Mortgage Shopper

Mortgage rate alert. CBA increases fixed interest mortgage rate

Mortgage rates tipped to increase as CBA ups fixed rate mortgage ahead of RBA rises.

Mortgage rate alert: Mortgage Rates are now tipped to rise several times as the Australian economy strengthens. Whilst The National Australia Bank and the Commonwealth Bank of Australia might both claim that they are the biggest bank in Australia, in terms of mortgage home loans, the CBA grabs first place.

And as Australians relish the fact that they missed out on the World recession and have renewed their love affair with residential property the banks are tipping the Reserve Bank of Australia will be raising the cash rate anytime soon.

This was verified by the Commonwealth Bank raising interest rates on its new fixed-rate loan offers. 

Raising interest rates on future fixed-rate loans without any increase by the Reserve Bank, is an indicator that variable rate increases are coming. 

The Commonwealth's one-year fixed rates will rise by half a percentage point to 6.19 per cent.

Its two-year fixed rate mortgage is going up by 30 basis points, while three-year fixed home loan rates will increase by 15 basis points.

Treasurer Wayne Swan said today that "banks usually increase their fixed rates in response to higher global funding costs, while their variable rate changes tend to track the RBA's movements."

"It's a measure of what's going on in international markets as much as anything else," he said.

In the meantime The Governor of the Reserve Bank made the point yesterday that the increasing strength of the Australian Dollar and economy are pointing to rising interest rates in the near term.

Author: Rick Adlam Mr Mortgage

Fixed Rate Mortgage Loans die as cheaper rates of basic variable home loans wins over home buyers

The variable home loan is king in Australia and basic variable is moving ahead in the mortgage wars.

Australian Home buyers love affair with fixed rate mortgage loans is over, with mortgage brokers reporting less than 10% of their home loan approvals are fixed rate loans these days.

Variable home loans are king, and make up over 90 per cent of the residential lending market mortgage loan approvals.

The basic [no frills] variable home loan is ahead in the mortgage stakes with the majority of customers opting for lower rates over flexibility options.

Our experience is that in two or three years these people are back to us looking for the flexibility of the standard variable loan, says Gold Coast Mortgage Broker  Rick Adlam of  MrMortgage.com.au   

Basic variable loans have fewer loan features and less flexibility than a standard variable loan, says Rick, but in this climate “money talks”.

Fixed rate mortgage home loans have never been popular 

with Australians, and unless we see Federal backed mortgage industry 

like in the US, they probably never will be a popular mortgage choice.

Home loan mortgage rates on variable mortgage loans generally move in line with interest rates as set by the Reserve Bank of Australia (RBA), which has successively cut its official cash rate over the last six months over 4 percentage points.

The Housing construction industry is still moving steadily along on the Gold Coast thanks to the Rudd Federal Governments decision to Boost the First home owners grant back in October, and to extend this till the end of 2009. 

The basic variable home mortgage loan is the favourite pick of new home owners.

Australian homes are more affordable than 5 years ago, due to falling property values and mortgage interest rates rates

Is now a good time to buy a home? Some say so. The RBA say that a typical home worth a little over four times the average household's annual after-tax income This is down from almost six times, just five years ago.

Strong growth in incomes over the last three months, [despite rising unemployment levels] and a period of more sluggish median house price growth are working in the interests of first time home buyers.

But housing still remains expensive by historic standards. In the 1980s, it took just three times the average annual disposable income to afford a median priced home.

Australia

remains one of the least affordable countries in the world. In

Canada

the multiple is less than four. In the

United States

it has remained at about three times annual disposable income for the past two decades and precipitous house price falls in some areas of the

US

has reduced this even further.

The governor of the Reserve Bank, Glenn Stevens, said yesterday that the gradual improvement in affordability suggested Australian house prices were not heading for the same large price falls witnessed in other countries.

"In

Australia

's case, the ratio of the median dwelling price to average household income has declined quite noticeably since 2003, without a very large absolute decline in housing prices.

"This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy."

Also working in favour of prospective home buyers has been the drop in mortgage interest rates to their lowest since the 1960s. Mr Stevens said this had already delivered a significant boost to household spending power. "I don't have much doubt that certainly for the household sector, this is an expansionary setting of policy."

Mr Stevens has also held open the possibility of further small interest rate cuts if needed to boost consumer confidence.

Mortgage borrowers with newly floated RAMS face a rate hike

Shares in RAMS have more than halved, with investors panicking because the newly floated home-loans company failed to refinance its short-term debt overnight.

And the broader market is again down sharply. The All Ords was 205.5 points lower at 5596 a short time ago. The fall has wiped out the last of 2007's sharemarket gains.

A short time ago RAMS shares were down 70c to 65c. They were trading at more than $2 this time last week. The company floated at $2.50 a share just two weeks ago.

RAMS said this morning it was unable to complete a funding transaction overnight in the US.

The non-bank lender said a lack of market liquidity meant it was unable to sell so-called $6.2 billion of "extendable commercial paper" - it's main source of funding.

"The company is taking active steps to refinance the programs,'' RAMS said in a statement to the ASX.

RAMS has 180 days to find buyers for the debt. The buyers would get a rate that yields 25 basis points more than the London interbank offered rate. This debt yielded less than the London interbank offered rate only two weeks ago.

If RAMS financing costs rise sharply it could be forced to pass on the increases to the thousands of Australians who have borrowed a total of about $13 billion from the mortgage house.

RAMS said earlier this week that an increased cost of funding will have a material negative impact on its fiscal 2008 earnings forecast.

"The full extent of that effect will be only know when the refinancing has been completed, the result of which will depend on market conditions at the time,'' it added.

RAMS reiterated that it has no US sub-prime lending exposure and that all its loans are 100 per cent mortgage insured.

"The current issues being experienced are as a result of the tightening in the global credit markets and not the performance of the company,'' it said.

"The underlying business of the company continues to operate profitably.''

Source: Daily Telegraph

Mortgage interest rates pressure states fault says John Howard

Prime Minister John Howard has blamed the states for putting upward pressure on mortgage interest rates, ahead of the Reserve Bank of Australia's meeting this week.

John Howard was speaking about this week's Reserve Bank meeting where official interest rates that effect home loan mortgage rates are tipped to be increased.

He says while the Federal Government is running a budget surplus, the states are going into debt.

"My point simply is that if you go into debt, you have to borrow to finance that debt and when you borrow the finance that debt, you put up with pressure on interest rates because you compete with private borrowers," he said.

Source: ABC

Mortgage Brokers lending skills blamed for mortgage home loan default rise.

[As the Howard Government tries to play catch up with the Labor opposition, they are looking for people to blame [don't they have mirrors in Canberra?] and have turned on the innovative mortgage brokers and non bank mortgage funders, blaming them as the source of Australia's Housing market meltdown and debt crisis, instead of the fact that Liberal's work choices scheme is preventing Australians from earning a decent wage so that they could pay their mortgage when due.]

A Howard Government inquiry into mortgage finance may [wait for it] recommend first time home buyers be required to put up a deposit of 20 per cent. [That would spell the end of the first home buyer in Australia. 20 percent deposit hasn't been the norm since mortgage insurance cam into the market thirty years ago, when homes and land on a quarter acre could be bought for $20,000 to $30,000 dollars. If people could not save $6,000 for a deposit then, how can they save $100,000 for a deposit and all the costs that Governments suck out of home buyers and developers now?]

The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.

Personal bankruptcies up 17 percent 

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. [Not the 'villian' mortgage brokers and the non bank mortgage industry players.]

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.

The McMansion dream

"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: The Australian

[PS Someone needs to tell these Liberal and National Party pricks that mortgage brokers don't make decisions on who is accepted or declined a mortgage. It is the bank, the non bank lender and or the mortgage insurer who decide that. All the mortgage broker does is take applications and put them to lenders. How these Howard Govenment dunderheads believe that they can change mortgage defaults by blaming someone who has no control over the decision, explains why the Liberals are lagging in the polls. They don't know the problem, so how can they figure a solution?]

Mortgage market growth tipped to slide

Fewer Australians plan to take out a mortgage home loan over the next 12 months, leading to fears the mortgage market will slow.

A survey in May by the Mortgage and Finance Association of Australia (MFAA) and BankWest found almost one in five of the 814 respondents expected to take out a new home loan in the next 12 months, down from 25.9 per cent in November 2006. The number of people who are unsure or never expect to take out a home loan rose to 37.2 per cent from 32.6 per cent in November. MFAA chief executive Phil Naylor said the changes indicated more Australians perceived home ownership to be out of reach. The survey showed that 61.6 per cent of respondents expected residential property prices to rise in the next quarter, up strongly from 43 per cent in November. However, Mr Naylor said other findings showed a more positive outlook than six months earlier. "More people are confident interest rates will stay put for now ... and more people said they are in a better financial position than last year." Some 45.1 per cent expected interest rates to rise in the next quarter, down from 81.1 per cent in November. BankWest head of broker sales Phil Colton said the potential for a slowdown in home buying was likely to affect all states, as the survey showed no major difference in expectations between states. "We are coming off an active time in the home loan market in Queensland and Western Australia and there is some expectation that this will slow, which is further supported by this latest research," he said. Recent Australian Bureau of Statistics data showed the number of home loans for owner-occupied housing inched up 0.1 per cent in May to 66,040. The result was 5.5 per cent higher than in May last year.

Source: AAP

Australia's strong economy pressures a rate rise

Australia's inflationary pressures to mount as the economy is grows above trend rates suggesting a rate rise in 2008.

The sheer pace of economic activity in Australia has picked up in March, with interest rates likely to rise next year, says Westpac.

The Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace of activity three to nine months in the future, was 4.4 per cent, and above its long-term trend of 4 per cent.

The annualised growth rate of the coincident index was 5.7 per cent, which was well above its long-term trend of 3.6 per cent.

Economy to gain strength

Westpac senior economist Andrew Hanlan said the outcome pointed to a positive economic outlook.

"We saw the Australian economy gather momentum late in 2006 and into early 2007," he said.

"Non-farm GDP strengthened in the December quarter and year-ended growth was a healthy 3.5 per cent.

"A significant lift in consumer spending also suggests the economy has accelerated."

Mr Hanlan said real retail sales over the last two quarters were up 6 per cent annualised, the strongest pace since the housing boom of 2003-04.

"In our view the Leading Index suggests that this new found momentum in the Australian economy is likely to be sustained throughout 2007."

Rates set to rise
The international economy continues to provide a significant stimulus to our economy, Mr Hanlan said.

"The risk is that inflation pressures re-emerge with the labour market to tighten further and the housing sector to move into recovery mode," he said.

Mr Hanlan said the inflationary pressures would most likely lead to an interest-rate rise in Australia in the first half of 2008.  The central bank raised interest rates three times in 2006.

Westpac said that although global economic expansion was set to continue, the pace at which many economies grow was likely to slow over the coming months.

AAP

First time home buyers return to the housing market

First time home buyers have returned to the Australian housing market in droves.

Bank and non bank home loan data from the Bureau of Statistics shows that first-time buyers across Australia made up 18.2 per cent of the market in March. That was the highest level since April 2006, the month before the first of three interest rate increases. However, first-home buyers now make up a much smaller proportion of the market than in the late 1990s and early 2000s.

Home Loan size nearly doubles.

The average new loan approval for a first-home buyer in March was a record $231,600 — up $105,700 since the start of 2001 or almost double. Reflecting that increase, the share of first-time buyers has fallen from 24 per cent in 2001 — the year after the first-home buyers grant was introduced — to just 17.5 per cent last year. Figures for Victoria are similar to the national figures: the proportion of first-home buyers has dipped since the start of the decade but rose in March to make up 20.4 per cent of the market. Housing Industry Association chief economist Harley Dale said housing affordability would need to improve for the recovery in first-time buyers to be sustained. "We have seen before, however, that improvement in the first-home buyer segment of the market proves all too short-lived in the current climate of record low housing affordability." Across Australia, loans approved to all owner occupiers rose a seasonally adjusted 1.3 per cent in March to 63,335, the ABS data released yesterday shows. This was slightly below economists' forecasts. In Victoria there was a 0.4 per cent dip to 14,156 after four months of increases while in the subdued NSW market there was an increase in lending for the third straight month. Economists also pointed to a fall in lending to investors in March after a climb in recent months.

Property Investment Lending Up

In February the value of lending to investors reached its highest monthly level since November 2003. But in March the value of lending to investors on a seasonally adjusted basis fell 5 per cent from February to $6.3 billion. In trend terms, however, it was up slightly. "While housing-related finance to investment purposes fell, this is viewed as a mild correction following four consecutive months of solid increases," JPMorgan economist Jarrod Kerr said in a report. "Investors continue to underpin demand for housing-related financing as the recent uptrend in rents, coupled with a more moderate pace of house price appreciation, has generated an attractive gross rental yield." Mr Kerr expects increased home lending in the second half of the year, with the Reserve Bank tipped to keep interest rates on hold, and in a climate of rising wages and tight labour markets. Meanwhile an Australian Industry Group-Australian Constructors Association survey of leading builders has found that building activity in the engineering and non-residential sectors is set to moderate in the next two years but remain solid. The value of total construction work by the private sector is tipped to reach about $72 billion in 2008.

Source: Australian Bureau of Statistics

Property investment goes into orbit

Investment in residential property is back in favour as data shows record levels of investment during April 2007 as people bet on a stronger property market and capital gains in 2007.

The AFG Mortgage Index shows that last month 33.8 per cent of mortgages were sold to investors rather than owner occupiers in April – an increase on March’s all time high of 32.9 per cent and a significant increase on the figure of 28.3 per cent recorded 12 months ago.

Western Australia and Queensland continue to drive the housing property market for investors, but it is the growing resurgence in New South Wales, Victoria and South Australia which is  leading to the dream scenario of healthy, growing markets coast-to-coast.

Despite fears about the WA market coming off the boil, investment there continues at near record levels and the average mortgage size broke through the $350,000 barrier last month.

Positive property outlook

Mark Hewitt, General Manager of Sales and Operations said things were looking positive for the property market.

“It is seldom that we see the indicators for every state looking positive, but right now that’s exactly what’s happening," he said.

"The levelling off in interest rates is just what property markets on the east coast need to build up a momentum. Meanwhile the strength of the resources sector continues to support property markets in WA and Queensland."

"We’ve just been doing our internal business forecasts for the next year and AFG is very positive about the year ahead.”

Mortgage size growing
The average home loan nationally now stands at $307,000, with the highest average loans in NSW ($362,000) and WA ($352,000) followed by Queensland (($288,000), Victoria ($277,000) and South Australia ($231,000).

Paradoxically, loan-valuation-ratios (LVRs), which are the value of a loan expressed as a percentage of the value of a property, are lowest in WA (55.4 per cent) and NSW (67.7 per cent), where the cost of housing is highest. Victoria has the highest LVR in the country of 73.0 per cent.
Source:NEWS.com.au