Building society Wide Bay Australia has launched a $46 million takeover offer for MacKay Permanent Building Society.
Wide Bay is offering Mackay shareholders $7.20 cash per share plus a fully franked dividend of 80 cents, or 0.6 of a Wide Bay share plus the 80 cent dividend.
"The combination of Wide Bay with Mackay Permanent would enhance our position as the largest financial institution based in fast growing Wide Bay, Central and North Queensland," Wide Bay chairman John Pressler said.
Bundaberg-based Wide Bay said it had already secured approval for its takeover proposal from 14.07 per cent of Mackay's shareholders.
In addition, Wide Bay currently has a 1.58 per cent holding in Mackay.
The acquisition is expected to be earnings per share accretive in the first year, Wide Bay said, and will be funded through existing facilities.
Wide Bay currently has 36 branches, with 34 of them in Queensland, and has total assets of $1.7 billion.
By 1036 AEST, Wide Bay shares were up 16 cents to $12.45. Mackay shares resume trading at 1100 AEST on Tuesday, having last traded at $7.
Source: AAP
Tuesday, July 24, 2007
Brisbane's investment property shortgage means fewer vacancies, and soaring rents
Brisbane rental market is reaching crisis point, with new figures revealing fewer vacancies and rent rises of more than $100 per week.
Rents across the city have jumped 50 per cent in five years and reports of prospective tenants bidding for their rental properties have increased.
The Residential Tenancy Authority figures revealed inner-city and Fortitude Valley area rents spiked 38 per cent from $275 in June 2002 to $380 in June 2007.
South Brisbane rents rose from $210 to $310 in five years.
Queensland University of Technology president Daniel Doran said a ‘‘massive amount’’ of students had complained of having to bid for rent to secure a dwelling.
‘‘This doesn’t help students with already high levels of HECS debt, and as a result we’ve noticed a rise in emergency food vouchers,’’ he said.
Raine & Horne principal Darren Dollimore said young adults, particularly students living in inner-city areas, were being hit hardest, with rates rising $10-$60 every three months.
Housing Minister Robert Schwarten said escalating rents and a shortage of properties meant rent-bidding was a concern.
A report released today by industry analyst BIS Shrapnel said the demand for 44,000 new houses last year had not been met, with only 39,000 being built.
Get your free copy of mX at public transport hotspots around Brisbane city and Fortitude ValleySource: MX
Rents across the city have jumped 50 per cent in five years and reports of prospective tenants bidding for their rental properties have increased.
The Residential Tenancy Authority figures revealed inner-city and Fortitude Valley area rents spiked 38 per cent from $275 in June 2002 to $380 in June 2007.
South Brisbane rents rose from $210 to $310 in five years.
Queensland University of Technology president Daniel Doran said a ‘‘massive amount’’ of students had complained of having to bid for rent to secure a dwelling.
‘‘This doesn’t help students with already high levels of HECS debt, and as a result we’ve noticed a rise in emergency food vouchers,’’ he said.
Raine & Horne principal Darren Dollimore said young adults, particularly students living in inner-city areas, were being hit hardest, with rates rising $10-$60 every three months.
Housing Minister Robert Schwarten said escalating rents and a shortage of properties meant rent-bidding was a concern.
A report released today by industry analyst BIS Shrapnel said the demand for 44,000 new houses last year had not been met, with only 39,000 being built.
Get your free copy of mX at public transport hotspots around Brisbane city and Fortitude ValleySource: MX
Monday, July 23, 2007
Will mortgage rates rise after the election? Home buyers think so.
Home buyers are jumping in ahead of the election in order to buy before a perceived mortgage rate increase would put a home beyond their reach. Also the Liberal Government suggestion of making people save for a 20 percent deposit has paniced many first time home buyers to act now.
Political debate about housing affordability, and promises to lure first homebuyer votes, are also weighing heavily on would-be homeowners.
Woodards real estate group chief John Piccolo said the election's impact on interest rates were also a consideration. "There seems to be a bit of frenzy among house hunters at the moment, and that may be because of the perception that after the election, the interest rates are more likely to go up than down," Mr Piccolo said. "I think that's creating some pent-up demand." Prime Minister John Howard is yet to name an election date for this year. Election to 'clam' marketReal Estate Institute of Victoria chief Enzo Raimondo said an election would usually calm the market right down. "Historically, what happens before an election is announced is everything stops,"
Mr Raimondo said. "People want to know the outcome before they spend their money." But Mr Piccolo believes first-time buyers are taking a "better the devil you know" approach. Affordability hurdleHousing Industry Association chief Caroline Lawrey said would-be first homebuyers were certainly watching the affordability debate closely. "If there's one party suggesting the first homeowner's grant might double, then you could understand why a young person would want to wait until after the election to buy," Ms Lawrey said. This month, Opposition Leader Kevin Rudd proposed a range of affordability initiatives. The initiatives included tax breaks for investors who build affordable housing, a tax-free savings account for first homebuyers, and increasing the first homeowners' grant for low-income earners. Treasurer Peter Costello responded with a proposal to release Commonwealth land for housing, calling on states to do the same. But State Planning Minister Justin Madden is keen to argue Victoria doesn't have a problem. Property prices risingOver the weekend, Mr Madden launched new figures on property price growth during 2006. He said the 6 per cent rise in Victoria's median price showed the market had returned to "sustainable levels of growth". But Mr Raimondo said he didn't believe affordability improved last year. He predicted house prices would rise well above the 6 per cent this year.
Source: The Herald
Political debate about housing affordability, and promises to lure first homebuyer votes, are also weighing heavily on would-be homeowners.
Woodards real estate group chief John Piccolo said the election's impact on interest rates were also a consideration. "There seems to be a bit of frenzy among house hunters at the moment, and that may be because of the perception that after the election, the interest rates are more likely to go up than down," Mr Piccolo said. "I think that's creating some pent-up demand." Prime Minister John Howard is yet to name an election date for this year. Election to 'clam' marketReal Estate Institute of Victoria chief Enzo Raimondo said an election would usually calm the market right down. "Historically, what happens before an election is announced is everything stops,"
Mr Raimondo said. "People want to know the outcome before they spend their money." But Mr Piccolo believes first-time buyers are taking a "better the devil you know" approach. Affordability hurdleHousing Industry Association chief Caroline Lawrey said would-be first homebuyers were certainly watching the affordability debate closely. "If there's one party suggesting the first homeowner's grant might double, then you could understand why a young person would want to wait until after the election to buy," Ms Lawrey said. This month, Opposition Leader Kevin Rudd proposed a range of affordability initiatives. The initiatives included tax breaks for investors who build affordable housing, a tax-free savings account for first homebuyers, and increasing the first homeowners' grant for low-income earners. Treasurer Peter Costello responded with a proposal to release Commonwealth land for housing, calling on states to do the same. But State Planning Minister Justin Madden is keen to argue Victoria doesn't have a problem. Property prices risingOver the weekend, Mr Madden launched new figures on property price growth during 2006. He said the 6 per cent rise in Victoria's median price showed the market had returned to "sustainable levels of growth". But Mr Raimondo said he didn't believe affordability improved last year. He predicted house prices would rise well above the 6 per cent this year.
Source: The Herald
Mortgage interest rate saving ideas
Home mortgage interest rates are at a six-year high and could rise even more. Home buyers and homeowners need to consider these steps to reduce home loan interest rate costs.
Step 1: Check other offers.
You can negotiate or renogotiate with bank and non bank lenders and some mortgage brokers and mortgage lenders as the big banks are undercutting each other on interest rates to win your business.
So if you're after a home loan, check all mortgage lenders and ask them for a discounted interest rate.
At the moment, the big banks advertise standard discount of 70 basis points to 7.37 per cent if you borrow larger amounts, usually more than $250,000, but banks are having to offer bigger discounts becuase the non bank mortgage lenders are gaining ground.
Step 2: Increase your mortgage repayments
This won't reduce your mortgage interest rate, but will cut the term and that can mean massive savings in total interest paid.
Step 3: Compare basic loans interest rates
Mortgage lenders have basic home loans at reduced mortgage interest rates.
Check these out but they may have no savings over the heavily discounted standard home loans that are fully featured.
Step 1: Check other offers.
You can negotiate or renogotiate with bank and non bank lenders and some mortgage brokers and mortgage lenders as the big banks are undercutting each other on interest rates to win your business.
So if you're after a home loan, check all mortgage lenders and ask them for a discounted interest rate.
At the moment, the big banks advertise standard discount of 70 basis points to 7.37 per cent if you borrow larger amounts, usually more than $250,000, but banks are having to offer bigger discounts becuase the non bank mortgage lenders are gaining ground.
Step 2: Increase your mortgage repayments
This won't reduce your mortgage interest rate, but will cut the term and that can mean massive savings in total interest paid.
Step 3: Compare basic loans interest rates
Mortgage lenders have basic home loans at reduced mortgage interest rates.
Check these out but they may have no savings over the heavily discounted standard home loans that are fully featured.
Credit Card record highs of no concern say credit card suppliers and retailers.
Credit card debt is at its highest level ever for the average Australian credit card holder, but spending is being driven by retail purchases, rather than cash advances by families trying to make ends meet.
Figures released by the Reserve Bank yesterday showed total credit card debt topped $40 billion.
The average debt also rose, climbing by 7.2 per cent to $2990 in May, 2007.
Total value of cash advances fell to $1.086 billion in May from $1.135 billion at the same time last year.
CommSec economist Martin Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
"With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending," Mr Arnold said.
It follows upbeat profit announcements by furniture and consumer electronics retailer Harvey Norman, reporting a 16.5 per cent sales gain, and David Jones predicting a 34.2 per cent increase in its profit forecast.
Australian National Retailers Association CEO Margy Osmond said yesterday the full effects on spending behaviour of the tax cuts in the recent federal Budget could sustain strength in retail spending.
"This is positive news considering the May retail sector figures showed some signs of a slowdown in spending. Clearly consumer sentiment is still high and consumers are comfortably splashing out on the latest gadgets and home entertainment goods," she said.
For young newlyweds, Juan Ostos and Francy Perilla, positive career prospects and affordable prices meant the time was ripe to set up everything they need for a new home.
The couple were happy to splash out on a second laptop and new dryer in a day, at a cost of over $1500.
Ms Perilla, 29, who works as a sales consultant, said she and her husband, an electrical engineer, were now in a comfortable financial position.
"We are better off financially than we were one year ago," she said.
"We are in the process of buying all those things we need."
Cashback offers and interest-free options meant forking out the money did not trouble the pair.
"We will pay a percentage now, and then pay the bulk of (the item's price) in one year, " Mr Ostos said.
Earlier in the year the couple also decided to upgrade their car.
With both working full time, the couple said they share the cost of all their new buys, paying half each.
"We split everything, " he said.Source: Dalily Telegraph
Figures released by the Reserve Bank yesterday showed total credit card debt topped $40 billion.
The average debt also rose, climbing by 7.2 per cent to $2990 in May, 2007.
Total value of cash advances fell to $1.086 billion in May from $1.135 billion at the same time last year.
CommSec economist Martin Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
"With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending," Mr Arnold said.
It follows upbeat profit announcements by furniture and consumer electronics retailer Harvey Norman, reporting a 16.5 per cent sales gain, and David Jones predicting a 34.2 per cent increase in its profit forecast.
Australian National Retailers Association CEO Margy Osmond said yesterday the full effects on spending behaviour of the tax cuts in the recent federal Budget could sustain strength in retail spending.
"This is positive news considering the May retail sector figures showed some signs of a slowdown in spending. Clearly consumer sentiment is still high and consumers are comfortably splashing out on the latest gadgets and home entertainment goods," she said.
For young newlyweds, Juan Ostos and Francy Perilla, positive career prospects and affordable prices meant the time was ripe to set up everything they need for a new home.
The couple were happy to splash out on a second laptop and new dryer in a day, at a cost of over $1500.
Ms Perilla, 29, who works as a sales consultant, said she and her husband, an electrical engineer, were now in a comfortable financial position.
"We are better off financially than we were one year ago," she said.
"We are in the process of buying all those things we need."
Cashback offers and interest-free options meant forking out the money did not trouble the pair.
"We will pay a percentage now, and then pay the bulk of (the item's price) in one year, " Mr Ostos said.
Earlier in the year the couple also decided to upgrade their car.
With both working full time, the couple said they share the cost of all their new buys, paying half each.
"We split everything, " he said.Source: Dalily Telegraph
Thursday, July 19, 2007
Mortgage and other debts explosion sparks enquiry
An inquiry into home lending practices is to be launched as new research reveals a sharp jump in the number of households going into debt or drawing on their savings to make ends meet.
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to Melbourne Institute research.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The parliamentary inquiry, which will report before the election, responds to concerns that lenders are breaching the banking code in their tough treatment of people in financial difficulties.
Leader of the inquiry, Liberal Bruce Baird, said it would also look at declining credit standards and the level of home loan defaults.
"Given comments by the governor of the Reserve Bank and a recent report by the banking ombudsman, we wanted to see if there were issues in the approaches taken by the various banks," he said.
Negative equity in focus
Labor committee member Craig Emerson said parliamentarians were particularly concerned about western Sydney and the Illawarra region where many people now owe more on their mortgages than their homes are worth.
"Committee members support the deregulation of the financial system but one consequence has been that existing and new entrants into the market have sought to capture market share as a top priority and that has led to very aggressive lending practices," he said.
The Melbourne Institute research shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: The Australian
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to Melbourne Institute research.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The parliamentary inquiry, which will report before the election, responds to concerns that lenders are breaching the banking code in their tough treatment of people in financial difficulties.
Leader of the inquiry, Liberal Bruce Baird, said it would also look at declining credit standards and the level of home loan defaults.
"Given comments by the governor of the Reserve Bank and a recent report by the banking ombudsman, we wanted to see if there were issues in the approaches taken by the various banks," he said.
Negative equity in focus
Labor committee member Craig Emerson said parliamentarians were particularly concerned about western Sydney and the Illawarra region where many people now owe more on their mortgages than their homes are worth.
"Committee members support the deregulation of the financial system but one consequence has been that existing and new entrants into the market have sought to capture market share as a top priority and that has led to very aggressive lending practices," he said.
The Melbourne Institute research shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: The Australian
Credit Card debt average now over $3,000
Australia's reliance on credit cards has continued with the total outstanding balance on Australian credit cards surging above $40 billion for the first time, new data shows.
The total credit card balance rose by $4.3 billion to $40.2 billion compared to $35.9 billion a year ago, figures released today by the Reserve Bank of Australia (RBA) revealed.
The value of repayments rose by 3.5 per cent to $17 billion compared to $16.5 billion a year ago.
The average debt on Australian credit cards has also risen, climbing by 7.2 per cent to $2990 in May 2007.
Consumer coping with credit card debt
However, CommSec economist Martin Arnold said while the number of purchases and transactions continues to rise, the value of cash advances as a proportion of the total balance has fallen.
“People are continuing to use their credit cards more effectively ... for any purchases really and then making repayments within the interest free period ... using the interest free period more effectively,'' Mr Arnold said.
The total value of cash advances fell to $1.086 billion, compared to $1.135 billion at the same time last year.
”Rather than showing people are struggling, using cash advances to make ends meet, it suggests consumers are doing quite well,'' Mr Arnold said.
Mr Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
”With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending.''
Source: AAP
The total credit card balance rose by $4.3 billion to $40.2 billion compared to $35.9 billion a year ago, figures released today by the Reserve Bank of Australia (RBA) revealed.
The value of repayments rose by 3.5 per cent to $17 billion compared to $16.5 billion a year ago.
The average debt on Australian credit cards has also risen, climbing by 7.2 per cent to $2990 in May 2007.
Consumer coping with credit card debt
However, CommSec economist Martin Arnold said while the number of purchases and transactions continues to rise, the value of cash advances as a proportion of the total balance has fallen.
“People are continuing to use their credit cards more effectively ... for any purchases really and then making repayments within the interest free period ... using the interest free period more effectively,'' Mr Arnold said.
The total value of cash advances fell to $1.086 billion, compared to $1.135 billion at the same time last year.
”Rather than showing people are struggling, using cash advances to make ends meet, it suggests consumers are doing quite well,'' Mr Arnold said.
Mr Arnold said the strength of the Australian economy had provided some of the impetus for the rise in credit debt, with the data pointing to continued resilience on the part of the consumer in the face of talk of rising inflation and lower affordability for housing.
”With the jobs market so robust and household income rising, we're going to see continued strength in consumer spending.''
Source: AAP
HIgh costs of mortgage debt consolidation
Lumping all your debts into one may not be the best way out of trouble [but it may be the onle way as well].
People are putting their homes at risk over relatively minor debts such as credit card balances because they don't fully appreciate the difference between secured and unsecured debt.
"People are taking small, unsecured debts and refinancing them onto their mortgage, which is secured debt," says the co-ordinator of the NSW Consumer Credit Legal Centre, Karen Cox. "But if they create the situation whereby they can't pay their mortgage, they risk losing their house over a small credit card debt basically." [If they don't pay their credit card debt, they will eventually put their home at risk because the creditor can chase the debtor to bankruptcy. The difference is that the consolidated debt can be thousands of dollars cheaper per month than the debts separately, and this is why people can't manage the debt in the first place. The problem is that many mortgage brokers add fees and the Government takes mortgage duty and sometimes even stamping duty, and these extra fees contribute to debt bloat.]
Cox says not every borrower is aware of the difference between secured and unsecured debt or fully appreciates that their consumer debt becomes secured debt when consolidated into a home loan: "We've had comments from a number of consumers who say, 'I didn't know I'd done that and I wish I hadn't, because I'm now struggling to pay my mortgage and I could lose my house."'
Financial counsellor Jan Pentland, of Melbourne's Eastern Access Community Health, says such refinancing is being actively promoted by finance brokers. "But while it seems like an easy and sensible thing to do, there are implications that may not be considered," she says.
Unsecured loans - such as the money a credit card company lends you - don't require any form of security to back the loan in the event you default. The lender relies solely on its judgment that you'll be able to pay in full.
Secured loans are backed by some form of collateral - in the case of a home loan, by the house or unit. In this case, the bank, after following certain preliminary steps, is entitled to repossess your home, sell it and use the proceeds to fulfil the debt obligation.
Cox says it is possible for creditors to take enforcement action on unsecured debts - seeking a writ for levy against property or making you bankrupt and forcing asset sales - but says it's a longer process with opportunities along the way to negotiate.
The Consumer Credit Legal Centre generally advises people to stick with their smaller debts and try to negotiate a revised payment schedule with their original lenders to resolve the problem.
Cox says people in financial stress can be vulnerable to making bad decisions based on poor advice in this regard.
"You've got people specialising in debt consolidation and - while not all these people are necessarily bad - it's an area in which some form of exploitation is quite rife," she says.
In extreme cases, people are charged large fees and commissions - totalling perhaps $30,000 on a $200,000 loan - that are added onto the new loan.
"At the really sticky end", Cox says, a large slice of the loan might be on, say, 12 per cent while the remainder of the debt goes to another lender at 16 to 18 per cent.
"The worst-case scenario for those people who are already in significant trouble on either their credit cards or their mortgage and who then consolidate or refinance into another loan is that it actually turns out to be a lot more expensive than the one they've got," she says.
"So it hasn't solved their issues at all. It might postpone enforcement proceedings but that's about it. A lot of those people go under in a fairly short time anyway and they've lost a whole lot of their equity [in their home]."
Pentland says finance brokers being paid by commission have a vested interest in promoting such loans. "They're not an independent voice and, ultimately, the outcome can be that people eat away at the equity in their homes."
In the middle are people refinancing what should be short-term debt - such as credit card balances - on long-term loans so that their repayments drop, perhaps easing their immediate burden. But the result is that they pay much more over the term of the loan, Cox says.
"Some people make that decision because they're facing enforcement proceedings on the credit card, but it's something they really need to be aware of. It might well be that, if they get advice, they'll manage to make some sort of arrangement with the original creditor on the credit card."
Also in that middle zone are people whose lenders won't let them consolidate their debts in their existing, standard-rate home loan. Some of those people might move to lenders offering "sub-prime" home loans, which come at higher interest rates based on the perceived higher risk for the lender.
Such borrowers need to take care that the saving from lowering the rate on the credit card portion of their debt isn't wiped out by the higher rate on the - almost certainly much larger - home loan portion of their debt, Cox says.
"People have to be very careful to get advice from an independent source before they do anything - particularly if they're under pressure from existing creditors," she says.
The Australian Securities and Investments Commission provides details of free, independent counselling services at its consumer website, http://www.fido.asic.gov.au/ (search for "financial counselling"). Pentland says the calculators available on many financial websites allow borrowers to do their own sums on possible outcomes.
Cox says some people will have to ask themselves whether, in the end, it would be better to sell their home.
"It's a really hard decision, but when you're being offered finance on really bad terms, once you get to that point, it's better to think, 'I'm going to make a strategic retreat here ... If I sell up now at least I'm going to walk away with some cash.' If you keep refinancing, there are people out there who, literally, are out to strip you of your equity.
"You're only going to end up worse off in the long run, because if you lose your house and your equity too that's just devastating."
Selling up is an extreme solution but a valid one if you've done a thorough assessment of your overall financial position and it just doesn't add up, Pentland says.
"You have to do some serious thinking - if you were to refinance, is that going to resolve the problem, or is it just putting off the day when you're going to have to face this?"
THE SNOWBALL EFFECTConventional wisdom says you should pay off your most expensive, non-deductible debt first. In other words, you should apply any extra money to your credit card debt first, ahead of a personal loan or home loan and definitely before an investment loan on which you can claim the interest expense as a tax deduction.
However, if personal debts have got out of hand another strategy is to pay off your smallest debts first.
The strategy involves paying the minimum required on all of your debts, then finding an extra amount to apply to the smallest of those debts. Once you've paid that first debt off, you apply its minimum repayment and the extra amount to the next smallest debt and so on.
The idea is that the amount you pay on the next debt in line snowballs each time a payment is made.
Plus there's a psychological benefit in actually seeing the debts being knocked off one by one, rather than having one large, consolidated debt hanging over your head for what seems like forever.
Asked what she thinks of the snowball strategy, named by US finance author David Ramsey, financial counsellor Jan Pentland says she thinks it does have psychological value.
"It cuts across the notion of paying the most expensive debt first but there's an effect when people see themselves making some progress," she says. "And that encourages them to do more."Source: The Age
People are putting their homes at risk over relatively minor debts such as credit card balances because they don't fully appreciate the difference between secured and unsecured debt.
"People are taking small, unsecured debts and refinancing them onto their mortgage, which is secured debt," says the co-ordinator of the NSW Consumer Credit Legal Centre, Karen Cox. "But if they create the situation whereby they can't pay their mortgage, they risk losing their house over a small credit card debt basically." [If they don't pay their credit card debt, they will eventually put their home at risk because the creditor can chase the debtor to bankruptcy. The difference is that the consolidated debt can be thousands of dollars cheaper per month than the debts separately, and this is why people can't manage the debt in the first place. The problem is that many mortgage brokers add fees and the Government takes mortgage duty and sometimes even stamping duty, and these extra fees contribute to debt bloat.]
Cox says not every borrower is aware of the difference between secured and unsecured debt or fully appreciates that their consumer debt becomes secured debt when consolidated into a home loan: "We've had comments from a number of consumers who say, 'I didn't know I'd done that and I wish I hadn't, because I'm now struggling to pay my mortgage and I could lose my house."'
Financial counsellor Jan Pentland, of Melbourne's Eastern Access Community Health, says such refinancing is being actively promoted by finance brokers. "But while it seems like an easy and sensible thing to do, there are implications that may not be considered," she says.
Unsecured loans - such as the money a credit card company lends you - don't require any form of security to back the loan in the event you default. The lender relies solely on its judgment that you'll be able to pay in full.
Secured loans are backed by some form of collateral - in the case of a home loan, by the house or unit. In this case, the bank, after following certain preliminary steps, is entitled to repossess your home, sell it and use the proceeds to fulfil the debt obligation.
Cox says it is possible for creditors to take enforcement action on unsecured debts - seeking a writ for levy against property or making you bankrupt and forcing asset sales - but says it's a longer process with opportunities along the way to negotiate.
The Consumer Credit Legal Centre generally advises people to stick with their smaller debts and try to negotiate a revised payment schedule with their original lenders to resolve the problem.
Cox says people in financial stress can be vulnerable to making bad decisions based on poor advice in this regard.
"You've got people specialising in debt consolidation and - while not all these people are necessarily bad - it's an area in which some form of exploitation is quite rife," she says.
In extreme cases, people are charged large fees and commissions - totalling perhaps $30,000 on a $200,000 loan - that are added onto the new loan.
"At the really sticky end", Cox says, a large slice of the loan might be on, say, 12 per cent while the remainder of the debt goes to another lender at 16 to 18 per cent.
"The worst-case scenario for those people who are already in significant trouble on either their credit cards or their mortgage and who then consolidate or refinance into another loan is that it actually turns out to be a lot more expensive than the one they've got," she says.
"So it hasn't solved their issues at all. It might postpone enforcement proceedings but that's about it. A lot of those people go under in a fairly short time anyway and they've lost a whole lot of their equity [in their home]."
Pentland says finance brokers being paid by commission have a vested interest in promoting such loans. "They're not an independent voice and, ultimately, the outcome can be that people eat away at the equity in their homes."
In the middle are people refinancing what should be short-term debt - such as credit card balances - on long-term loans so that their repayments drop, perhaps easing their immediate burden. But the result is that they pay much more over the term of the loan, Cox says.
"Some people make that decision because they're facing enforcement proceedings on the credit card, but it's something they really need to be aware of. It might well be that, if they get advice, they'll manage to make some sort of arrangement with the original creditor on the credit card."
Also in that middle zone are people whose lenders won't let them consolidate their debts in their existing, standard-rate home loan. Some of those people might move to lenders offering "sub-prime" home loans, which come at higher interest rates based on the perceived higher risk for the lender.
Such borrowers need to take care that the saving from lowering the rate on the credit card portion of their debt isn't wiped out by the higher rate on the - almost certainly much larger - home loan portion of their debt, Cox says.
"People have to be very careful to get advice from an independent source before they do anything - particularly if they're under pressure from existing creditors," she says.
The Australian Securities and Investments Commission provides details of free, independent counselling services at its consumer website, http://www.fido.asic.gov.au/ (search for "financial counselling"). Pentland says the calculators available on many financial websites allow borrowers to do their own sums on possible outcomes.
Cox says some people will have to ask themselves whether, in the end, it would be better to sell their home.
"It's a really hard decision, but when you're being offered finance on really bad terms, once you get to that point, it's better to think, 'I'm going to make a strategic retreat here ... If I sell up now at least I'm going to walk away with some cash.' If you keep refinancing, there are people out there who, literally, are out to strip you of your equity.
"You're only going to end up worse off in the long run, because if you lose your house and your equity too that's just devastating."
Selling up is an extreme solution but a valid one if you've done a thorough assessment of your overall financial position and it just doesn't add up, Pentland says.
"You have to do some serious thinking - if you were to refinance, is that going to resolve the problem, or is it just putting off the day when you're going to have to face this?"
THE SNOWBALL EFFECTConventional wisdom says you should pay off your most expensive, non-deductible debt first. In other words, you should apply any extra money to your credit card debt first, ahead of a personal loan or home loan and definitely before an investment loan on which you can claim the interest expense as a tax deduction.
However, if personal debts have got out of hand another strategy is to pay off your smallest debts first.
The strategy involves paying the minimum required on all of your debts, then finding an extra amount to apply to the smallest of those debts. Once you've paid that first debt off, you apply its minimum repayment and the extra amount to the next smallest debt and so on.
The idea is that the amount you pay on the next debt in line snowballs each time a payment is made.
Plus there's a psychological benefit in actually seeing the debts being knocked off one by one, rather than having one large, consolidated debt hanging over your head for what seems like forever.
Asked what she thinks of the snowball strategy, named by US finance author David Ramsey, financial counsellor Jan Pentland says she thinks it does have psychological value.
"It cuts across the notion of paying the most expensive debt first but there's an effect when people see themselves making some progress," she says. "And that encourages them to do more."Source: The Age
Mortgage brokers and the mortgage industry targeted as the problem behind home loan defaults
Innovative MortgageBrokers, Mortgage Funders and the mortgage industry generally seem to be targets of a Howard Government inquiry, with recommenadations that home buyers be required to put up a deposit of 20 per cent. This would mean the end of first home buyers.
The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [But no mortagge managers or mortgage brker groups who make up a growing part of the distribution of home loans.]
Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.
One outcome could be tighter controls on mortgage brokers, he said.
"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.
He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.
"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''
The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.
"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.
Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.
Debt explosion
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: AAP
The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.
Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.
The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [But no mortagge managers or mortgage brker groups who make up a growing part of the distribution of home loans.]
Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.
One outcome could be tighter controls on mortgage brokers, he said.
"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.
He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.
"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''
The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.
"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.
Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.
Debt explosion
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.
Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.
The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.
Rural stress
Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.
But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.
The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.
More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.
The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.
Source: AAP
Tuesday, July 17, 2007
Real estate investors to get tax breaks for providing cheaper rental stock
Australian Labor Party will consider giving tax breaks or even cash to property investors who invest in cheaper rental housing to create more housing stock and thus ease Australia's housing crisis.
Labor's housing spokeswoman Tanya Plibersek said that while Labor will not tamper with negative gearing, its flaw is that it delivers only expensive rental properties as owners seek to maximise tax advantages.
Ms Plibersek said she wanted to push for Labor to adopt the policy where investors received tax incentives or tax credits for providing housing at cheaper than market rent rates.
"Anything we do should actually increase housing stock, we have to build more houses if we want to do something about housing affordability so I'm particularly interested in measures that increase the supply of houses," Ms Plibersek said.
Two weeks ago, Labor leader Kevin Rudd released a paper in Brisbane entitled New Directions for Affordable Housing, which canvasses various proposals to end the crisis and also proposes a July 26 housing summit.
Ms Plibersek said that of the various options, she favoured a rental incentive scheme.
That would provide a subsidy to developers or community housing providers to build affordable accommodation.
The subsidy would apply for as long as owners rented properties out at affordable rental levels.
"They will be able, some time down the track, to rent them out at market rates," she said. "But while they get the subsidy, they will be renting it at below market rental.
"It might not be cash, it might be reduced taxation, but it's a fixed amount of benefit - in many instances, the way you'd do it is reduced tax or tax credits so they can use it in other areas of their business or they might pay less capital gain over time".
Ms Plibersek said many people were investing in housing but were most likely to invest in high cost properties.
"The tax treatment in many ways privileges that type of investment," she said.
"If there are other ways of privileging investment at the more affordable end of the rental market ... that is something that I'm enthusiastic about."
Her comments came as Peter Costello revealed he had written to state governments, the housing industry and land developers to begin an audit to identify land able to be released for housing.
The Treasurer, who blames high housing costs on land shortages that could be eased if states released more public land, said it was essential to identify land that is available for housing so that demand from a growing population does not put extra pressure on house prices.
"The Federal Government recognises that housing affordability is a complex issue, and there are many aspects that govern it on both the demand and the supply side," he said.
Source: The Australian
Labor's housing spokeswoman Tanya Plibersek said that while Labor will not tamper with negative gearing, its flaw is that it delivers only expensive rental properties as owners seek to maximise tax advantages.
Ms Plibersek said she wanted to push for Labor to adopt the policy where investors received tax incentives or tax credits for providing housing at cheaper than market rent rates.
"Anything we do should actually increase housing stock, we have to build more houses if we want to do something about housing affordability so I'm particularly interested in measures that increase the supply of houses," Ms Plibersek said.
Two weeks ago, Labor leader Kevin Rudd released a paper in Brisbane entitled New Directions for Affordable Housing, which canvasses various proposals to end the crisis and also proposes a July 26 housing summit.
Ms Plibersek said that of the various options, she favoured a rental incentive scheme.
That would provide a subsidy to developers or community housing providers to build affordable accommodation.
The subsidy would apply for as long as owners rented properties out at affordable rental levels.
"They will be able, some time down the track, to rent them out at market rates," she said. "But while they get the subsidy, they will be renting it at below market rental.
"It might not be cash, it might be reduced taxation, but it's a fixed amount of benefit - in many instances, the way you'd do it is reduced tax or tax credits so they can use it in other areas of their business or they might pay less capital gain over time".
Ms Plibersek said many people were investing in housing but were most likely to invest in high cost properties.
"The tax treatment in many ways privileges that type of investment," she said.
"If there are other ways of privileging investment at the more affordable end of the rental market ... that is something that I'm enthusiastic about."
Her comments came as Peter Costello revealed he had written to state governments, the housing industry and land developers to begin an audit to identify land able to be released for housing.
The Treasurer, who blames high housing costs on land shortages that could be eased if states released more public land, said it was essential to identify land that is available for housing so that demand from a growing population does not put extra pressure on house prices.
"The Federal Government recognises that housing affordability is a complex issue, and there are many aspects that govern it on both the demand and the supply side," he said.
Source: The Australian
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