With the US economy and commodity prices impacting on the Australian dollar and RBA warnings about an over heated capital city real estate market, the recent cut in the cash rate to 2.25% caught some by surprise. In the RBA February meeting minutes, it appears to have been a line ball decision. That, some say, leaves the door open for even further cuts.
The RBA said “It would be important to assess the effects of the measures designed to reinforce sound residential mortgage lending practices announced the Australian Prudential Regulation Authority (APRA) in December”.
APRA is keeping a close eye on lenders after a 2014 end of year surge in loans. The Australian Bureau of Statistics (ABS) lending figures for December show a marked increase in lending with a 4.1% increase in owner occupier refinanced loans, a 3.6% increase in owner occupier news loans and a 6.0% increase in investor loans.
Alan Madden from Mortgage Choice says the local market is already feeling the effects of the rate cut. “The recent rate cuts by the Reserve Bank to its lowest level in recent history, has seen a spike in loan applications from people entering the local market”.
And it’s not just buyers who are motivated by the low rates. Alan says local homeowners with a mortgage “are increasingly looking to fix their interest rate longer term to take full advantage of the low rates on offer”.
The Commonwealth Bank, Westpac and a number of other lenders have passed on the cut in full (and more, in Westpac’s case) and with no sign of a rates rise on the horizon, right now is the cheapest time in decades to get into the local real estate market.
The combination of low interest rates, foreign buyers, upgrader enthusiasm and investor momentum saw 2013 emerge from its property holding pattern and the market become reinvigorated.
RP Data analyst Cameron Kusher said he believes momentum in property will continue into the new year, propelled by investors and upgraders.
He also believes values will climb further, though not as sharply in 2014. Another of his predictions is that gross rental yields in Sydney and Melbourne will continue the decline they commenced in latter 2013, leading investors to look at alternative growth zones. These are good tidings for the Far South Coast of NSW. The last few months of the year had seen keen interest in the area, with properties that were priced right being snapped up, some as soon as they came on the market.
However, Mr. Kusher issued a warning about other economic wild cards, like the unemployment rate, stating “If it reaches 6.25% it will be the nation’s highest unemployment rate since September 2002. If people start to become nervous about their job security it is likely to result in a lower level of demand for housing.”
Rates are at their lowest levels since the 1960s and inflation is currently at 2.2%. Keep in mind that the Australian interest rates don’t operate in a bubble – they respond to what’s happening in the global economy. The recent fall of the Australian dollar of 2.5 cents against the U.S. dollar as a result of the U.S. winding back its stimulus is a reminder that inflation could increase if the dollar keeps falling and the cost of imports increase. If inflation increases we could see a rise in interest rates. The all important question now is whether the RBA will increase or decrease rates, or leave them as is in the new year.
With keen interest from both local buyers and those from interstate in Merimbula, Bega, Tura Beach, Eden and Cooma and the current low interest rates together with confidence in the real estate market, vendors should not delay listing their properties for sale. Now is a prime time to sell.
A few weeks ago, most people were banking on a rate cut – and in fact we’ve ended up with out-of-cycle rises by all four major banks and at least five smaller lenders. And with the ANZ Bank now rolling out its own decision at a set time each month, we could be in for some lengthy wait times in each of the coming months to see which way rates will go.
The Reserve Bank makes its announcement on the first Tuesday of every month and ANZ isn’t wheeling out its move until the second Friday, which means a wait of at least three days . So where does that leave borrowers? Slightly confused? Yes. Powerless? No.
If ever the banks were going to start breaking the cycle for rate rises, now isn’t necessarily a terrible time from a consumer perspective, thanks to the amount of information at borrowers’ fingertips about what rates are available in the market, and the relative ease for many to switch providers and make up the cost of doing so by negotiating a lower interest rate from their new lender.
The administrative pain of getting your documents together, filling in some forms and swapping some direct debits is very small when we are talking thousands of dollars saved over the life of the loan.
The very sweet part is that having switched now to loans that will attract no exit fee thanks to the Federal Government’s ban last year, it won’t be that hard – or expensive – to move again should there be a cheaper or better-suited offering elsewhere.
Australian borrowers will have to wait at least another month for more interest rate relief after the Reserve Bank surprised everyone by leaving its key rate unchanged. The Reserve Bank yesterday kept its cash rate at 4.25 per cent, defying expectations of a third rate cut in a row.
With the cash rate sitting at 4.25 per cent it is still in a position other western central banks can only envy, with considerable room to lower rates to stimulate growth should it be necessary.
This pause is then a genuine pause, not the end of the rate-cut program.
The Reserve needs Europe’s recovery to continue, and it needs Australia’s employment situation to stabilise, even as the Australian dollar stays well above parity with the US dollar. This will involve not so much a lowering of the jobless rate, but an increase in employment, which was flat in 2011.
If Europe deteriorates again or job growth continues to flat-line, rate cuts will resume again. And, as the Reserve notes, the inflation outlook gives it room to cut them aggressively if necessary.
Banks have warned that home buyers could miss out completely on a pre-Christmas rate cut, amid a worsening economic situation in Europe and rising borrowing costs.
Senior government ministers are urging the big banks to pass on in full the 25 basis-point rate cut announced yesterday by the Reserve Bank, but the Australian Bankers’ Association said the banks were not obliged to do so. However rising borrowing costs and the medium-term economic outlook for the global economy could stay their hand.
At least two smaller banks have already passed on the cut, but banks are not required to match RBA rate moves in full and the RBA no longer determined the actual cost of money for banks in Australia.
There’s a strong expectation the banks will follow the Reserve Bank either on the way up or on the way down but there are times – and this is one of them – when the cost of money diverges from the Reserve Bank’s interest rates.
Treasurer Wayne Swan and Finance Minister Penny Wong today both urged the banks to consider consumers and pass on the pre-Christmas cut in full. They understand the banks are operating in a global environment and it’s a tough time. But the banks also have to understand the tough environment that their customers, families and small business face.
Tony Abbott believes the banks should be passing on rate cuts in full. That’s what happened under the former government, that’s what the current treasurer says should happen and the current treasurer should use his authority and try to ensure that it happens.
The Reserve Bank cut its cash rate by 25 basis points to 4.25 per cent yesterday, the second rate cut in as many months.
Property investors have rushed back to the housing market, with Australia’s biggest mortgage broker, Australian Finance Group, processing $2.9 billion worth of mortgages last month -up 18.4 per cent on October.
Investors accounted for two out of every five mortgages written in November, a record for AFG and no doubt helped by the interest rate cut last month.
The chief economist at Westpac, Bill Evans, predicted around the middle of this year that the interest rate would move downwards. Experts in media and finance mocked this prediction, and claimed it was either a publicity stunt or an attempt to pressure the Reserve Bank into actually lowering it. But he was right. On July 15 he said the cause of the first cut would be associated with European convulsions, and further cuts would be produced by the combination of the negative effects of these European events on consumer confidence and specific domestic issues.
Dr Evans also stated that domestic interest rates are essentially too high, and predicts a full 100 basis points drop through 2012. Assuming his projections will be correct, considering he has got it right so far, sometime during 2012 we will be paying 6% interest instead of 7% on our home loans.
Owner occupiers will be able to spend over 15% more money on their homes and still have the same repayments when having to pay 7% interest. In other words, interest only repayments on a %500,000 at 7% would equal $35,000p.a and interest only repayments on $583,000 at 6% equals $35,000p.a.
If owner occupiers will be able to pay more for no greater cost, and more people can afford to invest in direct property, there will not be enough supply to satisfy demand. Currently, supply exceeds demand and this has kept prices from increasing greatly.
If Dr Evan’s predictions are correct, we can expect at least a 6- 8% increase in average property prices next year. The media has been strongly focused on “massive” price drops in our property markets. They will quote anyone who says property prices will drop by 40%. The claim that our property prices will follow the United States markets proves that they have no idea what they are talking about. The markets could not be more different. And the fact that we have a total property shortage, a growing economy, growing population and such affordable property means that there will need to be a price correction. It will not be down, it will be up. Now and the first quarter of next year will be the best time to buy property in the strongest market in Australia.
If you are considering a property purchase please come in and have a chat to one of our experienced property consultants.
Australia’s first-home market is improving, as buyers regain confidence in the property and financial markets.
Falling house prices in each capital city and in regional areas as well as a cut in lending interest rates are expected to spearhead renewed activity.
A savage slump in first-home loans fuelled by a flood of government incentives during the global financial crisis caused loan numbers to plunge 30 per cent below their long-term average. However, latest research suggests a return in demand is on its way.
According to a housing outlook report, the 60,000 first-time buyers who were “pulled forward” by the GFC incentives have now washed through the market. Data for the first six months of 2011 indicates that although first-home buyer loans declined in year-on-year terms, the rate of decline has slowed. Loans to first-home buyers in the latest June quarter were only 2 per cent below the same quarter the year before.
First-home buyers are vital to the overall real estate market because they provide an impetus for “upgraders” to enter the market. Demand from upgraders is greatest when there is strong demand (to buy) their current dwelling. This needs healthy demand from first-home buyers to provide demand for their existing dwelling and encourage them to move on. First-home buyers’ demand for new whitegoods, furniture and so forth also results in a healthy economic stimulus.
First-home buyer numbers, which have been about 95,000 a year during the past two years, are forecast to climb above 110,000 in 2012 and back to near their long-term average of 131,000 the next year.
There has been an increase in first-home buyer inquiries. As they have spent more time looking at a market with interest rate stability, wages growth and increasing rents, all these factors are encouraging first-home buyers to at least consider the market.
On the back of fresh news that Italy has now become the weakest link in the Eurozone debt crisis, stockmarkets around the world were pummelled again last week as about $30 billion was wiped off the value of Australian companies.
Although bad news for many equity investors, it’s good news for the property market with an increased probability that rates will again be cut. This could be as early as next month when the Reserve Bank (RBA) is next due to meet.
Top tips to saving more this Christmas:
As households prepare their budgets for festive season shopping splurges, now is an ideal time to unwrap the financial strategies that help borrowers gain greater control over their home loan situation. Ensure Christmas costs don’t hamper your ability to meet home loan and/or other debt commitments, by proactively managing your money.
Staying on top of financial obligations, in conjunction with careful pre and post silly season budgeting and planning, will without a doubt put you in a better position to achieve your property goals sooner. It should also give you more confidence to properly enjoy the festive season.
Here are five tips to help improve your mortgage management in the countdown to Christmas:
Tis the season to bring budgeting back on track- Get your Christmas and new year budget underway if you haven’t already. Be sure to include seasonal spending estimates for gifts, treats, catch ups, celebrations and other holiday outings
‘Tis the season for a home loan health check- Are you making the most of your loan? There may be features attached to it you are not utilising or are paying a premium for. A regular home loan health check is a great way to see if you are making the most of your existing loan or if you are better suited to a different lender and/or product. Before switching, carefully weigh up the pros and cons by comparing loan features, rate, repayment type and frequency, accessibility, fees and more.
‘Tis the season to keep repayments steady, despite recent rate cuts- If your loan’s interest rate has recently dropped, get ahead by continuing to repay at the original, higher rate. For example, take a loan of $300,000 at 7% over 30 years. If your rate reduces by 0.25% to 6.75% and you keep repaying your loan as if the interest rate was still 7%, you could shave over two and a half years off your loan term and save more than $54,000 in interest owed.
‘Tis the season to go one step further and round up repayments- If the monthly repayments on the above mentioned loan maintained at the higher rate are rounded up from $1,996 to $2,100 from day one, it is possible to cut a further three years and seven months off the loan term and save an additional $55,000 in interest owed (if all loan aspects remained the same). The total savings would equal $109,000 in interest and a reduction in the loan term to 24 years and 8 months.
‘Tis the season to turn up the frequency of repayments- Depending on your loan and lender, dividing your monthly minimum repayment in two and making fortnightly repayments instead may also save you interest owed and reduce the loan term. There are 12 months and 26 fortnights in one calendar year; by paying fortnightly, you make the equivalent of 13 monthly repayments. The savings on the above mentioned loan equal almost $100,000 in interest and almost six years off the loan term.