Rising home loans could tip recovery

by AAP December 10, 2008 12:45pm
THE number of home loans rose 1.3 per cent in October, to the highest level all year, and economists say it could signal the start of a recovery.

The number home loans for owner-occupied housing rose 1.3 per cent in October, to 48,299, according to Australian Bureau of Statistics data.

The loans were worth a total of $17.7 billion, up 1.9 per cent in October, and above economists expectations of a 1.5 per cent increase.

Westpac economists said in a research note that the rise housing finance in October signalled the start of a recovery for the housing market.

"While it was only a modest rise in October, we see it as the beginning of a recovery,'' Westpac said.

"This will act to support house prices and trigger a recovery in new dwelling construction.''

Westpac said the RBA's decision to slash interest rates by 300 basis points since September, and the federal government's stimulus package for first home buyers, would breathe life back into the housing market.

"However, rising unemployment and tighter lending standards in response to the credit crisis will act to crimp the pace of recovery."
Related Coverage

* Buyers beware as housing market stallsNEWS.com.au, 27 Oct 2008
* House prices down 10 per cent in 2008NEWS.com.au, 14 Oct 2008
* Rates bite at home loan numbersNEWS.com.au, 14 Apr 2008
* Mortgage battlers told to get out nowNEWS.com.au, 1 Jul 2008
* First-time buyers storm marketNEWS.com.au, 16 Oct 2008



The rise in housing finance commitments came after a 29 per cent fall during the previous 8 months.

JPMorgan economist Helen Kevans said the prospect of more interest rate cuts would bring more buyers to the housing market.

"Many first home buyers should, however, be attracted to the property market by further interest rate cuts,'' said Ms Kevans.

JP Morgan forecasts the RBA will lower the cash rate by 50 basis points at their next meeting in February, and by another 25 basis points in March to a 3.5 per cent rate.

The cash rate has not been at 3.5 per cent since early in 1965.

Banks must pass on the RBA rates cuts Good New for Home Buyers

Reserve Bank Interest Rates Drop to 4.25 per cent – 2 December 2008

The current RBA interest rate has dropped to just 4.25 per cent, after the Reserve Bank board announced another aggressive rate cut of 100 basis points at its December board meeting today.

Today’s cut takes the current RBA rate to its lowest level since December 2001, as the Reserve Bank seeks to stimulate economic growth and counter falling inflation.

The cut to the current RBA interest rate follows earlier cuts of 75 basis points in November and 100 basis points in October, taking total rate cuts over the last three months to a whopping 275 basis points.

Some pundits are predicting rates still have further to fall, with suggestions the RBA interest rate could fall to as little as 2.75 per cent by Easter 2009. This would be the lowest the RBA interest rate has been since 1960!

December’s rate cut is good news, but whether homeowners will see the benefit of reductions in their mortgage repayments in time for Christmas depends on whether their lender is naughty or nice in passing on the RBA’s rate cut.
Below are the ones first to pass on the rates cuts:

CBA & NAB before 7.74% now 6.74%
Aussie before 7.65% now 6.65%
ING Direct before 7.19% now 6.19%

Stay tuned for more

Top 10 tips to keep the mortgage monster at bay

By Hannah Nicholas of Money MSN

Is the mortgage monster heading down your front path? If it is, it's time to put some strategies in place to ease your financial burden. Here are our top 10 tips for beating mortgage drain.


1. Make more repayments
You may think that lenders call all the shots when it comes to setting your home loan repayments but you can have your say. Simply setting your repayments to fortnightly (or even weekly) rather than monthly can see you mortgage being slashed over time.

Nicole Pedersen-McKinnon author of Halve Your Debt and Double Your Freedom — Without The Mumbo Jumbo says the key is to make the calendar work for you. She says although there are 12 months in a year, there's not just double that number of fortnights, but double plus two: 26. So if you very simply make half your required monthly repayments fortnightly, you will be ahead by a full month at the end of the year.

Likewise, if you get your hands on a lump sum, perhaps a hefty tax return or an inheritance of some sort, whack it onto your mortgage and watch the balance owing go down and hence the amount of interest you will have to pay each month. No matter the home loan, interest is calculated on a daily balance and charged monthly in arrears. The more often you throw money into your mortgage, the more interest you save.

2. Keep paying at your old interest rate
While recent times have seen interest rates drop, having an effect on your monthly repayment amount, many financial experts advise home owners to maintain their existing mortgage payments (whenever a rate drop occurs) in order to save thousands in the long run. Pedersen-McKinnon advises to try to never to decrease your mortgage payments. "If the rate falls or you remortgage to a better deal, maintain them at exactly the same level," she says.

3. Get the right home loan for you: refinance your loan
Is your loan full of hidden fees and lots of gadgets you don't use? Maybe it's time to look at refinancing to a better option to suit your needs. Make a list of features you'd like (and those you don't need) and speak to your lender or a mortgage broker to see what's available in the market.

4. Cut back on personal spending
It's true, cutting back even just a little on your personal spending can help to make paying your mortgage easier. Bring your lunch to work, cut out those afternoon coffees, use the local library and similar resources and travel locally rather than heading overseas this summer. Every little spare bit of cash helps.

5. Switch to a fixed rate
On a tight budget and prefer to know the exact amount you'll be paying each month? Then it might be time to think about fixing the interest rate on your home loan. Want to hedge your bets? Then consider fixing a certain proportion of your home loan only. But before your make any decisions, be sure to seek financial advice regarding your personal situation.

6. Renegotiate your interest rate
The home loan market is constantly changing so if you've had your loan for a number of years, it might be time to try and renegotiate your current interest rate. Talk to your lender and see what they can offer.

7. Ask your lender for help
If you've lost your job or taking time out to look after your baby, ask your lender about taking a "pause" from your home repayments. Lots of loans offer this facility but beware it could extend the life of your loan, increase your loan amount (as deferred interest will be added to the loan balance) and may only be for a short period (usually three-to-six months) of time.

You can also reduce the amount of your repayments if you are struggling, by:

* extending your loan term;
* changing to interest only repayments; or
* renegotiating your interest rate (as discussed above).

Talk to your lender for more information on the above options. Most lenders also have hardship provisions for their customers in trouble so do seek help if you need it.

8. Be prepared
Planning on starting a family or undertaking a renovation on your property? Then be sure to plan ahead for the impact the loss of income or extra expenses will have on your mortgage commitments.

And there are other ways you can use your mortgage to your advantage. For example, if you have an offset account linked to your home loan, use it to its full capacity by having your salary paid into the offset account that runs alongside your mortgage. Then use a credit card for all your monthly expenses (but be careful not to overspend) and move the money out of your mortgage and onto the credit card only when your monthly bill is due. This will allow any money sitting in your offset account to reduce the amount of interest paid at the end of the month. If you are financially disciplined, this is a great way to reduce the mortgage monster.

9. Be disciplined
Think before you spend. Do you really need that new handbag or computer equipment? Instead, put the money towards your home loan repayments and effectively, the amount you have to repay your lender. If your home loan has a redraw facility attached, don't redraw unless it's absolutely vital. If you find yourself doing this too much, then maybe you should consider another loan type.

10. Get insured
Worried about the current economic climate and your job security? Then it might be a good idea to take out income protection and life insurance policies. This will cover you (and your family) should you lose your job or be unable to work due to illness or injury. If you operate your own business, make sure you have the right insurance in place to cover any loss of income due to fire, theft, damage, etc.

At the end of the day, the key to keeping out of mortgage trouble is not to ignore the problem but to tackle it head on as early as possible and to prepare as much as you can when you are in a good financial position.

Extra $200 a month: everyone's a winner

By Jessica Irvine Economics Correspondent SMH
November 5, 2008

THE Reserve Bank is mounting its most aggressive campaign of interest rate cuts in a quarter of a century in a bid to avert recession but mortgage holders are not getting the full benefit.

Yesterday's surprise 0.75 percentage point cut, if passed on in full by the banks, will save almost $200 a month in repayments on a $400,000 loan. That brings to $545 the total saving on the same loan since the Reserve began cutting rates in September.

In nine weeks, the bank has slashed its official cash rate by two percentage points, undoing nearly four years of rate rises.

More official interest rate cuts are expected before Christmas, with financial markets tipping another 0.75 percentage point move on December 2.

But the nation's biggest mortgage lender, the Commonwealth Bank, risked the wrath of home borrowers and the Federal Government by announcing it would pass on just 0.58 percentage points of the cut to customers. This will short-change them by about $50 a month on a $400,000 loan.

Commonwealth's head of retail banking, Ross McEwan, blamed the decision on higher costs for wholesale borrowing and deposits, and said mortgage holders could expect to get the rest when markets "normalise".

But the Treasurer, Wayne Swan, appeared to lose his patience, saying he was disappointed. "I want to see them pass this on in full as rapidly as possible," he said.

Amid the deteriorating economic outlook, the Government is expected, today or tomorrow, to release updated budget and economic forecasts, revealing the full impact of the global financial crisis on four years of the budget bottom line.

Revenue is understood to be down as much as $10 billion in some years, as capital gains and company tax collections are hit by global sharemarket declines, weaker global growth and tumbling commodity prices.

In his statement accompanying the Reserve Bank's decision, the governor, Glenn Stevens, said that plunging world commodity prices, "significant weakness" in big industrial economies, and signs of a further slowing in China had made it clear that "a further significant reduction in the cash rate was warranted".

While the Government's $10.4 billion spending program to stimulate the economy would help support growth, along with a falling dollar and reductions in borrowing rates, "on balance, it appears likely that spending and activity will be weaker than earlier expected".

Other banks were happy to leave the Commonwealth out on a limb yesterday, refusing to announce how much of the rate cut they would pass on.

A spokeswoman for NAB said its rates were "being reviewed" against overnight developments on money markets to see how much could be passed on. Banks have benefitted in recent months from a flood of money into deposits, accelerated by the Government's decision to guarantee all bank deposits.

The Opposition Leader, Malcolm Turnbull, said banks had no excuse not to pass on the cut in full. "They have the capacity to do so and they ought to do so. The banks have been receiving a lot of support through guarantees from the Government. They are strongly profitable."

The Reserve expects inflation, which has hit 5 per cent, "will soon start to fall". However, the fall in the dollar, which makes imported goods more expensive, meant inflation would take longer to subside.

"The board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2-3 per cent inflation target over time," the bank said.

The chief economist at Deutsche Bank, Tony Meer, said the Reserve was attempting to "recession-proof" the economy in the way it had failed to do in the early 1990s. "Clearly the bank's concern today is the same as it was back then … that the economy is heading into recession and aggressive action is required to mitigate … the prospect of the recession being deep and prolonged."

A survey of more than 1800 businesses by the Australian Chamber of Commerce and Industry released yesterday found business conditions were at their worst since the early 1990s. Companies expected to sack staff and cut back on overtime as conditions cooled.

Economists said yesterday's larger-than-expected rate cut revealed elevated concern at the Reserve Bank about Australia's growth prospects.

Craig James, chief equities economist at CommSec, said these concerns had led to the most aggressive rate cuts since the dollar was floated in 1983.

The chief economist at Morgan Stanley, Gerard Minack, predicted that next year Australia would face its first recession in 17 years.

"The aggressive response of policy makers will likely not be enough to offset the combination of global recession, global credit crunch and the unwind of domestic imbalances."

Reserve Bank tipped to cut interest rates by 50 basis points

By Mark Kenny November 04, 2008 12:37am




HOMEOWNERS are in for a boost today when the Reserve Bank is tipped to slash official interest rates. And lower rates are not the only good news.

Petrol is also expected drop by as much as 10c a litre in coming weeks.

But the good news on interest rates is a sign the economy is faltering.

Markets have factored in a likely cut of 50 basis points - or half a percentage point - a third straight cut this year.

However, with international bank-to-bank lending costs still fluctuating, there is no certainty banks will pass on the full benefits immediately.

If passed on in full, a half percentage point cut would take around $80 off the monthly mortgage repayments of the average home loan of $250,000 over 25 years.
And it would mean homebuyers will have saved in the order of $300 a month since the central bank began its current rate cutting phase.

Another cut of 25 to 50 basis points is possible before Christmas, analysts say. The cuts are expected as the economy showed further signs of a dramatic slowdown yesterday as the global financial crisis continues to bite.

The ANZ's job advertisement survey has suffered a massive 34 per cent slump over this time last year.

The Australian Industry Group's Performance of Manufacturing fell to its lowest level since 1992 prompting widespread fears of a significant leap in the jobless rate.

The Federal Government said it was hoped the banks would pass on the full amount of any interest rate cut.

"We would expect the commercial banks to pass through any official cut in interest rates as rapidly as possible," Prime Minister, Kevin Rudd said.

Treasurer, Wayne Swan was similarly firm. Nationally, house prices dropped by 2 per cent in the past three months - their first fall in three years.

However, South Australia bucked the trend, leading the nation with a strong annual growth of 9.7 per cent.

Mr Swan said the Government was determined to manage the economy in such a way as to promote growth.

National Nine News - RBA Interest Rate Cut (Oct 08)

Good News for First Home Buyers in Sydney!

From Aussie Legal Posted: 15/October/2008 at 02:45

The newly increased $21,000 Grant for First Home Buyers in Australia will be available immediately and for the rest of the 2008-09 financial year, it was reported today. The Prime Minister said today the first home buyers grant will double to $14,000 for those buying an established home and triple to $21,000 for those buying a newly built home.

That means for a typical first home buyer in Sydney (price up to $400,000), the $21,000 Grant for First Home Buyers will take care of all major costs including mortgage insurance and/or deposit when purchased with a No Deposit or 3% deposit home loan. To complete your purchase without a contribution for deposit or mortgage insurance, though, you need to apply for your First Home Owners Grant with your Mortgage Consultant who then submits it through your lender, so that you can have the grant funds available at settlement.

As New South Wales and some other states exempts eligible first home purchasers from stamp duty up to a maximum price level (nil stamp duty upto $500,000 in Sydney), you make the application for exemption through your Solicitors.

Disclaimer: The information in this public forum is general information only and should not be regarded as legal or financial advice in any way. Please see a solicitor or financial advisor for formal advice regarding your situation

Interest rates may reach 8-year low

by Rachel Seymour of Inside Finance 16/10/2008

Interest rates could drop to to the lowest level for over eight years, according to Macquarie Group interest rate strategist Rory Robertson. He is forcasting that the Reserve Bank of Australia (RBA) would cut the official cash rate from 6% to 4.25% over the next 12 months.

Due to the crisis in global financial markets, the Australian economy is under immense pressure and has been slowing towards a recession. If interest rates did drop to 4.25% it would be the lowest rate since the aftermath of the September 11 terrorist attacks in the US.
''As the financial conditions continue to deteriorate, the Reserve Bank is becoming increasingly worried about the outlook for growth,'' Mr Robertson said.

''So the Reserve Bank is cutting aggressively to limit the risk of recession in Australia.''


Suggestions that an unprecedented zero interest rate by 2010 could be on the cards, come from one Sydney academic who believes that debt-laden consumers will stop spending all together and threaten to push the economy into a deep economic contraction.

Economists are expecting the RBA will cut interest rates by 75 basis points in November and then again by three-quarter of a percentage point in December.

Such cuts would take the cash rate to 5.25% in November and 4.5% by Christmas, a level not seen since mid 2002.

When the RBA cut rates by 100 basis points earlier this month, it was the largest one-off cut since May 1992.

Huge boost to cash grants for home buyers

By Mark Davis Political Correspondent SMH
October 15, 2008

CASH grants to first home buyers will be doubled to $14,000 - and trebled to $21,000 for those buying newly built properties - over the next eight months under the Federal Government's economic package.

The Prime Minister, Kevin Rudd, said the move was designed to stimulate construction and help first home buyers, tackling the economy's "twin challenges" of a subdued housing industry and poor affordability.

First home buyers are already eligible for a grant of $7000, which is funded by the Federal Government and administered by the states.

Now anyone who signs a contract to buy their first home from yesterday until June 30 next will be eligible for a grant of $14,000 if they buy an established dwelling and $21,000 if they buy a new house or apartment.

Mr Rudd said about 150,000 people were expected to benefit and the measure would cost the Government almost $1.5 billion.

"The construction sector and private dwellings investment are important generators of economic activity," he told Parliament. "They are also important for the well-being and the living standards of Australians."

The higher grants, which follow last week's 1 percentage point cut in official interest rates, will give a shot in the arm to a housing market hit by higher interest rates and falling consumer confidence.

The latest statistics show housing loan approvals in August were down 25 per cent from their peak in the middle of last year and council approvals for construction of new dwellings were down more than 8 per cent compared with a year earlier.

The housing industry welcomed the move but developers warned it needed to be matched by action by local and state governments to release new land and speed up planning approvals.

The managing director of the Housing Industry Association, Ron Silberberg, said the grants would stimulate activity and help address the housing shortage.

He said that in 2001 when the Howard government doubled the first home owners grant for new house purchases, the number of dwellings built rose by 3000 a month in nine months. He expected yesterday's initiative to boost new dwellings by 15,000.

Meriton's sales manager, James Sialepis, said:"It will now be much easier for potential purchasers to provide their initial deposit. The grant is nearly half an average deposit."

Australand's NSW general manager, residential, Tony Pizzolato, said it would stimulate demand and improve sentiment among home buyers.

But many potential buyers might wait for a couple of months before deciding whether to enter the market. "Our customers are telling us they want to see how the global economic turmoil and the possibility of job losses play out before committing themselves."

Economists welcomed the grants for newly built homes but were sceptical about the increase for those buying established homes. The ANZ Bank economist Riki Polygenis said the extra $7000 for existing homes would have little impact on housing activity and might really be designed to prevent falls in prices. "However, the $14,000 for first-time buyers of newly constructed homes should, because its time period is limited, pull forward demand."

Mortgage Brokers - Friend Or Foe?

By Mortgage Rebate - Australia

Mortgage broker.... two words that create different feelings for different people. There are definitely some bad stories out there, but is it really fair to tar all brokers with the same brush? After all, their are bad people in every industry including the lenders who are increasingly pressuring ordinary staff into sales based performance measures.

There is not doubt that obtaining your home loan through a mortgage broker is more convenient and will save you time. However dealing with a good mortgage broker will also save you ongoing stress and possibly thousands of dollars by helping you find the right loan, the right lender and staying with you in good times and bad.

Let's start with some basics. Although there is some debate as to who a mortgage broker works for and how they operate, it is generally agreed that a mortgage broker is an intermediary between lenders and borrowers. The question of who the broker is working for becomes grey because they are paid by the lender, yet much of the benefit of a good mortgage broker is given to the borrower.

Benefits of a good mortgage broker.
The first benefit is mortgage brokers deal with and understand a number of lenders and hundreds of different loan types. A good broker has the ability to listen to what you need, assess how you use your money and develop a loan structure that has the necessary features to help you manage it and pay it off as quickly as possible. Good brokers then take these features to the market to source out the best value home loan that offers these features.

A good mortgage broker will also understand the differences between the different lenders wordings and will be able to help you steer around marketing traps carefully placed by the lender to win your business. So by talking with a good mortgage broker, you have a single conversation that gets tested across hundreds of home loans.

Another benefit is a good mortgage broker stays with you as your needs change. Lenders simply can't. Home loans take years to completely pay off and during that time, lenders will slip from being competitive to not so competitive, being helpful, to not being so helpful. When it comes time to change, your mortgage broker can change with you, so you're not left to start again every time your loan gets stale.

The problem with mortgage brokers.
There are two problems with mortgage brokers. The first is that many, although not all, work on commission only. This creates a financial pressure for them that may lead them to make improper recommendations due to either greed, desperation or a combination of both. Contrary to popular belief, many lenders also set sales performance targets and incentives for their staff, whether they are tellers or 'home loan specialists'. Worse still, there are now quite a few small business franchise operations amongst the non bank and bank lenders, that appear bigger than they really are, which lulls the unwitting borrower into a false sense of security.

The second significant problem with mortgage brokers can be a lack of experience and capability. Whilst it is true that the longer you do something, the better at it you should be, time is not the only measure and even some brokers who have been in the industry for several years inadvertently make mistakes.

The challenge for borrowers.
The Australian home loan market is bewildering. Common terms like Offset have different meanings depending on which loan and which lender you are dealing with. Even basic terms like Fixed Rate have been hijacked by unscrupulous lenders to have a different meaning. Consequently, borrowers need to place their trust in someone. It is impossible for anyone outside the mortgage industry to accurately compare home loans from more than about two lenders. Borrowers simply don't have the time, the tools or the experience to pit themselves against lenders out to win their business.

Instead of attempting to evaluate home loans, smart borrowers are now developing the knowledge to identify a good mortgage broker as that is a lot easier to do than spotting a good home loan. However if you are thinking of using a mortgage broker to assess or arrange your mortgage, do more than ask a friend for a recommendation.

Spotting a good broker.
Spotting a good mortgage broker isn't that hard. Just asking a short set of questions and paying close attention to the answers is all you need to do. A good mortgage broker:

1.Won't charge you any extra, unless they refund 100% of all commissions they receive.
2.Has a minimum of three years mortgage brokering experience or they are required to test each recommendation with a broker who has three years or more experience before they make any recommendations to you.
3.Will not make recommendations off the top of their head.
4.Does not use a single software package to identify solutions on the spot.
5.Will put their recommendations in writing and explain the reasons for the recommendations to you.
6.Does not rely on commissions to survive.
7.Is paid regardless of whether you take up their services or not.
8.Has the appropriate professional memberships (COSL and either FBAA or MFAA).
9.Is fully insured for Professional Indemnity.
10.Make sure your mortgage broker can tick all of these boxes. If they give you a mortgage rebate, that's a bonus.

©2008 Mortgage Rebate

Chance to slash mortgage

By Nicole Pedersen-McKinnon
September 7, 2008


Maintain repayments and you're really in the money.

THE Reserve Bank has handed you a huge opportunity. And I mean - at a conservative estimate - tens of thousands of dollars huge.

There were months of media speculation about whether the commercial banks would pass on a Reserve Bank rate cut. When it came, they virtually fell over themselves to do so.

Assuming yours delivered the full 25 basis points, your required repayments will soon drop by about $17 a month for each $100,000 you have borrowed, or $43 for each $250,000.

With cost pressures seeming to grow by the day, that's welcome news. It gets better, though.

The cut takes the Infochoice benchmark variable rate (IBVR) - a weighted average rate that reflects the discounts people commonly receive on the quoted standard variable rate - from 9.3 per cent to 9.05 per cent.

That means you will now pay almost $13,000 less in loan interest over the life of a $250,000 home loan, $25,818 less on a $500,000 loan and $38,726 less on a $750,000 one (25-year term).

But here's where the enormous opportunity lies: if you can manage to leave your repayments at their current level, you will keep from the bank - and for yourself - far more. For example:

* What is now a $43 overpayment on a $250,000 mortgage will save you $17,000 in loan interest.

* What is now an $86 overpayment on a $500,000 mortgage will save you nearly $35,000.

* And what is now a $129 overpayment on a $750,000 mortgage will save you just under $52,000.

In all three cases you will also repay your loan a whole year early.

Bear in mind, too, that this is the effect of maintaining your repayments when there has been just one rate cut. Some economists are predicting more like four in the next year in a bid to stimulate economic growth and buffer Australia from the global credit crisis.

How would a full 1 per cent fall change the figures? If the IBVR moved from 9.3 to 8.3 but you held your repayments steady, you would save $49,408 in interest on a $250,000 loan, $98,305 on a $500,000 loan and $147,773 on a $750,000 loan.

Yes, that much. And remember, it's not cost you one cent beyond what you are used to paying. In all instances you would also be debt-free 31/2 years sooner.

The reason keeping your repayments at the same level when rates fall is so powerful is that, immediately, less goes towards interest and therefore more to paying down your principal. The lower the rate drops, the more dramatic the effect.

So maintaining repayments come what may is one of the smartest ways to beat debt. With your mortgage outlay, if at all possible, the only way should be up.

What do you do to make sure you get the savings on offer? Nothing. Unless you say otherwise, your bank is unlikely to reduce the amount it debits for your monthly repayments. They are typically much quicker to adjust direct debits for rate rises because they are out of pocket if they don't.

Of course, for you to get the full benefit of what will now be extra repayments, your bank will need in future to cut its interest rates at pace with the RBA. And with profits squeezed courtesy of the credit crunch, none will commit to that.

Still, every little bit helps.