banks excuses for increasing mortgage rates.

The banks have complained that the higher costs of funding their loans is squeezing their profit margins.
The banana smoothie story. Remember the Westpac Bank analogy of the banana smoothie vendor?
But Treasurer Wayne Swan has attacked any banks thinking of double dipping, saying they have reported solid profits. Mr Mortgage says they have all made record profits, but are addicted to ever increasing profits, so good luck with your plan Wayne.

Although the four big banks' total first-half profit climbed by $1.3 billion this year, they have complained that their profit margins are being squeezed because it costs them more to borrow from overseas than before the financial crisis. This beggars the question, so where did the record profits come from?

The RBA dismisses banks excuse to rise mortgage interest rates

The Reserve Bank of Australia yesterday dismissed the banks' concerns about their operating margins, saying they have shown little sign that they are under pressure and the interest rates they charge already have been enough to make up for the higher costs they pay for overseas funds.

Why your bank will raise its mortgage rates higher than the official cash rate increase

Your bank will raise its mortgage loan interest rates higher than the RBA increase simply because the big four banks simply have no effective competition.

The non bank mortgage lenders were all but wiped out in the wake of the Global financial crisis. This is the reason we are now paying higher mortgage rates than we should be.

Until the Government gets serious about a Government sponsored mortgage industry, initially for first home owners building new homes, then we will continue to have the banks ripping us off  with higher mortgage rates and be perpetually seeing house prices rise due to housing shortages.

Author: Mr Mortgage

Reserve Bank of Australia to cut mortgage rates again in time for Christmas

The Reserve Bank of Australia's board will be cutting mortgage interest rates deep again for Xmas
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.

Aussie banks safe as houses

Australian Prime Minister Kevin Rudd reassured Australians and said that Australia's retail banks were among the safest in the world.
The Opposition Liberal party has warned of the danger of bank runs in Australia which could destroy smaller banks and credit unions.

Mr Rudd said that the World Economic Forum had yesterday released a report rating Australia's banks the fourth most sound in the world in a ranking of 134 nations.
While the road ahead was rocky, Mr Rudd said the nation's economic fundamentals remained solid. "We have a strong budget surplus as a buffer for the future, and to be used to meet the challenges of the future," he said.

Mr Rudd has suggested his Government might move to protect up to $20,000, but Mr Turnbull said guarantees had to be provided for $100,000.

Opposition Leader Malcolm Turnbull said the Government must back bank deposits to assure individuals and small businesses that at least the first $100,000 of their savings was safe. Australia and New Zealand are the only OECD countries without a direct government-backed guarantee on bank deposits.

Mr Turnbull said the crisis had already sparked a shift towards the Big Four banks at the expense of smaller players.
"There is a real risk at present that depositors will shift their savings from smaller institutions such as regional banks and credit unions to the Big Four banks," he said. "This has the potential to considerably strengthen the big institutions' competitive position at the expense of their smaller rivals."

Mr Swan said that Australia's well regulated, well capitalised banking system would provide a bulwark from the fallout.

The silver lining from all of this is the increasing certainty that interest rates could fall by as much as 2 per cent more [to a cash rate of 4%pa] by mid next year.
This will be the sort of solution that mortgage payers want to see happen.

Australian Banks are strong and profitable

Australian banks have suffered little over the recent Wall street financial crisis and are enjoying record profits. So according to Mr Mortgage any Bank in Australia has no excuse for increasing their margins as the Reserve Bank of Australia reduces the official rates as it is expected to do over the next few months.

The fact is that mortgage profit margins have been reduced by over 2% since 1997 when they felt the effects of competition from non mortgage lenders and the army of mortgage brokers that used these products.

It is the non-bank mortgage lenders who are having a tough time getting competitive funds right now, and the banks are seeing their opportunity to move their margins higher in the wake of this reduced competition.

Official figures show the profit margin for the major banks was 54.8 per cent in the March quarter, resulting in $1 profit for every $2 in interest and fee income they charged. 

When rates were lifted recently the Commonwealth, the National Australia Bank [NAB], the ANZ and Westpac all lifted their mortgage rates by more than the Reserve Bank official cash rate.  

Also the official figures released yesterday by the Australian Prudential Regulatory Authority show that the interest income of the four major banks from loans was rising by substantially more than the interest they were paying to depositors and the wholesale markets. 

Rising interest rates and increased lending through larger loan sizes enabled the banks to raise their interest income in the quarter by $7.2 billion, compared with a year ago, to a record of $31.9 billion. 

Interest costs were up by $6.3 billion in the same period, with net interest income moving ahead by 12.9 per cent to $8.3 billion. 

So if your bank is charging you too much interest on your mortgage you should visit Mr Mortgage and get a mortgage quote

Mortgage interest rate blame on states dumb says Treasurer

The New South Wales Treasurer, Michael Costa, says the Federal Government's attempt to blame individual state borrowing levels for the anticipated mortgage interest rate rise is absurd.
The Prime Minister says the states are borrowing $70 billion and plunging Australia into debt.
New South Wales has the biggest infrastructure plan, with expected spending of $50 billion over the next four years - 40 per cent of that will be borrowed.
But Michael Costa says there is no stress on that undertaking.
"We are seeing no pressure on our treasury corporation to offer greater returns for people to take on that debt," he said.
Mr Costa says the Federal government cannot inoculate itself from another interest rate rise after overselling its economic credentials and handing out tax cuts last year in a vote buying exercise.
"The Federal government is absolutely desperate - they take credit when the economy is going well - when they're in difficulty they want to blame the states."
Mr Costa says the NSW capital spending program can be slowed if interest rates rise.Source: ABC

Interest rates, unemployment will soar under Labor, says Liberal funded report on workplace reform by Labor arch rivals Australian Chamber of Commerce

A new report has warned that Labor's promise to abolish the Coalition's WorkChoices reforms if its wins government would push up mortgage interest rates and unemployment. Labor denies this as a false assumption, and the report is written by liberal pals ACC.
The Australian Chamber of Commerce and Industry (ACCI) commissioned the economic consultants Econtech to model the consequences if the industrial relations landscape of 1993 was restored.
Its study predicted that would result in a 1.3 per cent hike in inflation and interest rates would climb by 1.4 per cent, pushing up the average mortgage by $273 a month.
ACCI spokesman Peter Hendy says the axing of WorkChoices alone makes up a sizeable share of the predictions.
"You would see about a third of the results here, so a very, very significant impact on the Australian economy," he said.
Mr Hendy says the report also forecasts major job losses.
"If you reverse industrial relations reform, you will have a massive impact upon the job market," he said.
"There would be something like up to 316,000 jobs lost.
"We're sending a message to both major political parties that you cannot afford to roll back the industrial relations reforms we've had to date."
But deputy Opposition leader Julia Gillard has told Channel Nine the report does not make sense and is based on a false assumption.
"The key claim in it is that Labor's industrial relations system is somehow going to have pattern bargaining in it," she said.
The report is being officially released later today.
Source: ABC

Mortgage rate rise makes Australian Government defensive

The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent.
As mortgage interest rates jump to 6.5pc the Federal Government has tried to cover its political difficulty over today's interest rate rise by accusing Kevin Rudd of being a Liberal.
As soon as the Reserve Bank of Australia (RBA) announced the fifth interest rate rise since the last election the Opposition started making political capital.
In Question Time Kevin Rudd reminded the Prime Minister of the 2004 Liberal Party advertisement promising to keep interest rates at record lows.
"What does the Prime Minister regret most, making the promise or breaking it?" Mr Rudd said.
Mr Howard distanced himself from the advertisement, saying he did not personally make that claim.
"The most definitive thing I said in the election campaign of 2004 was in answer to a question from Neil Mitchell - 'so you wouldn't be embarrassed to win the election and then to have an interest rate rise?', answer: well I don't seek to give guarantees/judgements about individual movements - my argument is that they will always be lower under our policies," Mr Howard said.
Treasurer Peter Costello hit back at Mr Rudd by mocking his claim to be a fiscal conservative.
"We have a leader of the Opposition whose dearest wish is to be a Liberal," Mr Costello said.
The Government says despite today's rise, rates are lower than the average under Labor.
Another rise tipped
It was the unexpectedly high June quarter Consumer Price Index (CPI) that sealed the case for higher interest rates, amid buoyant economic activity.
In raising the cash rate to 6.5 per cent, the RBA also played down the impact on the global economy of credit market problems in the US.
Pricing on local credit markets indicates a belief the central bank could move again by the end of the year.
The chief economist of nabCapital, Rob Henderson, agrees it is a risk.
"Possibly they need a more restrictive monetary policy setting than they have now," he said.
"But I don't think they'll know that until into 2008, or possibly very very late in this year."
Industry, union response
The Australian Chamber of Commerce and Industry (ACCI) says it hopes the increase will forestall the need for any more adjustments for the next year at least.
ACCI chief executive Peter Hendy doubts the rate rise will affect business confidence levels.
"We only yesterday put out our business expectation survey for the last quarter," he said.
"It had the highest business confidence levels for eight years and in fact, plant and equipment investment prospects were the highest for 14 years.
"Ironically, they're increasing interest rates because the economy is going so strongly.
But Australian Council of Trade Unions (ACTU) president Sharan Burrow says the rate rise makes today a frightening day for families.
"Working families know that the IR (industrial relations) laws already take away their job security, their income security," she said.
"This increased debt on top of everything else is just going to make people very frightened."
Housing affordability
Meanwhile, the National Affordable Housing Summit chairman says house prices across Australia are increasing at an unacceptable rate.
Professor Julian Disney says the figures are not surprising.
"They're just illustrating how low the manic boom of a few years ago has slowed down," he said.
"Prices are still going up much faster than is acceptable and a lot of people are going to be overcommitting themselves."
Source: ABC

Housing affordability, scarcity and mortgage interest rates to get worse

Housing affordability will get worse before it gets any better, with mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today.
Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.
Any rise will compound already stretched household budgets after last year's three interest rate rises.
More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis.
ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.

But this time the problem was also rising house prices, which would be “a problem for sometime to come,'' Mr Eslake said.
Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.
Young are the victims
The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom.
This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments.
NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits.
But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.
Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant.
But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices.
The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.
Infrastructure is key
Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure.
”Housing supply has to be where the housing demand is,'' he said.
Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs.
He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.
Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices.
But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.