RP Data - What impact will the RBA cust have on housing?

What impact will this month’s interest rate cut have on the housing market? At its December Board Meeting the Reserve Bank (RBA) decided to cut official interest rates by 25 basis points for the second month in succession. This week we take a look at the likely impact on the housing market. The Reserve Bank decided to cut official interest rates this week by 25 basis points taking the cash rate to 4.25%. This was the second successive month in which interest rates had been reduced. This is the first time since February and March 2010 that we have seen successive interest rate changes, and the first time since January and February 2009 there has been successive rate cuts. As at the end of November, the average standard variable mortgage rate was 7.55% and the average 3 year fixed rate was 6.4%. It remains to be seen whether the whole 25 basis point cut will be passed on. If it is, standard variable mortgage rates will revert to decade average levels. If 3 year fixed rates remain unchanged they will be 66 basis points below the decade average. From a housing market perspective, the big question will be: Will the successive rate cuts help to stimulate activity in the housing market? Undoubtedly interest rate cuts improve housing affordability. In stating this, capital city property values have fallen by -4.0% over the 12 months to October 2011 and rental rates have risen by 4.6% which also improves affordability. As the second graph shows, in the past changes to standard variable mortgage rates have generally encouraged greater property value growth. On the other hand, interest rate increases have tended to result in lower levels of value growth. The third graph highlights the relationship between standard variable mortgage rates and consumer sentiment. Much like property value growth, higher interest rates have often resulted in lower levels of consumer confidence and vice versa. Although history can be a guide to the future, we feel that conditions are somewhat different this time round. Property values are higher than they have ever been before and although interest rate cuts and value falls help boost affordability, it remains much more affordable to rent than it is to purchase. A raft of other economic indicators also suggest that market conditions may be somewhat different than they have been in the past. Retail trade has grown by just 3.4% over the 12 months to October 2011 which is well below the decade average growth of 5.4% annually. GDP Data released for the September 2011 quarter this week shows that the Australian economy expanded by 2.5% over the year compared to an average expansion of 3.0% annually over the past decade. The data also showed that households continue to save around 10% of their income which is at levels not seen since the since the mid 1980’s. The total value of housingfinance commitments have grown by just 4.1% over the 12 months to September and have fallen by -1.3% when refinances are removed. These figures are well below the respective decade averages of 9.4% and 8.9%. Considering that European Governments are currently experiencing a debt crisis, not to mention the ongoing weakness of the US economy, things are certainly not looking as strong as they have over much of the past 10 years. Given these conditions, it would seem unlikely that even if the Australian economy continues to perform comparatively strongly that credit for housing will be as freely available as it has been in the past. So the initial question was what impact will the interest rate cut have on the housing market? If the interest rates cut is passed on it will provide a much needed hand to those home owners under mortgage stress. It would also potentially encourage some more sales transaction activity however, this is unlikely to filter through until after January next year as December and January are typically the quietest months for housing market activity. An interest rate cut would also likely provide some support to consumer confidence levels. On the other hand, given the overall economic conditions we don’t believe that two 25 basis point cuts to interest rates will provide enough stimulus to result in any significant turnaround in property value growth. We suspect that consumers will remain cautious and continue to pay down their debt, housing finance is unlikely to be flowing as freely as it has in the past and consumers will be aware that the RBA won’t be afraid to lift interest rates rapidly again should the economic outlook improve. Given this, if the cut is passed on it would likely provide welcome relief to home owners and may encourage some increase in sales activity next year however, it is unlikely to provide a stimulant for property values to once again start increasing given the broader economic conditions.

WESTPAC - Predicting the RBA to cut rates by 25bps on Dec 6

The Reserve Bank Board meets next week on December 6. Westpac has consistently argued that the current easing cycle which began on November 1 with a 25 bp rate cut will total around 100 bp's in rate cuts over its course.

On November 15 the Reserve Bank released the minutes of the November 1 meeting. Our analysis at the time was that there was considerable concern with respect to economic and financial developments in Europe and the potential impacts on the rest of the world, particularly Asia. The RBA’s opinion on the domestic economy had cooled significantly from earlier in the year and this was highlighted in significant reductions in their forecasts for economic growth and inflation over the forecast period which were released in the Statement on Monetary Policy on November 5.Westpac's own growth forecasts are lower for 2011 but broadly in line with the RBA's forecast for 2012 and 2013.At the time, we concluded that the Minutes indicated that there was scope for further rate cuts particularly with the Bank forecasting that underlying inflation would remain comfortably within the 2–3% band for both 2012 and 2013.  However we concluded that there was insufficient evidence to change our call that the next rate cut would be in February.

We emphasised that the decision on whether to bring the rate cut forward to December would depend on developments overseas, particularly in Europe and Asia.

Previous rate cut cycles have always featured an immediate follow up move but these have all begun from a much higher level with rates starting clearly in the contractionary zone. The Bank has assessed that the current setting of rates is around neutral so the decision to cut immediately after the first move is tougher.

To read the rest of the article go to:

http://www.westpac.com.au/docs/pdf/aw/economics-research/Offshore_Weekly.pdf

SMH Article on Fixed Rates 16/11/2011

FIXED RATES - Don't wind up in a bind

Article writtne by Lesley Parker - Sydney Morning Herald November 16, 2011

Borrowers should be cautious about taking a fixed-rate home loan now.

The rush of borrowers towards fixed-rate loans at a time when official interest rates have started to fall has Australia's credit ombudsman worried.
With one interest rate cut in the bag, Ombudsman Raj Venga has urged borrowers to carefully consider the implications of locking in a home loan rate - in particular, the possible ''break cost'' if they discharge the loan early to refinance or sell.
Housing finance data released last week showed that fixed-rate loans jumped from 5.6 per cent of all loans in August to 7.9 per cent in September as unusually cheap fixed rates enticed borrowers.

But Venga, who handles complaints about non-bank lenders, says although fixed rates are often seen as a way of reducing the risk of rising interest rates, ''borrowers should be aware that they may incur substantial break costs in a falling interest rate environment.''
In the past, fixed-rate loans have resulted in a spike in complaints when variable rates later drop significantly and people try to refinance.
While exit fees have been banned on variable-rate loans, lenders can still charge break costs on a fixed-rate loan to recover the amount they'll lose if the borrower leaves early.
If rates are falling and the financier has to re-lend the money at a lower rate, they're entitled to recompense. The more rates fall, the higher the break cost.
''Break costs can and do sometimes run into tens of thousands of dollars,'' Venga says.
They might be payable if the loan is refinanced or discharged within the fixed-rate period, possibly because the property is being sold; if additional funds are sought, which would require the existing loan to be discharged; and if a lump-sum repayment is made during the fixed-rate period (though some lenders allow you to prepay up to $10,000).
Before signing a contract, borrowers should seek advice on how any break costs would be calculated, Venga says.
If you're already on a fixed-rate loan and are thinking about refinancing, ask first for an indicative payout figure, making sure this includes any break cost. Remember that this payout figure might change if you don't act straight away.
Those who fixed in August and September won't have cause for regret yet. The typical fixed rate was 6.6 per cent to 7 per cent then and even after the recent rate cut the average big-four variable rate is 7.55 per cent - though some people qualify for discounts of 0.5 to one percentage points.
However, those who locked in about 8 per cent in November 2007 - when fixed-rate loans hit a record 24 per cent of all borrowing - know how costly it can be if you need to break a loan early when rates are falling.
A year after they fixed, the global financial crisis hit and rates plummeted, sending break costs soaring.
Key points
❏ Fixed-rate loans should be used for certainty not as a ''bet'' on interest rates.
❏ Break costs can be hefty if you exit early when rates are falling.
❏ Selling or refinancing may incur a break cost.
❏ Extra repayments or loan top-ups can also trigger break costs.

Read more: http://www.smh.com.au/money/borrowing/dont-wind-up-in-a-bind-20111115-1nfxi.html#ixzz1e1uVhGl6

Broking Body warns against 'laughable' One Big Switch

Here is a good article from Broker News.
Choice and One Big Switch have offered great deals based on Collective Bargaining.
Equitimax does not think this will be any better than what we can currently do and Australian Finance Group (AFG) general manager of sales and operations Mark Hewitt agrees.


AFG warns against 'laughable' One Big Switch
_{By Ben Abbott | 30/09/2011 8:00:00 AM}           

Mortgage industry aggregator Australian Finance Group (AFG) has come out in support of the broker proposition, by issuing a warning to consumers over the loan offer being provided by One Big Switch.

Following widespread criticism from the broking industry over the group buying exercise masterminded by consumer group Choice, AFG's general manager of sales and operations Mark Hewitt said the problem is One Big Switch had failed to attract major lenders to its panel.
"The proposition would be laughable if they weren’t putting people’s property on the line," Hewitt said.

Hewitt also questioned 'sweeping pronouncements' being made by representatives of the organisation - as reported in the Australian Financial Review - about financial advice in Australia being 'crap', when they are not prepared to provide financial advice themselves.
"The disclaimers on the emails that they’re sending out makes it clear that their so-called ‘members’ are on their own when it comes to deciding whether or not a mortgage deal is right for them," Hewitt said.

"Providing the best deals in the market is what aggregators and brokers do every day"

Hewitt said in the media announcement. "In the past twelve months AFG has refinanced $9.3bn of mortgages – and we are only one of several major broker groups," he said.

Earlier this week, non-banks Resimac, Firstmac, Mortgage Ezy and Mortgage Port were revealed to be the first lenders cooperating with One Big Switch on its consumer buying campaign.

Westpac - Next move from the RBA will be down

Except from Westpac Consumer Sentiment Survey

The September Westpac–Melbourne Institute Consumer Sentiment Survey was a mixed bag. Headline sentiment posted a solid rise, mainly driven, we suspect, by a more relaxed outlook for interest rates. Responses to the various ‘time to buy’ questions were also perkier, particularly for housing.

However sentiment remains in firmly pessimistic territory overall and aversion to risk is still intense.

Meanwhile a sharp deterioration in unemployment expectations lends more weight to the view that consumer demand is entering a cyclical weakening. Indeed, the worsening picture on job security effectively negates the good news from improved sentiment.

Not only does it suggest actual labour market conditions are deteriorating, it also points to a material downturn in discretionary spending and is an additional negative for already soft housing markets where job loss concerns inhibit demand.

For now we have made only minor changes to our consumer forecasts, mainly to incorporate stronger than expected Jun quarter spending estimates from the national accounts and partial data for Jul. These give a firmer near term picture for consumer demand but the broad forecast of a material weakening in remains intact.

Looking ahead, steady rates and a reduced threat of rate rises should continue to allay consumer fears of rate hikes. But with rising uncertainty around the global economy and growing signs of weakness in local labour markets, we suspect that steady rates on their own will not be enough to restore consumer confidence.  

We continue to expect that the next move from the RBA will be rate cuts starting with 25bps in Dec and culminating in a total reduction of 100bps by Sep 2012.

Australian consumers are likely to remain badly out of sorts at least until an easing bias is apparent and most probably until actual rate moves are enacted.

Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141. Information current as at date above. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Westpac’s financial services guide can be obtained by calling 132 032, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. If you wish to be removed from our e-mail, fax or mailing list please send an e-mail to economics@westpac.com.au or fax us on +61 2 8254 6934  or write to Westpac Economics at Level 2, 275 Kent Street, Sydney NSW 2000. Please state your full name, telephone/fax number and company details on all correspondence. © 2011 Westpac Banking Corporation

Interest Rates Continue to Fall - Time to Review your loan and save

Two Minutes could save you $’000s*

Let Equitimax review your Loan

The Current Banking Environment

·         International Economies are under the Spotlight
·         Ratings Agency - Downgrades
·         Australian Banks recording record profits
·         Slowing Australian Retail Market
·         Tightening of Lending Credit Policies
·         Talk of an Interest Cut by the RBA (previously it was tipped to be an Increase)
·         Cost of Funding reduced
·         Decline First Home Owners and New Loans Applications
·         Lenders offering cheaper pricing for loans with higher equity ratios
·         Increased Competition for Quality Loans

MORE COMPETITION = BETTER INTEREST RATES 
·         Fixed Rates are dropping
·         Standard Variable Rate has remained unchanged
·         Bigger discounts are available for new money applications

IF YOU DO NOTHING  .  .  .  .  .  .

YOUR RATE WILL NOT CHANGE !

·         Why are you not getting the best rate? 
·         Ask us how you can.

REVIEW YOUR LOAN and SAVE THOUSANDS*

The review should take you less than 10 mins – All we need is some information about your current loan such as

1.       Your Current Loan Balance

2.       Your Current Interest Rate

*savings depend on your specific loan. For example if Equitimax could save someone with a $500,000 loan just 0.10% that would save them $2,000 in just 4 years. 

Equitimax FAQ’s

Q. I want a cheaper rate, what are my options?

A.     (a) Refinance your loan to a cheaper lender – Equitimax can help.

(b) Apply for a loan increase – your lender may give you better pricing – Equitimax can help.

(c)  Apply for pricing from your existing lender – Equitimax can help.

(d) Consolidate loans – your lender may give you better pricing – Equitimax can help

Q. What Interest Rate should I be getting?

A. This depends on your specific loan. There is no correct answer.  Your loan rate depends on your current lender, the amount of your loan, the equity you have in your loan, you loan history & what sort of home loan you have. 

Most Variable Rates are around 7.0% at the moment.  So if you are paying a rate higher than 7.0% you should definitely give us a call.

Q. Is it a good time to fix?

A. Fixed rates are changing almost daily – sometimes it is best to wait until the dust settles. 
The good news is that they are going down and we believe there will be more lenders dropping their fixed rates soon.

Q. But Fixed Rates are currently cheaper than Variable Rates?

A. Fixed rates vary from lender to lender, however it is possible to fix in between 6.39%% and 6.79% for 2-3 years.  In most cases this will be a reduction from what clients are currently paying and therefore this is a real saving.

Q. What Fixed Rates are available at the moment?

A. Below is the table of rates as at 23/08/2011

Lender	1yr Fixed	2yr Fixed	3yr Fixed	4yr Fixed	5yr Fixed	Standard	Basic
AMP Banking	6.69%	6.69%	6.69%		6.99%	7.79%	7.02%
ANZ Bank	6.59%	6.44%	6.44%	6.89%	6.99%	7.80%	7.10%
Bankwest	6.99%	6.89%	6.99%	7.54%	7.59%	7.70%	7.10%
Citibank	6.79%	6.34%	6.34%	6.45%	6.74%	8.02%	6.95%
CBA	6.59%	6.59%	6.59%	6.99%	6.99%	7.81%	6.99%
Heritage	6.85%	6.95%	7.05%		7.49%	7.44%	7.03%
Homeside Lending	6.59%	6.59%	6.59%	7.39%	6.94%	7.70%
ING Direct	6.39%	6.39%	6.39%	6.89%	6.99%	7.34%	6.96%
Macquarie	6.50%	6.55%	6.69%	6.99%	6.99%	7.80%	6.99%
NAB	6.94%	7.09%	7.09%	7.49%	7.54%	7.67%
St George Bank	6.79%	6.59%	6.59%	6.99%	7.04%	7.80%	7.08%
Suncorp	6.59%	6.40%	6.45%		7.15%	7.83%	7.25%
Westpac Bank	6.99%	6.99%	6.79%	7.54%	7.64%	7.86%	7.16%

*these rates are a guide only to demonstrate the difference between lenders and were correct as at 23/08/2011
Professional Package Discount are based on the Standard Rate. For Lender Specific Comparison Rates please contact Equitimax.

Q. What do I need to do?

A. SIMPLE – Get Equitimax to help.

1.       Just ask us to review your loan.
With some Banks we can find out your interest rate & loan balance, however not all banks pass on this information to us.

2.       Send Equitimax an email              CLICK HERE TO EMAIL US
(a)    The Loan Balance $
(b)   Your Current Interest Rate                %
(c)    Your Lender  
(d)   Any other details you think are relevant