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.
October 2011 has brought with it a minor recover in the number of new home sales in Australia. This was at least a small improvement from the lowest result in more than a decade.
The latest HIA – JELD-WEN New Home Sales Report found the number of new homes sold in the month of October 2011 increased by 5.5 %, although sales remained down by 8.0 % over the quarter to October.
A lift in demand for new home sales, no matter how small is positive news for the Australian Construction industry.The recent drop in the cost of fixed rate home loans as well as decline in variable rates, in conjunction with a competitive building market, and a greater availability of skilled trades makes now one of the best times in history to build a new home.
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.
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.
The Howard government’s proposed $34bn package of tax cuts is likely to benefit low income earners looking to get a head start entering the housing market.
The Real Estate Institute of Australia (REIA) says this extra cash in pocket can be contributed towards extra or higher mortgage repayments to reduce the principal, thus enabling buyers to pay off their mortgage sooner. Alternatively, the money can be funnelled into a high interest savings account for use towards a future investment deposit. A negatively-geared investment property will slice off even more taxable income, resulting in buyers being liable for less tax.
Whilst many experts believe the tax cuts may boost household spending that could result in higher inflation numbers, the REIA says the phased approach to tax cuts will save homebuyers and investors money by minimising the risk of interest rate pressure, thereby keeping mortgage repayments at bay.
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.