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

Are Mortgage Brokers honest with home buyers and refinancing Homeowners

Mortgage brokers are in the firing line of late, and now Westpac bank and the Commonwealth bank are putting pressure on accredited mortgage brokers, telling them that if they don’t have a certain number of loans settle with them within a 6 month time frame, they will lose their accreditation with the lender. This brings into question a brokers relationship with his or her customer.

The mortgage brokers have responded by saying that their “Independence” is in jeopardy, because many brokers will bow to the pressure and set loans for clients for the home buyers or refinancing homeowner with these lenders, rather than the best loan for the customer.

In my prior article I was a little harsh on mortgage brokers, and this brought up the question of the meaning of the "honesty" of the dealings of the Mortgage brokers.

So here is my revised take on this important topic.

The Mortgage Brokers Intent indicates his or her honesty.

Honesty in this context should not be taken on a legal or literal definition of the relationship between the mortgage broker and the lender and the home buyer or refinanced homeowner, but on the intent of the mortgage broker when they are helping their customer select the best loan for them.

If the Mortgage Broker has the intention of always selecting the very best mortgage lender and mortgage loan product for their customer, then its obvious to an impartial viewer that the mortgage broker can be considered an honest mortgage broker.

If the Mortgage broker explains to the client that they are offering a no cost loan service to them, because the lenders are paying them a commission for introducing the loan to the lender, they are being honest in my view.

If on the other-hand the mortgage is selected because it favours the mortgage broker and his or her own personal interest, then the mortgage broker would have to be considered dishonest in my view.

Banks and other mortgage lenders that offer lenders inducements to put loans through them, compromise the brokers’ impartiality and their honesty, and the trust that a customer puts in them. So do lenders that force lenders to have sales targets. Doing so in my view makes mortgage brokers appear commission representatives of the lender. 

That has to be a bad thing for the mortgage broker industry and the customer than place their trust in a Mortgage Broker to do the right thing by them, according to Mr Mortgage

Mortgage lenders OK with RBA leaving interest rates on hold

Australia appears to have escaped the worst of the world financial crisis and the recession we had to have seems to have evaporated.

The Reserve Bank of Australia in deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June meeting has basically acted on the buoyant retail sales, new home sales and good employment data as well as the recovery happening with our trading partners.

The Rudd government must be dancing in the corridors of Parliament house. Expect them to make the Liberal opposition pay now for its criticism of the stimulus package handouts, and first home owners Grant boost, which saved the building industry from decline and job losses. The Retail industry must also be thankful as the stimulus reaped them a record April shopping spree. Things are looking good.

The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders because there is money to throw at any weakness the RBA board sees later in the year.

In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.

"The turnaround is clearest in China nd some other emerging countries [from the recession]," he said.

"Recovery in the major countries is likely to take longer to begin and be slower when it does occur."

Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.

"The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed."

The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.

The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government's stimulus packages.

The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.

Is Australia building a housing bubble that is yet to burst?

Australia’s housing market has fared much better over the past several years compared to the US or even the UK property markets, and for some that means that Australia’s housing bubble burst has been postponed to a later date. The signs are that the market is heating up due to the housing construction industry being a key a growing Australian economy. And our economy looks in better shape, and do our banks, who continue to lend money to homebuyers, although at lower Loan to value ratios than in the past.

Home mortgage interest rates in Australia are at their lowest since records were kept so home ownership for those with secure incomes is more affordable than for the last 5 years. THe Beserve Bank of Australia has hinted that they have more to slice off the rates if it proves necessary to stimulate the economy further. They are also mindful that a over heated housing market will not be in anyone's interest.

First-home buyers are swimming in the cash streams created by the tripling of the First home Owners Grant for new homes, and this has boosted a flagging home construction industry in the wake of the economic downturn.

With the recent extension of the First Home Owners Grant boost to the end of the year, we can predict that the building boom will continue til then at least for the first home Buyers. And hopefully that will translate into the second home market picking up. 

This all sounds great so where’s the problem I here you ask.

Well here’s the problem. The New First Home Owners Grant Boost is expected to be reduced in January 2010. And on top of that interest rates are expected to rise.

Will the new home owners be able to cope with these new repayments, especially the ones that were shoe horned into tight loans to begin with. These will become the new mortgage stressed depending on how high those rates do go.

Should rising job losses continue into next year one could expect a glut of homes on the home market and that would mean lower home prices, because homes would be less affordable, and the grant would be less meaning secondhand buyers would have a lower grant and this would mean they would have to save more, and put off the purchase till the deposits were saved.

My personal view is that this is unlikely, as these owners will have to live somewhere and rental accommodation has become scarce in Most Capital cities, so they will somehow find the money to stay in their homes, and economise in other areas to do that.

So my advise to you is this. If you can afford to buy now, and you have job or income security, then buy your home now. Uncertainty in your life is something we all have to live with, but it’s a good reason to put off doing what you will have to do at some stage.

If on the other-hand you do have reason to fear you or your partner may lose your job, and you don’t have great prospects to get re-employed quickly, then it may be wise to sit on the fence and see which way the cat jumps.

Even is that is the case, maybe buying a secondhand home at a moderate price may be the best way for you to go. This will give you a quicker transition to home ownership, and lower repayments. It should also mean you are closer to the city cent re and work. This would also reduce transport costs and male it easier to make the repayments should the worse happen.

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.

Lenders face Mortgage losses on the collapse of Raptis' Gold Coast projects

 27 lenders are owed a combined $940 million by the collapsed Gold Coast Raptis property empire.

Many of those lenders are expected to suffer substantial losses.

Raptis Group administrator Brian Silvia of BRI Ferrier yesterday said all Raptis's assets had been mortgaged to financiers, with the amount of funds to be recovered expected to hinge on the health of the property sector. 

"It's fair to say all the properties in the group are fairly heavily mortgaged and there will be a number of shortfalls to some financiers," Mr Silvia said. 

He declined to comment on which banks or financiers were most likely to be stung by the collapse. The ANZ, Westpac and St George are all understood to have lent money to various arms of the Raptis web of about 90 companies. 

Capital Finance Australia, an arm of global financier HBOS, lent Raptis up to $500 million in August last year. 

Struggling Gold Coast financiers City Pacific and the Octaviar Premium Income Fund (formerly MFS PIF) have about $75 million worth of direct or indirect exposure to Raptis. 

Octaviar is understood to be owed about $35 million by the crumbling Raptis empire, while City Pacific has a $25 million loan to a property development joint venture between Raptis and CIY affiliate CP1. 

City Pacific managing director John Ellis said City Pacific would have a "residual exposure" to the Raptis Group of between $10 million and $12 million, after the land associated with that joint venture -- now in receivership -- was sold. 

Separately, Mr Ellis said the City Pacific First Mortgage Fund had lent $17.9 million to SP Marina, another joint venture between City Pacific and Raptis. 

That exposure would be "reduced to nil" for the mortgage fund because an "alternate partner" had taken on Raptis's share of the development, Mr Ellis said. 

However, City Pacific itself had also provided a "loan facility" to SP Marina for $25.8 million. 

The parent company of the Jim Raptis-backed empire, the listed Raptis Group, collapsed on Monday for the second time in less than two decades. 

The collapse of the group -- one of the biggest developers on the Gold Coast, with projects such as the massive Southport Central -- follows the 1993 meltdown of the company in the last property slump, in which Raptis investors lost more than $65 million. 

Mr Silvia said Mr Raptis had provided him with a proposal to restructure the group and Raptis-arm Rapcivic Contractors, which collapsed in December. "Whether or not there is the potential to restructure at this stage I don't know," Mr Silvia said. 

He said Mr Raptis had claimed he was seeking to place his opulent Gold Coast home -- valued at about $12 million 18 months ago -- on the market. 

However, Mr Silvia said Mr Raptis said he had not yet seen the property listing and Mr Raptis had not told him he intended to inject the proceeds into Raptis Group.

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

Australia's housing problem to get worse with rising mortgage rates and house prices forecast

Australia's housing affordability will get worse before it gets any better, with home mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today. Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.

Any mortgage rate rise will compound already stretched household budgets after last year's three interest rate rises. More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis. ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.

But this time the problem was also rising house prices, which would be “a problem for some time to come,'' Mr Eslake said. Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.

Young home buyers are the victims.

The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom. This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments. NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits. But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.

Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant. But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices. The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.

Infrastructure is key

Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure. ”Supply has to be where demand is,'' he said. Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs. He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.

Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices. But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.

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?]

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