Mortgage News

Mortgage Lenders: New Mortgage Lending Rules to hurt home loan lenders

2011-06-28T15:41:00.000-07:00

Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.

The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.
One of the key aims of the legislation is to reduce risk-taking.
The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.
Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.
Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

Source: Mr Mortgage

Subprime Home Loans: Will Australia have a US style meltdown

2011-03-29T01:48:00.000-07:00

The US subprime meltdown occurred in 2006 to 2008, now people are saying that tAustralia is in a position for it to happen here

Many are saying that Australia is headed for a sub prime mortgage crisis similar to that in the US. I don't buy it. I don't believe that there a case for this to happen here. On many levels Australia is much better positioned.

Here's my view on Australia's Sub Prime Lending position

Australia has a better industrial relations and minimum wage support structure. So having people work for peanuts does not happen here like it did in the US. Many of those workers applied for and got sub prime mortgages.

Australia has a booming labour market that is stable

The US does not have anything like our labour market 3 years on. Things have not improved on the unemployment and wage front for two years in the US.
Our home values have trended down for three years, with occasional spikes in some centres reflecting stimulus related demand.

Australian property prices have moderated

Our property prices have trended down to a soft landing and only those that bought at the top of the property market are looking at taking a loss, if they sell.
I agree that homes in Australia may still have some way to fall, but sub-prime lenders have to front with usually 20% deposit or more, so they are going nowhere.
The US experience was different
In the US, property values soared then crashed on the basis of bad loans, not sub prime lending. many people had 120% loans.This is an entirely different situation than an 70% to 80% lend.

Mortgages work differently in Australia

In Australia, we are tied to the loan, but in the US, homeowners can walk away anytime and send the bank jingle mail. They don't suffer the same consequences as they would in Australia. So Australians are less likely to walk away from their loan or their property.

The US Equity Home Loan

The other problem that the US had was that people were using the equity in their homes as an ATM to buy cars and other big ticket items, so they were at the hilt of loan to values, before their home values collapsed.
A few people do this here also but usually to a value of 80% lend, plenty of buffer for a downturn in home values.

Mortgage loans disappeared in the US

The US lost 40% value over night, because mortgage loans went from abundant to scarce overnight.
Many homes in the US lost 75% percent of their values. Most lost 40%. Many because their financial system was broken.
Only places like San Francisco and New York did not see these numbers in loss of house values.

Credit risks were ignored in the US

The sub prime lenders in the US also lent to people that they knew could never repay the loans.
That has not happened in Australia, and even with low doc home loans, the borrower has a cash flow.
People that are credit impaired can get home loans, but higher deposits and higher rates are the norm.
The Pool of Sub prime lenders in Australia id much smaller than it was in the US
Our sub prime market is also a lot smaller in Australia than it was in the US.
I agree that if we get two more rate rises this year, then we may see less buyers in the market and a lowering of property values.

Our foreclosure rate says we don't have a sub prime lending crisis in Australia

Our foreclosure rate in Australia is tiny compared with the US
In the end we don't have a sub-prime crisis in Australia, because lenders have tightened their lending criteria.

We do have an Housing Affordability Crisis.

We do however have an affordability crisis, and this means that less and less people can afford to buy a home. It also means that less people can get a loan and get into financial difficulties by over paying on property like happened in the US.

Governments in Australia need to bring the cost of land lots down.

So yes, the government have to do something about that, and the root cause in land prices, Lower the cost of land by over $120,000 per block and affordability will return and house prices will soften further.
This means that the RBA can put interest rates up further and it won't hurt like it does now, because the borrowing will be lower.
Author: Rick Adlam Mr Mortgagehttp://www.mrmortgage.com.au

Housing Market: Mortgage Brokers are asking what happened to the housing shortage?

2011-03-23T16:15:00.000-07:00

Falling home prices and home sales tell me that the housing shortage has evaporated. Mortgage loan demand has tanked with it. So what happened?

Four years ago the HIA claimed we had a housing shortage of 80,000 units. Rents were growing and people were on waiting lists. Home Builders had and field day and so did mortgage brokers financing both homes and investment properties. Things were good.
By late last year the housing shortage had ballooned to "120,000", then 180,000 this year and was tipped to reach 200,000 homes needed to satisfy our need more homes and units by years end.

Who stopped the mortgage merry-go-round?

Most of these claims have come from the Housing Industry Association. They are echoed by real estate agents everywhere as the reason you should buy now, the best reason to sell now.
When you go and see real estate agents they tell a different story. My local area in Ormeau, has had a slow and steady rise in real estate prices for the past ten years, until late last year. Then the the last mortgage interest rate rise cut in and people stopped buying and the music stopped for the real estate merry-go-round.
I asked one of the local real estate agents what was happening to real estate prices and we had had a 10% drop in the Ormeau [North Gold Coast] area. The first drop in home values I had heard on since moving here and building anew home in 2002. Homes were selling, but not at Ormeau's solid and brisk pace.
Nice homes on large level and elevated blocks, with wide tree lined streets. this is a lovely area.

Where are the home shortages, and the mortgage business potential that goes with them?

The issue is not so much the Gold Coast but the general theme of housing shortages which dominate the property industry talk and the HIA spin nationwide. It's a grave concern to mortgage brokers

Vacant Land Sales down to the lowest levels since 1994

Mortgage brokers that haven't been seeing too much vacant land mortgage loan deals come their way lately may be interested to know that Land Sales are at the lowest level they have been since 1994.

The January floods would not have helped sales any, but the Queensland floods never affected the Gold Coast at all! So we have to conclude something deeper is happening.
According to a recent report on the Gold Coast we have 13 months of land supply at the current sales rates. So land shortages are out the window when we look for a reason for low new home sales and construction loans that go with these building contracts.
The same is true for "House and Land" sales. They are just not happening.
Lan developers on the Gold Coast say that land production over the next 12 months will reach 2455 lots. This is twice the current level of annual demand. Something will have to give.
Remember that next time you hear the Housing Industry Association or the Master Builders Association complaining about the lack of land sales or new house sales.

Boomtime with lower Home Value = oversupply

We are in a boom time, make no mistake. So the only reason that we would see home value declines is a homes for sale glut. Home buyers can pick and choose all month long and wait for prices to fall further.
The number of dwellings for sale is at its highest levels since early 2009.

Why have land sales plummeted?

There is a current lack of demand for land. I believe I have the answer to this one. Block sizes. Land developers have been cutting the size of land lots now for ten years and the prices climbs ever higher.
People are just nor seeing value in buying land that is smaller than to cam buy already built on.
As the established home prices fall, why would anyone buy a smaller block and build a smaller home and wait 12 months to move in when they could buy a finished home now that is bigger and better for less money? Your are right they wouldn't.

The biggest boomtown in Australia is Perth, but land prices are falling there too.

Land sales dropped 27 per cent in Perth in the December quarter, while average prices fell 3 per cent.
Such things do not occur amid a "chronic housing shortage crisis".
There's certainly no shortage in Adelaide, where vast areas are being opened up for new development in the north of the city.
The over-supply of building land is a fact in Western Australia Australia's boom State and in Melbourne. Victoria, Australia's biggest home market.

Mortgage Brokers need to think Refi

Mortgage brokers will have to become proactive in writing mortgage loans and should look to the mortgage refinance and home equity loans to grow their business. Home buyers and new home builders will be thin on the ground for sometime to come.

Property sales : Has the dead cat bounced in Australia's property mearket?

2011-03-08T23:57:00.000-08:00

Property sales : Has the dead cat bounced in Australia's property market?

Property sales across the country have slumped to their lowest level in 10 years. despite rising sales in Melbourne, and some upturn in Sydney's housing market
Figures from RP Data show sales of houses and units dipped 20 per cent in 2010 on the back of a number of interest rate rises, and falling demand for other reasons too I suspect.
Darwin Brisbane and Hobart all recorded lower home sales activity, with Sydney leading the way.
The "dead cat bounce" analogy
Home sales fell last year to below those recorded at the height of the global financial crisis in 2008. That was when the rest of the World had a major correction in house prices and Australia missed that bath. Hence the dead cat bounce comparison.
Whilst we have seen several raises in mortgage interest rates, they are hardly a concern at average mortgage rates we have and full employment, so my guess is that house prices have got ahead of themselves and until they soften further we are unlikely to see an upswing in home buyers any time soon.
New Responsible lending laws
One thing that people are not talking about is that from January 1st, 2011, banks had to be more diligent in the lending due to new responsible lending laws taking affect.
The fact is that new land on the Sunshine coast is so over priced that lenders may be reluctant to fund the silly prices being asked for blocks of land, on the basis that the market may well soften further and they would be caught holding the baby.
This is besides the fact that the borrowers may have a hard time meeting the repayments. It may becoming easier for bank managers to say no to loans, as the big banks are loaded with mortgage borrowers who have equity in their homes and the ability to repay the loan. Why pick up new business that does not meet that criteria?
You may have noticed that the ads from the big home builders and the developers have suddenly stopped. They are not into throwing good money after bad, and the developers may have to start thinking about discounting their land if they want to offload the land that they have going unsold.
First Home Buyers an extinct species
Over priced land has killed off the first home buyers in the new home sector. Decades ago cheap land was the spur that meant that first home buyers usually bought house and land in the sticks. Well that does not happen anymore.
And the problem is that second home buyers wanting to move up want a decent lot size. That won't happen under $300,000 on the Sunshine Coast. So since when was residential land worth over $2 million dollars an acre? Since Stockland and Delfin monopolised the residential land development market it seems to me.
All was fine whilst the Labor Government propped up sales with trebling the first home owners grant to stimulate first home buyers into building a new home. Well that has stopped and as usual, the price of everything rose to the level that people could afford with the grants. Take them away and the party is over. Isn't this what has in fact happened?

If the Government wants to get people into new homes, and get home prices down, it needs to take control of land sales and development.
Without new players in the home loan markets, expect to see mortgage business drop and the return of refinancing and debt consolidation in the mortgage broker sector.

Will house prices really go up 20% over the next 3 years?

2010-10-12T16:30:00.000-07:00

House prices are predicted to grow between 9% and 20% over the next 3 years. Mr Mortgage disagrees. Here's why.

Experts are rarely good at predicting the future because their minds are full of facts from the past. I have a problem with future house price forecasts and it is this almost never materialises.

When you have someone who has a vested interest in the result [QBE is a house insurance player] then take house price forecasts with a grain of salt.
A QBE "survey" compiled by BIS Shrapnel says house prices will growth between 9 and 20 per cent in Australia's capital cities over the next three years. Really? So I guess that means that you should be paying 9% to 20% more for your insurance then? I see!

The biggest problems I see with House prices forecasting using median house prices

The median price is not an actual price. Any house price survey relies on the notion of the median price of a home. These are the homes that are sold.
There are two problems with this.
1. Many homes sold are new, and therefore are usually better than an established home and worth more to buyers.
2. Most established homes are dolled up prior to sale [paint jobs, renovations, staging and the like]. They are "pushed" and "promoted" and "marketed" to fetch a higher price. Even then many are not currently selling.

We need a segmentation of median house prices

At least if we got a segmentation of house sales [new apartments, new homes, established homes etc, I would be more comfortable believing these figures. That won't happen because the output is designed to deceive buyers and sellers to believinghouse prices are higher than they are.

Here's an example of how median house prices distort true values.

A new apartment block is released for sale with the penthouses at 2.2 million a piece, and apartments from $400,000.

One of the penthouses is sold, and two older units down the road sell for $220,000.

How median house prices are calculated

The median house price is $2.64 million divided by three. That gives a median unit price of $880,000! Whilst this may seem a silly example it is how median house prices are calculated.

Home buyers might begin to believe that the older units down the road are worth more than $220,000, and the $400,000 are worth more too.

Can you see why median house prices is not a good guide?

What about interest rates affecting housing prices?

Australia's housing market [some say housing bubble] has so far fared better than most parts of the US and the UK markets.

In the US for instance they have 30 year fixed interest rates retailing at under 5% pa., and they could go lower to help keep people in their homes, let alone prop up the housing market. No such luck here in Australia.

Australia's mortgage interest rates will rise over the next twelve months

We face a home mortgage interest rate in Australia of over 8% over the next 12 months.

Whilst the "experts say fix your mortgage interest rates now, that's fine if you are buying now or if you have a variable mortgage already. If you are buying in 12 months time that is not going to help you because I believe that rates will be as much as 1.25% higher than they are now.

Result? I see "median" house prices moderating, and home prices for Joe average softening over the next 12 months.

What Mr Mortgage believes.

Anytime is a good time to buy a house that is well priced and what you need to live in, and is affordable, if you intend to live there for more than 5 years. If not its better to rent and invest the savings and housing costs. If you are an investor, there are better places to park your money.

Australia's "Housing bubble" will not pop but lose some of its froth and just shrink to a less inflated size.

Lower returns for property investors, and more certain yields and easier picking elsewhere will keep investors out of the housing market, and moderate home values.

Future house prices will not be a mirror of our past. The RBA has it eye on house prices and the board will do what ever it takes to keep a lid on the housing market to ensure affordability for future home buyers.

The baby boomer influence has run its course in the general housing market, and as they move out of established housing this will take more heat out of house prices.

Author: Rick Adlam Mr Mortgage

Australia's Mortgage rates to stay on hold? IMF says it should!

2010-09-29T19:12:00.000-07:00

IMF say to Reserve Bank of Australia leave interest rates till European debt situation is clear.

Mr Mortgage has been saying for months that interest rates should not rise till after the new year when the World Economy has played out [amongst many other reasons]. This last fewweeks everyone and his dog has been saying rates will rise in October. We have been asking why should rates rise at all this year?
Countless other so-called experts, as reported in all the media, have been saying a rise is on for October. Many Bank economists have switched to the October rate rise will happen theory.
With the financial markets now betting on a mortgage rise, and all the big banks trying to talk up a rate rise because they will make a killing on the currency markets, the pressure is on the RBA. When rates do rise the Big banks can then slip in their own mortgage rate rises on top of the RBA's and hope their customers don't notice. But there are too many families in Australia that will suffer mortgage stress if rates do Increase.
The major banks are using mortgage interest rates as milking cows for record profits.

This is the biggest beat up I have seen since the Iraq War WMD.

Why the RBA will leave official rates on hold.

European Debt crisis should hold off interest rates raises till into next year.
The RBA enjoy second guessing the financial markets who seek to profit on their decisions. They are Independent and like to remind the markets of this.

The IMF agrees with Mr Mortgage on the absence of reason to raise rates.

Well the IMF now agrees with Mr Mortgage, and says a bust may be closer than anyone expects, with a risk that the sovereign debt crisis in Europe may again throw world financial markets into turmoil. This is the second recession that many having been saying could happen. In other words, the US recovery is a "dead cat bounce".Where is the job growth, the housing market recovery, and the shoppers in the US picture? Was the US stimulus too small to work? And will the US Fed go negative with Interest rates? And if they do will the $AU dollar be overpriced?

IMF advises RBA to hold off on lifting Mortgage rates

The IMF advised the Reserve Bank of Australia to hold off lifting interest rates. "The Reserve Bank has scope to wait for the outlook to become clearer," the fund said. There is no impending disaster to happen if it leaves rates as is.
The RBA board is meeting next Tuesday and was widely tipped to increase rates from the current 4.5 per cent to 4.75%.
But as many people know, the Reserve Bank of Australia's Governor and Board likes to foil currency gamblers who try to second guess Board decisions. The RBAwins when currency traders lose.
In any case a resulting higher dollar is bad for Australia in many ways, as it hurts exporters, farmers and tourism in Australia.
Expect to see the dollar crash in value in the coming days, as the bets on an interest rate rise are switched.
Author: Mr Mortgage

Citigroup Sells Crowns Jewels after Subprime fallout

2009-11-15T18:10:00.000-08:00

CITIGROUP is in talks to sell a majority stake in Smith Barney, the brokerage firm, to Morgan Stanley in a deal that would create the world's biggest wealth manager.
Picture: APThe negotiations came to light as Robert Rubin, the former US Treasury Secretary, resigned as senior counsellor and director of Citigroup after months of criticism for his role in leading what was once the world’s largest bank to the brink of collapse.
Under the deal being discussed by Morgan Stanley and Citigroup, 51 per cent of Smith Barney will be sold to Morgan Stanley with an option to buy the rest of the business within five years.
Morgan Stanley declined to comment on the talks and Citigroup did not respond to requests for comment. It was not clear how much the deal would cost Morgan Stanley.
The banks are expected to work through the weekend to finalise the terms of the deal. The merger would help Morgan Stanley, which converted to a bank holding company last year and subsequently received $US10 billion ($14 billion) in Government aid, to diversify.
Citigroup, which has taken $US45 billion in government funding, is likely to welcome the additional capital that the deal would provide. The move is also in line with the strategy of Vikram Pandit, the Citigroup chief executive, to downsize the business after the sub-prime debacle. Citigroup is dismissing 52,000 of its workers after it made $US20 billion in credit-related losses.
The bank also announced the resignation of Mr Rubin, who was Treasury Secretary from 1995 to 1999. In a letter to Mr Pandit, Mr Rubin said: “My great regret is that I and so many of us who have been involved in this industry for so long did not recognise the serious possibility of the extreme circumstances that the financial system faces today.”
Mr Rubin, who joined Citigroup in 1999, has been excoriated in the media as the force behind the bank’s decision to chase profits by pushing into risky credit-related products. His duties at the bank, other than using his network to attract clients, were not clear, but insiders said that his influence was pervasive.
In his time at Citigroup, Mr Rubin collected about $US150 million in remuneration.
Before becoming Treasury Secretary, Mr Rubin, who is a graduate of Harvard and Yale Law School, had a long career at Goldman Sachs, where he started on the arbitrage trading desk and worked his way up to become co-chairman of the elite bank.
Shares in Citigroup closed in New York at $US6.75, down by 5.7 per cent.

Australian federal government to take over consumer credit regulation

2009-07-07T21:13:00.000-07:00

Will the Fed abolish interest-rate caps on pay day lenders?
Many feel that scrapping interest rate caps will leave low-income earners vulnerable to rip-off interest rates.State-based rate caps that stop lenders charging exorbitant interest are likely to disappear once the Federal Government takes over regulation of consumer credit, raising concern about the impact on low-income borrowers who have no choice but to use high-cost "fringe" lenders.
The Federal Government is expected to rely on its "responsible lending" laws, due to take effect from November, rather than maintaining the interest-rate caps that apply in NSW, the ACT, Victoria and Queensland.
There seems to be a presumption that a Labor Government will dismiss the important protective measure of capped interest rates out of hand.
In my opinion is this pure speculation, and I am confident that the social justice values of the Labor party will shine through, and any changes required to the Legislation will be made to protect the most venerable in our society short term credit to struggling low income earners is a high risk business, where both the capital and the interest are at risk.
So it is expected that these loans charge a higher interest rate.On the other hand, even a high interest rate is not enough to offset the risk, and fees and charges, that increase on defaults, should be part of the compensation mix.
These loans are usually small, and are usually paid within a month or so, a higher interest rate is not a burden. They become a burden when the interest rate balloons and the borrower cannot repay, said Mr Mortgage. "So yes, there needs to be room for hardship rules to govern the conduct of payday lenders."
Teresa Wilson, who chairs the Australian Microfinance Network. says "The Government has indicated that it's not keen on interest-rate capping, apparently because here will be a “responsible-lending requirement” attached to credit contracts and I think it's relying on that to minimise exploitative lending practices.
Teresa feels that the Government needs to look closer at using an interest rate cap as part of the responsible lending law.
Mr Mortgage says “that as long as the borrower has free access to the Courts to claim financial hardship, then the Government may be enough to protect low income earners and pensioners. On the other-hand, if course actions were to become wide spread these actions could clog the courts and legal system and only the lawyers would benefit.”
“Also, Teresa has not mentioned pawnbrokers, and these seem to be able to lend at higher rates and not be affected by credit laws” To me this is a big loophole that needs to be addressed.
"Low-income earners, unable to access credit from mainstream lenders because of "rigid" lending criteria, have little option but to pay high rates if they need a short-term loan to cover a large energy bill or to replace a broken-down fridge, " Teresa Wilson says.
The situation is no better or worse as mainstream lenders tighten their criteria in the wake of the credit crunch, she says. That's because credit assessments are based purely on income rather than looking more broadly at ways to help them. "It has been demonstrated that people on low incomes can repay loans as long as the loan product is structured so as not to set them up for failure," Wilson says, adding that it requires reasonable interest rates, reasonable repayment schedules and some flexibility in the product."
"It's about looking at capacity to pay in a real sense and structuring the product so it's affordable," she says.
I think that we all need to realise that predatory lending practices that caught so many home buyers in the US , have led to the failure and closure or merger of many banks and mortgage lenders in the US.
In Australia we are better than that. Any contract has to face a fairness test. On that point alone any predatory loan would fail, be unlawful and as such unenforceable at law. The Problem is that most people are unaware of this.” Says Mr Mortgage.
A National Australia Bank project that is testing what the break-even rate for small loans really is say its 28%, about the rate of so called “interest free loans”.
One thing that can be agreed is that yes, we need small loan and cash flow lenders and payday lenders, because they serve a necessary function. What we don’t need fringe lenders who are charging annual interest rates up to 240 percent and up to 480 percent are preying on people who can least afford to repay. We hope that Ms Wilson's concerns are addressed for the sake of borrowers of small loans.

Mortgages: UK bank Lloyds offers new lifeline to first-time buyers with 95pc loan with a hook

2009-05-20T22:51:00.000-07:00

First-time buyers will need a deposit of only five percent [plus costs] if they take out a new mortgage just announced by Lloyds TSB. But maybe this is a hot air offer, because first home buyers will also need mum and dad to put up a 20 percent lien. [How many parents do you know with a big slab of idle money?] First home buyers are a valuable part of the market mix, as first home buyers help on average four homes to change hands in a domino effect.Home loans for 95 percent of the property value have been virtually unobtainable recently as lenders responded to the economic crisis by tightening lending criteria, and anticipating property value slides. This period of uncertainty is not over.The new mortgage, called Lend a Hand, offers a three-year fixed rate of 4.39 percent. As mentioned, borrowers will need their parents to deposit a sum equal to an additional 20 percent of the property value in a savings account with the bank. This money will not be accessible until the outstanding loan falls below 90 percent of the property value.And even worse for Mum and Dad, what happens to the money if their kids can’t meet the mortgage repayments? The savings account will pay a competitive fixed interest rate of 3.5 percent. Although the bank will take a legal charge on the savings account, the parents retain ownership of their savings.Lloyds TSB said "If, at the end of the deal, the combination of mortgage repayments and rising house prices has moved the mortgage from 95 percent to 90 percent of the property value, the legal charge on the savings account can be removed and the first time buyer can operate their mortgage account independently, either on Lloyds TSB's standard variable rate, by switching products or remortgaging."Borrowers would save almost £100 a month by comparison with the industry's average rate for a 90 percent mortgage of 5.98 percent, the bank added.Stephen Noakes, commercial director of mortgages at Lloyds Banking Group, said: "First-time buyers are essential to returning the housing market back to good health because every first-time buyer helps, on average, four other households move."As the UK's largest mortgage lender we're committed to help first-time buyers onto the housing ladder and this includes finding innovative ways to lower the first rung so that it is within reach for more people.He added: "Market conditions mean virtually no 95 percent loan to value mortgages are available at the moment, while the few that are come at a high price with stringent credit requirements."The legal charge on the parents' savings account means we can offset the risk of lending at this level to offer a realistic and affordable option for first time buyers. It also gives parents a way of helping their children without actually having to write the cheque."The new loan charges a fee of £995.
If you are a Llyods banker, it gets better all the time.

Australians suffer relative interest rates rise as Australian Banks siphon off the cream for themselves.

2009-04-30T02:04:00.000-07:00

It's an Australian pastime to bag the banks I know, but they deserve a special mention for their conduct over the past few interest rate drops where they have sought to siphon off rate cuts meant for customers for their own profit margins.
Yes, they are able to pass on the full rate cuts. They can't be trusted and should not be placed in a position where they can decide not to pass on rate cuts if they choose not to.
The problem is twofold.
Firstly they are answerable to no one. Where's this regulation they talk about?
Secondly that they don't have the competition they used to because:

Second tier lenders can't get the same rates they enjoy due to drops in State Credit ratings, and thus regional lenders ratings.
Many of their competitors in the securitised mortgage market can't get funds like they used to.

What Australia needs is a Government sponsored mortgage manager such as Freddie Mac and Fannie Mae in the US so that they can get Government backed funds at competitive rates so that competitive funds can be controlled by the Government and a healthy regulated Mortgage broking industry.

This would produce more jobs and make the construction industry less uncertain and give Australians a better deal to buy their own home.

The Four Major Banks have had to too good for too long. Its time to cut the fat.

Banks selling people into unstainable debt

2009-04-15T21:41:00.000-07:00

Buying a home is the best investment you can make, and it may seen like the right thing to do for the economy, but what is the best for you?
Homes are still high in value, maybe too high, and just because your bank will lend you big bucks [nearly $500,000] on small incomes of as low as [$80,000] does the 30 year mortgage make sense to you in these times?
First time home buyers are being warned that generous loan criteria offered by banks could land them in mortgage stress for many years to come.
Buying a low cost home is the better option with joint incomes under $100,000.
Use the Rule of Three
Try to use the rule of three. If you earn $100,000 as a gross income, then you can aford a $300,000 mortgage even when interestrates reach 9%. If you earn $200,000, then you can easily afford a $600,000 mortgage [even if you wisely decide that you don't want this much financial burden]. The solution to buying a more expensive home should be greater earnings, not loose lending.
Buying the biggest home you can afford during the lowest interest rates in history ever is foolish nad may come back to bite you, and the banks should know better, and in my view they may be taking advantage of young inexperienced home buyers without letting them know the consquences of interest rate rises, their other financial commitments that are hidden inside each mortgage document, and the banks foreclosure policy should they fail to make repayments.
Buying a home on the basis that prices and demand will surely rise may be a myth from the past echoes of the baby boomers last gasp.

Banks get cranky over Government rate reduction pass on demands

2009-02-06T21:48:00.000-08:00

Australian banks are set for another showdown with the Rudd Government over future interest rate cuts, with NAB boss Cameron Clyne making clear this morning he was "relatively unlikely" to pass on the full amount of the next rate cut.
NAB economist Alan Oster is forecasting another 75 basis rate cut next month with another 50 basis points in the second half this year.
Clyne made clear his customers won't be getting that amount.
Other banks contacted this morning confided they agreed with Clyne, underlining the politics of the move earlier this week to pass on the full level of the 100 basis point cut on official interest rates.
The rate cut came on the day of the Government’s $42 billion handout and the day after CBA told the market it was growing income quickly thanks to better profit margins, so in the scheme of things it would not have looked good for the big banks to have played hard ball this week.
Next time it will be different.
Each bank has a different funding book depending on the level of deposits and the like, but NAB’s costs have gone up from 65 basis points over cash rates from July 2007 to January this year to 99 basis today and it is looking at that increasing to 99 basis points in the near future.
The reason being term funding costs are higher because while cash rates have fallen and the swap rate spread has also fallen, Government bond rates have not fallen as quickly, so as the banks replace short term paper with long term paper the funding costs increase.
That at least is how the big banks see the world.

Westpac is the first bank that passes on full interest rate cut

2009-02-03T01:35:00.000-08:00

Westpac is the first bank that has passed on the Reserve Bank of Australia's 100 basis point interest rate cut to its customers.Westpac's new standard variable rate is 5.91 per cent, effective Monday February 9.
The bank says it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in home loan rates after the Reserve Bank of AUstralia's announcement at 2.30pm (AEDT).

British mortgage rate cut awaits CIty Investors

2009-02-02T01:15:00.000-08:00

Britain awaits yet another cut in interest rates to record low levels.
But it may not be enough to boost the London stock market as recession weighs on the economy, traders said.
The FTSE 100 index of leading shares closed on Friday at 4,149.64 points, up 2.39 per cent or 97.17 points from a week earlier.
The Bank of England (BoE) is widely expected to slash British borrowing costs by a further 50 basis points to an official cash rate of just 1 per cent at a meeting on Thursday.
Now at 1.5 per cent, interest rates are at the lowest level since the British central bank was formed in 1694.
This week, a statement from Barclays bank stressing it did not need a government bailout following speculation to the contrary sent its share price and those of its peers rocketing.
Some of the gains last week were lost as the weekend approached due to "poor earnings and bleak labour and housing market data from the US, heightening fears of a deeper global recession", said City Index market strategist Nick Serff.
"This ended a four-day surge for the major indexes, their best performance in two months," he said.
Another notable British corporate announcement this week came from Anglo-Dutch energy giant Royal Dutch Shell, which said it had made a net loss of $US2.81 billion ($A4.3 billion) in the final quarter of 2008 on plunging oil prices.
The loss compared with a net profit of $US8.47 billion ($A13 billion) during the fourth quarter of 2007, when crude prices were far higher, Europe's largest oil company said.

First home buyers deluge a housing market in drought of property investors and move up home buyers.

2009-01-23T15:17:00.000-08:00

As investors and second and third home buyers stay away from property, by default the first home buyer share of the mortgage market has risen to a seven-year high in response to big rate cuts and generous grants to new home owners.
The Australian Bureau of Statistics (ABS) data also showed that overall home loan approvals rose for the second straight month in November while the popularity of fixed-rate loans dived to a record low.
The number of housing finance commitments for owner-occupiers rose 1.3 per cent in November, seasonally adjusted. In Queensland this was a negative number, so some States got a good bounce from the incentives put to first time home buyers.
This followed October's 1.4 per cent gain, which reversed eight consecutive monthly falls.
Commonwealth Bank senior economist Michael Workman said aggressive rate cuts and the Federal Government's boost to first-home buyer grants had restored housing sector confidence.
"It is indicating that the interest rate cuts and also the first home buyers scheme have had quite a strong impact on lending,'' Mr Workman said.
The Real Mortgage Picture is still bleak
On an annual basis, mortgage commitments have fallen by a quarter, with 49,192 mortgages taken up in November compared with 65,495 a year earlier.
In October, the Federal Government doubled the first-home buyer grant for established dwellings to $14,000, and tripled the subsidy for newly built homes to $21,000.
The housing finance take-up was likely to improve in coming months as borrowers responded to the increased first-home buyer grant and recent rate cuts, and put aside fears of unemployment.
New dwelling mortgage commitments climbed by a hefty 9.8 per cent in November, while established home lending rose by 1.1 per cent, the ABS data showed.
The mortgage market also boosted by the Reserve Bank of Australia's (RBA) decision to slash interest rates by one percentage point in October and by 75 basis points in November.
Interest rates were slashed again in December, by one percentage point, taking the cash rate to a six and a half year low of 4.25 per cent.
Expectations of more interest rate cuts appear to have affected the popularity of fixed-rate home loans, which fell to a 2.5 per cent market share in November - the lowest proportion since the ABS started collecting this data in 1991.
Whilst the rate cuts were enticing owner-occupiers and first home buyers, a recovery in the home building sector was still some way off.
Overall, confidence in the property market is still missing and job uncertainty is high.
The value of lending for investor housing fell by 6.1 per cent in November, while the number of loan commitments to build new dwellings dropped by 0.3 per cent.
NSW enjoyed a strong recovery in home loans during November, with the 5.8 per cent rise in housing finance for owner-occupiers reversing nine consecutive months of decline.
Only Tasmania had a bigger monthly increase of 6.5 per cent.
The story was different in the former commodities-boom state of Western Australia, where mortgage commitments fell by 5.8 per cent in November.
The ACT had the steepest monthly fall of 13.8 per cent.

Citigroup Sells Crowns Jewels and sheds workers after Subprime fallout

2009-01-11T02:29:00.001-08:00

The once mighty Citigroup hopes to sell a majority stake in Smith Barney, the brokerage firm, to Morgan Stanley in a deal that would create the world's biggest wealth manager.
The negotiations came to light as Robert Rubin, the former US Treasury Secretary, resigned as senior counsellor and director of Citigroup after months of criticism for his role in leading what was once the world’s largest bank to the brink of collapse.
Under the deal being discussed by Morgan Stanley and Citigroup, 51 per cent of Smith Barney will be sold to Morgan Stanley with an option to buy the rest of the business within five years.
Morgan Stanley declined to comment on the talks and Citigroup did not respond to requests for comment.
It was not clear how much the deal would cost Morgan Stanley.
The banks are expected to work through the weekend to finalise the terms of the deal. The merger would help Morgan Stanley, which converted to a bank holding company last year and subsequently received $US10 billion ($14 billion) in Government aid, to diversify.
Citigroup, which has taken $US45 billion in government funding, is likely to welcome the additional capital that the deal would provide. The move is also in line with the strategy of Vikram Pandit, the Citigroup chief executive, to downsize the business after the sub-prime debacle. Citigroup is dismissing 52,000 of its workers after it made $US20 billion in credit-related losses.
The bank also announced the resignation of Mr Rubin, who was Treasury Secretary from 1995 to 1999. In a letter to Mr Pandit, Mr Rubin said:

My great regret is that I and so many of us who have been involved in this
industry for so long did not recognise the serious possibility of the extreme
circumstances that the financial system faces today.

Mr Rubin, who joined Citigroup in 1999, has been excoriated in the media as the force behind the bank’s decision to chase profits by pushing into risky credit-related products. His duties at the bank, other than using his network to attract clients, were not clear, but insiders said that his influence was pervasive.
In his time at Citigroup, Mr Rubin collected about $US150 million in remuneration.
Before becoming Treasury Secretary, Mr Rubin, who is a graduate of Harvard and Yale Law School, had a long career at Goldman Sachs, where he started on the arbitrage trading desk and worked his way up to become co-chairman of the elite bank.
Shares in Citigroup closed in New York at $US6.75, down by 5.7 per cent.

Discount home loans you need to know about

2008-12-15T04:21:00.000-08:00

Banking packages that used to be called professional packages, that combine a mortgage, transaction account and credit card with the one institution are the best value on the home-lending market.
These packages offer a discount to the advertised rate and the saving on the interest more than covers the package fee. The bundling of services also offers convenience. They also tend to lock you in.
More than half of all new mortgages written by the major banks are "super sized" to packages these days.
Borrowers like them because they get the features of a standard variable-rate loan (and, increasingly, other types of loans) at the discounted price of a basic variable-rate loan.
Discounts are 0.4 to 0.7 percentage points, depending on the size of the loan. At one stage last year some brokers were given discretion to offer discounts of as much as 0.9 percentage points for loans over $300,000, but with the general tightening in the market, those deals are now hard to find.
Traditionally aimed at typical home-buyers, package banking has broadened its appeal to attract property investors and the self-employed.
Investors value loan options such as interest only, line-of-credit and discounts. Those who own their own business usually need a package with a good low-doc loan.
The top variable-rate packages are Adelaide Bank's Executive Offer, Newcastle Permanent's Premium Plus Package, Commonwealth Bank's Wealth Package and AMP Banking's Select Package.
The top five fixed-rate packages were offered by Commonwealth Bank, HSBC, BankSA and St George. [We do not recommend fixed rate mortgages at this time].
When taking out a package loan, there is a requirement to take other products, usually a deposit account and a credit card. This is attractive because the annual fee is bundled into the package's annual fee.
However, if the product offered in the package does not suit, there is no obligation to use them.
The type of credit card does vary between institutions. Many will offer their standard credit card but some, such as St George, offer a platinum card.
But there are some things to watch out for. Westpac includes its Altitude Gold card but the card fee is waived in only the first year rather than for the life of the package.
ANZ offers the choice of a rewards Visa gold card or a frequent flyer Visa gold card. The annual fee is waived but the rewards program fee is not.
We feel that home buyers shopping for a package should focus on the features of the home loan, making sure it offers a good rate and has plenty of flexibility, such as redraw and offset.
Property investors should look for deals that incorporate line-of-credit and interest-only options.
Some lenders offer discounts on fixed-rate loans, which could be useful.
Self-employed people will need a package with a low-doc mortgage at a reasonable price.
One very important trend of which borrowers should take note is that the major banks have used the credit-market turmoil of the past year to reassert their role as price-setters in the mortgage market - a role they have not played since specialist home-loan originators entered our market a decade ago.
The package-rate discount comes off the standard variable rate and should bring the cost of the loan close to rates on basic home loans. The only downer are the casts of teh addons which can erode the benefits of these discounts when the loan amounts are smaller.

Queensland property sales slump causes real estate sales people to walk

2008-12-12T14:07:00.000-08:00

In a sign that price expectations of home sellers are above the market, the Real Estate Institute of Queensland (REIQ) says hundreds of real estate sales staff are leaving the property sales industry as the property market slows across the state.
This ahs also reflected on the Mortgage industry in homes sales transactions, but has a lesser effect in the mortgage industry due to te fact that mortgage lenders can help people with refinancing existing loans when property transactions fall.
The REIQ says this year's sales are down by between 20 and 50 per cent in parts of Queensland and that has led to at least a 25 per cent drop in the number of staff.
It says many of those who have walked away could not cope with the current conditions or the loss of income.
REIQ chairman Peter McGrath says a lot of those who have left have only had experience during a property boom.
"A lot of them haven't got the income they had this time last year and secondly, they find doing the hard work in some cases just too hard for them," he said.
"We were overstaffed to a degree to service the very hectic demands of particularly this time last year, but a lot of those people will come back into the industry.
"This time last year, we were on the most extreme high of turnover that this state has ever seen, so we are feeling the drop.
"We are back to sales levels of 2002/03, which were still reasonable years I must point out, but compared to 2007 they looked very lean years."

Mortgage rate fixers are homeowners biggest losers

2008-12-08T00:14:00.000-08:00

Mortgage interest fixed-rate borrowers face hefty fees if they want to switch to a standard variable loan right now. The horse has bolted and the banks have to set their rate and costing long term to fix a rate. (
A further massive mortgage interest rate cut this week has made more than 43,000 home borrowers who chose to fix their rate, Australia's biggest mortgage losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments. [This is on teh cards according to Mr Mortgage]
A further home loan rate cut of .5% is expected in February, and there could be more to come to assist home sales and home owners to weather the storm and have money to spend to get the economy from sliding into recession.
We are in for some interesting mortage times ahead!

Helensvale, Gold Coast tops the mortgage stress list

2008-11-25T20:16:00.000-08:00

Hevensvale, on the Gold Coast, has been named as the most mortgage-stressed suburb in Australia by the global ratings agency Fitch Ratings.
The Gold Coast and Sydney's Vaucluse have joined southwestern Sydney as the areas suffering the most from mortgage stress and loan defaults.
More than 840,000 residential mortgages - valued at $140 billion - were outstanding at the end of September, with interest rate rises in late 2007 and 2008 to blame.
Australian mortgage delinquency rose in the six months between April and September this year, Fitch Ratings said.
Southwestern and western Sydney remain the nation's mortgage stress hotspots, but there have been significant changes in the suburbs of Perth, southeast Queensland and New South Wales regional areas, such as Wollongong, Newcastle and the Central Coast.
One of the nation's most affluent addresses - Vaucluse - is rated seventh worst by loan value.
The top 10 suburbs and towns listed as suffering the most mortgage stress are: Helensvale (Queensland), Nelson Bay (NSW), Raymond Terrace (NSW), Katoomba (NSW), Greenacre (NSW), Guildford (NSW), Vaucluse (NSW), Fairfield (NSW), Cessnock (NSW) and St Marys (NSW).
Mortgage performance is expected to continue to deteriorate on the back of the Christmas spending season and the rapidly slowing economy, Fitch says.
"On a national basis, Australian mortgages, by value, that missed one or more payments, increased to 2.13 per cent from 1.88 per cent," said Ben McCarthy, from Structured Finance, who authored the Fitch report.
However a finding in the report suggests loans made between 2002 and 2007 are easier to service today than when the loan was first taken out.
"From this point of view if unemployment can remain subdued the Australian mortgage market will continue to perform well," Mr McCarthy said.

Citigroup heads south as it warns consumer loan losses rise

2008-11-23T14:13:00.000-08:00

Citigroup stocks took a bath in the wake of its warning that losses in its consumer loan portfolio could rise between $US1 billion and $US2 billion each quarter from now through the first half of next year, according to chief executive Vikram Pandit's speech notes released on the banking giant's website.The notes reveal "buried" details about company's expectation that consumer credit losses will be substantially higher, said Bernstein Research analyst John McDonald, who alerted his clients to the disclosure.
Citi's consumer credit losses in its third quarter were $US4.6 billion ($7.1 billion), meaning the guidance in the speech notes suggests the bank's quarterly losses on the portfolio could reach $US10.6 billion by the second quarter of next year.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
A Citi spokeswoman declined to comment on Mr McDonald's report, and referred other questions to the 13 pages of speech notes released on the company's website.
Mr McDonald cut his price target on Citi shares to $US11 from $US20 based on the higher credit losses outlined in the speech notes. He also widened his fourth-quarter loss expectation to US61c a share from US41c and cut his 2009 earnings forecast to US22c a share from US63c.
Citigroup also revealed in Mr Pandit's notes its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Mr Pandit said $US80 billion in assets had been marked down appropriately and that the realised losses on the loans would be greater than the level they'd been marked down to already, according to the notes.
He said the purpose of the accounting change "reduces the earnings volatility that these assets could pose," and that it allows Citi to benefit from a return on equity from any upside to the assets.
Bernstein's Mr McDonald said the $US80 billion comprised most of Citi's $US88 billion in risky collatoralised debt obligations, leveraged loans, mortgage securities and auction rate securities.
Once the assets are moved out of Citi's trading portfolio, any future write-downs would no longer follow through Citi's income statement unless it sells them, or recognises an "other than temporary impairment charge" against them, he said.
However, Mr McDonald estimated that Citi would still have to write-down $US3.5 billion on the assets in its fourth quarter when it makes the accounting change.
Mr Pandit delivered a speech based on the notes and a slideshow, which was released on the company's website.
Mr Pandit told those at the employee-only meeting on Monday that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.

Aussie banks safe as houses

2008-10-10T21:56:00.000-07:00

Australian Prime Minister Kevin Rudd reassured Australians and said that Australia's retail banks were among the safest in the world.
The Opposition Liberal party has warned of the danger of bank runs in Australia which could destroy smaller banks and credit unions.

Mr Rudd said that the World Economic Forum had yesterday released a report rating Australia's banks the fourth most sound in the world in a ranking of 134 nations.
While the road ahead was rocky, Mr Rudd said the nation's economic fundamentals remained solid. "We have a strong budget surplus as a buffer for the future, and to be used to meet the challenges of the future," he said.

Mr Rudd has suggested his Government might move to protect up to $20,000, but Mr Turnbull said guarantees had to be provided for $100,000.

Opposition Leader Malcolm Turnbull said the Government must back bank deposits to assure individuals and small businesses that at least the first $100,000 of their savings was safe. Australia and New Zealand are the only OECD countries without a direct government-backed guarantee on bank deposits.

Mr Turnbull said the crisis had already sparked a shift towards the Big Four banks at the expense of smaller players.
"There is a real risk at present that depositors will shift their savings from smaller institutions such as regional banks and credit unions to the Big Four banks," he said. "This has the potential to considerably strengthen the big institutions' competitive position at the expense of their smaller rivals."

Mr Swan said that Australia's well regulated, well capitalised banking system would provide a bulwark from the fallout.

The silver lining from all of this is the increasing certainty that interest rates could fall by as much as 2 per cent more [to a cash rate of 4%pa] by mid next year.
This will be the sort of solution that mortgage payers want to see happen.

Commonwealth Bank to buy Bankwest with Suncorp next

2008-10-07T21:15:00.000-07:00

The Commonwealth Bank (CBA) says it will buy Australia's largest wholesale bank, BankWest from cash strapped parent British Bank HBOS for AU $2 billion.
This is just a few months after BankWest announced plans to roll out 100's of bank branches in NSW and QLD to consolidate its position in these markets. At the time it was noted that they would not be able to find suitable retail space in a then bouyant retail sector.
The Commonwealth Bank will pay more than $2 billion for BankWest and its wealth management business, St Andrews Australia.
The Commonwealth Bank says it will raise the $2 billion by selling shares to institutional investors to fund the deal.
The CBA also says it has held high level discussions with Queensland's Suncorp which wants to sell its banking business.
The purchase of BankWest will allow the CBA to expand its presence in the lucrative Western Australian market, which is being driven the the region's resource boom.
There are fears that the takeover will result in job losses.
BankWest has an extensive network of branches in WA and last year launched a program to open 160 branches nationwide.
It also has call centres and other administrative operations based in Western Australia.
According to Mr Mortgage the CBA will have to deal with relatively small losses as a result of the US financial crisis, including a $100 million loss as a result of its exposure to collapsed US investment bank, Lehman Brothers.

Bad news for mortgagors as NAB chief ready to make homeowners pay before Christmas as global credit crunch bites

2007-11-10T13:05:00.000-08:00

National Australia Bank has delivered bad tidings to its home loan customers, saying they can expect to start paying for the global credit crunch before Christmas.
The bad news for [mortgagors] overshadowed the good news for NAB shareholders who showed renewed enthusiasm for the bank, Australia's second biggest, which posted a 4.2 per cent rise in net profit to $4.6 billion.
The result was built on solid revenue growth of 8.3 per cent to $14.6 billion that dwarfed cost increases of 0.9 per cent to $7.4 billion.
But there were was no joy for homeowners when bank boss John Stewart delivered the news that yet another rate rise was likely before the end of the year.
NAB on Thursday was the first of the big four lenders to hike its variable home loan rate by 25-basis points - in line with the Reserve Bank of Australia (RBA) increasing its official cash rate to 6.75 per cent this week.
Mr Stewart warned his bank's willingness to absorb the higher cost of funding that followed the fallout from the US sub-prime crisis was fast coming to an end.
"There's a lot more bad news continuing to come out of the (United) States that (is) affecting credit markets," Mr Stewart told reporters.
He said NAB would wait a little longer for the increased cost of its own borrowings to "settle". The increase could potentially be as much as 20-basis points and would be in addition to Thursday's 25-basis point rise.
Mr Stewart said the additional increase would be passed on to customers within a "month or two".
"When that's clearer, then we can do that and I think it will happen and hopefully we can clearly articulate why it has to happen."
Householders should be ready to tighten their belts even further next year, with Mr Stewart predicting the RBA may decide on another rate rise to rein in an overheated economy.
"I think there will be at least one more (rate rise) and it think it will be in the autumn," he said.
The series of rate rises were likely to dent revenue growth in housing lending, but the bank was not concerned about a blowout in bad debt.
In fiscal 2007 the NAB's provisions for bad debts shrank to $1.36 billion, a 16 per cent decrease on the previous year's provisions of $1.62 billion.
As well, the bank expects the strong economy to encourage business to invest more, fuelling growth in its business lending by between 15 to 18 per cent - although the level may retreat from historic highs.
"That's good news for us because we're the dominant business bank in Australia," Mr Stewart said.
The bank plans to grow revenue at better than banking system rates in key areas, with organic growth remaining its preferred option although acquisitions would be considered.
Annual operating expense growth is forecast to remain within inflation as far as 2010.
Even so, there were some disagreeable numbers buried in the balance sheet, including the bank's group net interest margin, a key measure of its profitability, which slipped five basis points to 2.29 per cent.
While the Australian net interest margin was steady in 2007, net margins on NAB's British business tumbled by 48-basis points.
That prompted questions from analysts on whether the bank could get better returns on its capital elsewhere.
"Our inclination, and we have debated this a lot, is you stay with it - but nothing is forever," Mr Stewart said.
HTM Wilson bank analyst Brett Le Mesurier said NAB's revenue growth was the lowest among the big four banks, due partly to slow growth in its British assets.
He said that was offset by the limited growth in expenses.
"If they can continue doing that, then they will be the best-performing bank.
"But they (NAB) tried to do that before when (former chief executive Frank) Cicutto was running it and they came to grief."
NAB's cash earnings rose by 17.7 per cent to a record $4.4 billion, with total lending increasing 13.8 per cent to $394.7 billion, while the value of customer deposits rose 15.2 per cent to $268.4 billion.
In Australia, cash earnings totalled $2.87 billion, a gain of 22.8 per cent following strong growth in the banking and MLC businesses.
The nabCapital arm enjoyed cash earnings growth of 16.6 per cent to $715 million.
For the UK, cash earnings rose by 14.3 per cent to $592 million, despite turbulent market conditions.
NAB's cash earnings per share (EPS) was 268.5 cents in the year, up 16.4 per cent.
The bank declared a final dividend of 95 cents, up eight cents, taking the annual total to $1.82.
At 1514 AEDT NAB shares had risen $1.27 to $43.45.
Source: AAP

PM plays down mortgage interest rate rise chances

2007-10-27T15:06:00.000-07:00

Prime Minister John Howard is playing down reports that banks may increase their rates, affecting all credit including mortgage interest rates, as senior Coalition figures continue to argue against an official interest rate rise next month.
The Reserve Bank board is widely tipped to increase the official interest rate when it meets on Melbourne Cup day.

"A large source of the funds that the banks are talking about, increasing the borrowing rates, come from their depositors," he said.
"Until there's significant increase in the price or the cost of those funds in the hands of the banks, given their profitable profit margins, there isn't a case for them increasing their rates."Source: ABC

Australian Share index falls on persistent US credit fears

2007-10-22T13:50:00.000-07:00

The Australian share market fell by its largest amount in two months amid renewed concerns about credit markets.
A warning by equipment company Caterpillar that the housing slump in the US was starting to spread to other parts of the economy saw US shares fall at the end of the week.
The domestic market followed suit this morning, with shares in most sectors losing value.
At 11.30am AEST, the All Ordinaries Index shed almost 2 per cent to 6,591.
Stocks exposed to the US economy suffered the most, with Macquarie Bank falling by about 4 per cent, while James Hardie Industries was down by almost 2.5 per per cent.
The Australian dollar was buying 88.54 US cents at 11.30am AEST.

Queensland housing market on firm foundation

2007-10-18T01:27:00.000-07:00

Who says young people are struggling to get their foot in the door of the real estate market?
Buyers, many of them in their 20s, are piling their cash into bricks and mortar, snapping up bargains as quick as they come up for sale.
And here's the reason why. A modest house in Brisbane has grown in value by 513 per cent since it was sold in 1992 for $57,500.
Jack Tsao, 27, bought the Mt Gravatt East investment property last year for $295,000 and will take it to auction next month.
Mr Tsao said his decision to sell follows an extensive six-month renovation on the house, which included painting, the installation of a new kitchen and bathroom and the addition of an extra room on the lower floor.
"I was going to keep it and rent it out," Mr Tsao said. "But then there was a lot of fixing up to do. It was my first experience at renovating."
According to the Real Estate Institute of Queensland the median house price for the suburb is $349,000.
The Courier-Mail has tracked the price growth of the house, at 909 Cavendish Rd, over the last 15 years.
Since 1992 the 625sq m property has been bought and sold four times, gathering a 513 per cent capital gain along the way.
If the price of consumer staples grew at the same rate, Brisbane shoppers would today pay $5.39 for a litre of milk, $7.44 for a loaf of bread, and $3.18 litre for petrol.
Newlyweds Georgina and Neil Mackenzie-Forbes have recently bought a property together for the first time - a New Farm townhouse they will live in but intend to rent out or sell in the future.
Both experienced property investors when they were single, Mr Mackenzie-Forbes, 36, said he and his wife were willing to pay up to $1 million for the right property. They paid $675,000 for their 200sq m house.
"This one was close to the city, and we liked the fact that it didn't need any work - we were able to just move in and enjoy (it)," he said.
Mrs Mackenzie-Forbes, 29, said she intended to keep investing in the property market in the future. "I think there are bargains still to be had, you've just got to get in there," she said. Source: Courier Mail

BankWest in national expansion on the east coast of Australia

2007-10-10T02:31:00.000-07:00

Bank of Scotland backed BankWest says it plans to open 40 to 50 new branches over the course of calendar 2008 on the east coast after opening its first New South Wales branch today.
BankWest also said that it had no "specific plans for RAMS", dousing speculation it would consider making a rival bid for the non-bank lenders' franchise network.
"We do keep an eye on things, but at the moment we've got no plans and we're very excited about our organic (growth) opportunities," Bankwest retail chief executive Ian Corfield said.
Mr Corfield was speaking today at the launch of the first branch opening in Bankwest's 160-branch east coast expansion strategy in Parramatta.
BankWest announced today it would open another seven stores in New South Wales by the end of the calendar year.
Mr Corfield said the bank planned to have another 40 or 50 opened by the end of calendar 2008, with the first Victorian branch to be opened in the first quarter and the first Queensland branch to be opened in the middle of the year. Source: AAP

Mortgage lender Northern Rock gets a breath of life as the Bank of England gives new aid package.

2007-10-10T00:33:00.000-07:00

The Bank of England threw a fresh lifeline to English mortgage lender Northern Rock overnight, offering to guarantee new retail deposits and extend funding arrangements to give the bank time to salvage something from its battered business.
The latest aid package came as the country's financial services watchdog said Northern Rock may not have needed to draw on emergency funds from the Bank of England (BoE) at all if its rescue had not been conducted in the full public glare.
Northern Rock, which saw a run on deposits last month after it was forced by the global credit crunch to seek an emergency funding line from the BoE, said the new package would cost it STG40 million ($A91.21 million) to STG50 million ($A114.01 million) this year -- around 10 per cent of its targeted 2007 profit.
But the bank said the new help would buy it time to assess its full range of options, which include being taken over as a whole, being broken up or even attempting to remain independent on a smaller scale -- an option largely discounted previously.
The review process should be completed by February, it said.
Analysts said the new arrangements could help to reassure prospective buyers and allay fears of shareholders and bondholders of a firesale of assets.
But the arrangements are also controversial, as the decision to guarantee new retail deposits could potentially give Northern Rock an advantage over competitors.
"If my mother were to ask me where she should put her money at the moment, I would say Northern Rock," Numis Securities analyst James Hamilton said.
"What (prospective) buyers will want to know, is how long these arrangements will last and whether they will continue (after a deal)."
Northern Rock said the arrangements would remain in place "during the current instability in the financial markets" and that it would "pay an appropriate fee ... to ensure that it does not receive a commercial advantage".
Paying a commercial rate should help ease concerns the move could be found to count as undue state aid. The EU Commission said Tuesday it would form an opinion once it had full details.
The government had previously agreed to guarantee retail deposits made with Northern Rock before Sept. 19 -- the day after its initial pledge -- but said moving beyond that would be unfair.
It said on Tuesday, however, that it would extend the guarantee to all new deposits "during the current instability in financial markets".
It also said it would offer additional funding from the BoE on more flexible terms, which will allow Northern Rock to also use commercial lending as and when it can.
News of the agreement lifted Northern Rock's shares, down almost 70 per cent since the crisis began in mid-September. The stock ended the day up 19.9 per cent at 206.75 pence.
Source: Reuters

RAMS investors unhappy after market slaughter of mortgage lender

2007-10-08T04:47:00.000-07:00

RAMS Home Loans has disappointed investors with its first profit announcement since floating the Mortgage lender on the stock exchange last month.
It has reported a bottom line profit of just over $15 million.
The company says the results are in line in with its prospectus forecast, but its share price has dropped nine cents to $1.07.
The share price hit a low of 55.5 cents earlier this month after RAMS revealed that US credit market problems had forced it to access more expensive interim funding for $6 billion worth of its loan book.
The company says it will not know the full extent of the impact on its 2008 results until refinancing has been locked in.
Source: ABC

RAMS caught up in storm

2007-08-26T04:29:00.000-07:00

Home mortgage lender RAMS is caught in the eye of an intensifying global financial storm, with its share price collapsing as it searches for billions of dollars in funding.
But the boss of the nation's biggest non-bank mortgage lender told The Australian last night that its customers had no cause for concern, and the business was not under threat.
"Yes, RAMS has some short-term funding issues to address, but that in no way affects our ability to continue to operate," chief executive Greg Kolivos said. "It's business as usual as far as we're concerned."
RAMS listed on the Australian Stock Exchange on July 27 in an $885 million float, enabling founder John Kinghorn to reap more than $600 million in cash by reducing his holding from 93 per cent to 20 per cent.
But investors who paid the $2.50 issue price were a long way under water yesterday after RAMS shares crashed again in response to the company's revelations about its funding problems.
The stock sagged 48.5c, or 36 per cent, to 85.5c, hitting an intra-day low of 55.5c. At the close of trading, the company was worth just $306 million, meaning Mr Kinghorn could buy it back with the cash he raised by selling shares into the float.
Other non-bank lenders, such as Bluestone, have also been hit by higher borrowing costs, which are likely to be passed on to customers in the form of higher mortgage rates. On Wednesday, Commonwealth Bank chief executive Ralph Norris said rates would inevitably rise across the industry.
Mr Kinghorn said on Tuesday, when the full extent of RAMS's problems surfaced, that "life was cool" until Thursday last week.
That was when France's biggest bank, BNP Paribas, triggered a new wave of global instability by suspending redemptions on several investment funds exposed to the US sub-prime mortgage crisis.
RAMS has no risky sub-prime exposure, but it relies on the evaporating short-term debt market in the US to raise money that it on-lends to Australian home buyers. The company has about 60,000 home loans to borrowers around the nation.
It passed on last week's 25-basis-point hike in official interest rates to new customers, while rates for existing borrowers went up 25-30 basis points. Despite the crisis, RAMS said on Tuesday it would not jack its rates up to offset the increase in its own funding costs.
In the US overnight on Wednesday, investors baulked when RAMS tried to roll over $600million in 30-day funding.
For the first time, an Australian company relied on a funding clause in the short-term debt market to extend its commercial paper, giving it a 180-day window to find alternative, longer-term funding for $6.17 billion of its $14.16 billion loan book.
RAMS told the stock exchange yesterday that the company's performance was not at fault.
"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 in a statement. "The underlying business of the company continues to operate profitably."Source: The Australain

Mortgage interest rate blame on states dumb says Treasurer

2007-08-12T02:34:00.000-07:00

The New South Wales Treasurer, Michael Costa, says the Federal Government's attempt to blame individual state borrowing levels for the anticipated mortgage interest rate rise is absurd.
The Prime Minister says the states are borrowing $70 billion and plunging Australia into debt.
New South Wales has the biggest infrastructure plan, with expected spending of $50 billion over the next four years - 40 per cent of that will be borrowed.
But Michael Costa says there is no stress on that undertaking.
"We are seeing no pressure on our treasury corporation to offer greater returns for people to take on that debt," he said.
Mr Costa says the Federal government cannot inoculate itself from another interest rate rise after overselling its economic credentials and handing out tax cuts last year in a vote buying exercise.
"The Federal government is absolutely desperate - they take credit when the economy is going well - when they're in difficulty they want to blame the states."
Mr Costa says the NSW capital spending program can be slowed if interest rates rise.Source: ABC

Mortgage interest rate rise has Labor and Liberals at loggerheads

2007-08-12T02:19:00.000-07:00

The reality of mortgage interest rates increases for home-buyers and businesses have been left to count the cost after a rise in official interest rates.
The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent, the highest level in over 10 years.
Economists say the mortgage rate rise will translate to a rise of nearly $40 a month for Australians holding a $250,000 mortgage.
The first election-year rise since the Reserve Bank became independent sparked a war of words between the Government and Opposition.
In a rare joint news conference, Prime Minister John Howard and Treasurer Peter Costello used the news to put pressure on Labor over its economic credentials. [deflecting any questions of him breaking promises to homeowners and home buyers that rates woul remain at record lows.
"What this decision does is to place economic management once again front and centre in the political debate in this country," Mr Howard said.
Mr Costello said mortgage rates would still be lower than at any time under the former government.
He said the standard variable mortgage rate of 8.3 per cent was 4.5 per cent lower than the average under former Labor prime ministers Bob Hawke and Paul Keating, and "less than half of the notorious 17 per cent".
"The official cash rate of 6.5 per cent is lower than it was when this Government was elected and that is after 11 years of growth and 2.1 million new jobs," he added.
But Opposition Leader Kevin Rudd accused the Government of being out of touch and said the rates rise was a worrying development for households across Australia.
He said households were also being squeezed by rising petrol prices and the high cost of groceries.
"Working families are already struggling to make ends meet, particularly when you count nine interest rate rises on the run," he said.
Mr Rudd sought to deflect criticism of Labor's economic credentials, promising that a Labor government would maintain a Budget surplus and make fewer spending commitments than the Howard Government.
His treasury spokesman Wayne Swan accused the Government of losing touch with the reality of working families.
"A lot of families will be sitting around the kitchen table tonight wondering how they're going to make ends meet," Mr Swan said.
"On a day when they should have been explaining why they broke their interest rates promise, they stood there patting their backs," he said of Mr Howard and Mr Costello.
Greens Leader Bob Brown blames the Prime Minister for the rates rise.
"John Howard has given the average income earner in this country increased interest rates, while the wealthy got the tax cuts and it's not a good bargain," he said.
Default warning
Meanwhile the rise sparked a warning that many Australian families will lose their homes as they fail to keep up with mortgage payments.
David Imber from the Australians for Affordable Housing lobby group says many people will now be forced to default on their mortgages.
"We've already seen default rates double across Sydney and we know that it's spreading right across the country," he said.
"Mortgage defaults is the absolute worst sign of the housing affordability crisis for people who own their home.
"But of course in the rental market we've got hundreds of thousands of Australians who can't even afford to make it up to that opportunity to be able to purchase their home and we're very worried for them."
Housing Industry Association spokesman Ron Silberberg says any contention that there is not widespread mortgage stress reveals a callous indifference to the plight of many people.
"Particularly first home buyers that came into the market when house prices were increasing very rapidly in the the belief that interest rates would be stable," he said.
House prices up
In another blow for new homebuyers, there has been an increase in house prices across the country.
Figures released by the Australian Bureau of Statistics show there was a 9.2 per cent rise in home prices over the year to June and a 3.2 per cent increase in the quarter.
Of the capital cities, Brisbane and Perth recorded the biggest rises over the year with prices increasing by more than 15 per cent.
Australians are also borrowing more for housing with a 9.2 per cent increase in the value of home loans for the month of June.
Loans to investors also increased at a much faster pace than loans to owner-occupiers.
Banks plan rises
The big banks are yet to say how they will pass on the official rate rise to customers.
ANZ Bank chief economist Saul Eslake says the Reserve Bank is trying to rein in consumer spending and keep inflation in check.
"For home borrowers, this announcement means an extra $16 a month for every $100,000 of mortgage outstanding," he said.
"So, for example, someone with a $250,000 mortgage would be looking at close to $40 a month by way of extra mortgage repayments."
ANZ spokesman Paul Edwards also says it is inevitable there is going to be a flow-on to home-lending rates.
"But we'll take a few days to digest the change and work out the flow-on to our various products," he said.
Westpac also says it is inevitable its lending rates will go up. The National Australia and Commonwealth Banks say their rates are under review.Source: ABC

Three major banks raise mortgage interest rates

2007-08-12T00:53:00.000-07:00

NAB, Westpac and ANZ are the three of Australia's "big four" banks that have announced changes to lending and deposit rates after Wednesday's increase in official rates.
ANZ is the latest to move, putting up its standard variable home loan rate to 8.32 per cent.
The bank says it recognises the increase in official rates [and its lifting mortgage rates in line] will be difficult for some customers.
Earlier today, Westpac announced it was passing on the full increase in official rates to its lending rates, while increasing some of its deposit rates by 0.3 per cent.
National Australia Bank announced changes to its mortgage interest rates late Thursday.
Source: ABC

Labor Leader Switches from Mortagge interat rates to housing affordability

2007-08-05T14:16:00.000-07:00

Labor Leader Kevin Rudd says Prime Minister John Howard has remained silent on housing affordability.
Labor is trying to switch the political focus to housing affordability ahead of federal Parliament's return this week and the Reserve Bank's interest rate decision on Wednesday.
Mr Rudd says Mr Howard has remained silent on housing affordability.
Finance Minister Nick Minchin has dismissed suggestions the first home buyers grant should be boosted.
"That will end up just feeding into price," he said.
He says the states should release more land.
With widespread forecasts of an interest rate hike this week, the Liberal Party is launching a pre-emptive strike, targeting Labor state government debt in an online campaign.
But Labor Leader Kevin Rudd says there has been a string of rate rises under the coalition.
"[Prime Minister John] Howard seems to now be saying that if there is a problem with interest rates in Australia, it's because of the states, it's because of anybody else apart from Mr Howard," he said.
WA Premier hits back in blame game
Western Australian Premier Alan Carpenter accused Mr Howard and his ministers of looking to blame anyone but themselves for the nation's problems.
Mr Carpenter was responding to comments by Mr Minchin, who claims state debt levels are putting upward pressure on interest rates.
The Reserve Bank is widely tipped to increase the official rate at its meeting this week.
Mr Carpenter says WA is running a very strong budget surplus and the assertion that state finances may force the Reserve Bank's hand are wrong.
"John Howard told people that he would keep interest rates down and he hasn't, so he's looking for people to blame - he's to blame," he said.Source: ABCHousing affordability plummets: reportPosted 11 minutes ago
The Urban Development Institute of Australia (UDIA) says a new national report proves housing affordability has worsened dramatically in recent years.
The report will be released today and charts the change in affordability of 70 centres in Australia between 2001 and 2006.
It has found that in 2001, 96 per cent of all the centres were considered affordable.
But UDIA national president Grant Dennis says there has been a major shift in affordability since then.
"In 2001, half the population could have purchased 71 per cent of the houses that were on sale in that year across the country," he said.
"If you skip forward to 2006, half the population could have only purchased 29 per cent of those houses."
Mr Dennis says only 39 per cent of centres are now deemed to be affordable.
"What the report clearly demonstrates is that it's not a local or state government issue - it's very clearly a Federal Government issue," he said.
"I think the only way that the issue can be resolved is that there has to be the creation of a ministerial council for housing, urban development, affordable housing - something along those lines.'
Source: ABC

Macquarie calls for calm after market meltdown

2007-08-04T04:10:00.000-07:00

Macquarie Bank executive director Peter Lucas has moved to reassure investors over the bank's exposure to the US subprime mortgage sector.
A fortnight ago Macquarie Bank chief executive Allan Moss said the bank was not exposed to the subprime mortgage market in the United States.
Yesterday almost $2.5 billion of Macquarie's market value was lost with investors concerned the bank will in fact be affected by the subprime crisis.
Although one of its retail investment vehicles, Macquarie Fortress, is being indirectly hurt by the instability, Macquarie remains confident investors' funds are safe.
Mr Lucas does not believe the bank is caught in a worsening global credit crunch, and says Macquarie Bank did see the warning signs in relation to subprime.
"The credit quality has been poor there for a while, and I think lots of people knew that there would be increasing delinquencies and defaults in the subprime mortgage sector," he said.
He has clarified Mr Moss's statement, saying Macquarie Bank's exposure to the subprime mortgage sector is minimal.
"And it's in relation to securities that are rated AAA and AA, so I think Allan's statement was that we had no meaningful exposure in the context of the bank as a whole," he said.
And Mr Lucas stands by the assertion that there is no direct exposure to subprime.
"To say that the flow-on effects that we've seen in financial markets worldwide, like equity markets are down, I don't think anyone could've assumed from Allan's statement that we were saying equity prices may not see flow-on effects from the liquidity issues that are going on in financial markets," he said.
Credit crunch
Mr Lucas says investors will be concerned by Macquarie Fortress's indirect exposure, but denies an assertion that the bank has been caught up in a global credit crunch.
"The bank doesn't have underwriting positions, in relation to credit positions, that are acting as a strain on our balance sheet," he said.
And although the bank has warned of losses as high as 20 per cent on Macquarie Fortress, he says at the moment the losses are substantially unrealised.
"The people we've lent money to, the corporations we've lent money to, are continuing to pay, when due, and we fully expect them to pay out 100 cents on a dollar on the loans we've advanced to that," he said.
"So we are confident that the losses here can be contained, and what are largely unrealised losses will not be materialised to anywhere near that level."
He is also confident Macquarie will not default on any of its loans.
And Mr Lucas says the prospect of a run on Macquarie Fortress does not concern him.
"A run by investors on redemptions would simply mean that we needed to sell some of the loans in the portfolio, and there is liquidity in the loan market, we can sell loans," he said.
"Albeit we're selling them at loans that reflect less than 100 cents in the dollar. So if people wish to redeem at these levels, and actually realise the loss, they're free to."
Mr Lucas says yesterday's sell-off does not mean Macquarie Bank's reputation for reading and minimising risk has been damaged.
"The fall in price that we saw in our share price was within the range of outcomes," he said.
"I don't think we're worried. There's two sides to every coin - some people will be saying this is a buying opportunity," he said.

Mortgage rate increase more likely due to consumer price rises

2007-08-03T00:37:00.000-07:00

A Mortgage interest rate rise next week is looking all the more certain after consumer prices rose at their fastest pace in almost a year, possibly due in part to the government's tax cuts.
The TD Securities-Melbourne Institute monthly inflation gauge, which indicates the likely pace of official inflation, rose 0.6 per cent in July to its highest rate since August 2006.
The result followed an increase of 0.2 per cent in June and took the annual pace of inflation to 3 per cent - at the top of the Reserve Bank of Australia's (RBA) annual inflation target of 2 to 3 per cent.
Core inflation also was higher, with the measure excluding volatile items rising 0.7 per cent in July for an annual pace of 3.8 per cent.
TD Securities senior strategist Joshua Williamson said the rise in consumer prices coincided with the government's latest tax cuts, which started on July 1.
"There is some suspicion that prices were pushed higher as firms took advantage of more favourable consumer finances," Mr Williamson said.
He said the acceleration in inflation in July should lock in an interest rate rise on Wednesday. Most economists expect interest rates to rise 25 basis points to 6.50 per cent.
"The RBA has kept interest rates on hold so far in 2007, but with economic growth strong and the labour market tight, the inflation pick up needs to be nipped in the bud for the inflation credibility of the RBA to be maintained," Mr Williamson said.
"Any further acceleration in inflation in the months ahead would increase the risk of yet a further rate rise in late 2007."
Consumer prices rose in a record 45 expenditure classes, fell in 10 classes and remained unchanged in 35 for a net balance of 35 price rises in July, the inflation gauge showed.
The biggest contributors to inflation during the month were increases in the prices of fruit and vegetables, bread and cereal products, and alcohol and tobacco.
The rises were partially offset by falls in the prices of automotive fuel, telecommunications, and audio, visual and computing equipment.
The July inflation gauge follows a stronger than expected rise in official inflation in the June quarter.
Source: AAP

Mortgage home loan on a fixed-rate possibly best option, because the fixed rate loan shifts the rate swing exposure on to the lender

2007-08-01T04:25:00.000-07:00

If as expected, the RBA lifts rates next week Australia, then a fixed rate loan may be your best option.
Fixed or variable? Home-loan borrowers know there's usually a premium payable for the security of a fixed-rate mortgage but at the moment it's actually cheaper to go fixed.
And with the Reserve Bank of Australia expected to make a decision shortly to move floating rates upwards, the unusual discount for fixed-rate borrowers will almost certainly get bigger.
Strong competition
The odd situation has been caused by competition among the major banks, allied to the fact that the proportion of variable-rate to fixed-rate mortgages taken out in Australia is one of the highest in the world.
A new report by Fitch Ratings has found that floating mortgages are much more popular in Australia than locked-in loans.
The prospect of a rate rise next week is strong as the RBA is tipped to shift the cash rate to 6.5 per cent when it meets next Tuesday. The local financial markets are pricing the chance of a hike at 78 per cent, slightly down from the 85 per cent forecast last week.
A rate rise of 25-basis points would take the standard variable rate from 8.07 to 8.32 per cent.
The rise would mean the monthly repayment of an average mortgage of $200,0000 would become $40 more expensive.
The move comes as BankWest, the aggressive Perth-based bank, is offering an 8 per cent interest rate to depositors.
Fixed rates 'will be cheaper'
The shift in the global credit markets has prompted most of the banks to increase their fixed rates by up to 20-basis points, or less than the likely rate move.
The average fixed rate on a three-year loan is between 7.59 to 7.69 per cent - below the level where the variable rate will shift.
Recent estimates show that about 85 per cent of new home loans in Australia are taken at the variable rate, while the remainder are set at fixed rates or a combination of fixed and floating.
The proportion is in contrast to New Zealand where the majority of mortgages are fixed, meaning the impacts of rate rises are not immediately felt by borrowers.
Australia 'more exposed' because most people have variable home loan finance.
The Fitch report said countries with a higher proportion of variable loans were more exposed to shifts in monetary policy.
"The extent to which changes in interest rates affect households also depends on the type of mortgage that predominates in the market," Fitch said.
"In countries such as the US and the Netherlands, where fixed-rate mortgages are the norm, a rate cut will lead to households refinancing their mortgages at a lower rate."
Fitch said the dominance of fixed rates in some countries meant the risk burden was held by the lenders.
"On the other hand, in countries such as Australia and UK where where floating-rate mortgages prevail, this risk is largely transferred to the housing sector," it said.
The study found Australian households, despite holding a relatively large amount of net debt, were in good shape. Fitch said flat house prices and the "soft landing" of the national property market allowed Australia to withstand external shocks to housing.
Source: The Australian

Residentail land developer says mortgage rate increase will not affect sales

2007-07-30T04:23:00.000-07:00

Australian residential land developer Australand Property Group Ltd says a mortgage interest rate rise in August would have little impact on its business, as the company had avoided projects likely to be affected by such a change.
Australand reported a 34 per cent lift in first half profit, saying it is on track to record an improvement in annual earnings.
The diversified property group made a net profit of $119.596 million for the first six months of calendar 2007, up from $89.256 million in the same period last year.
The result was mainly driven by strong performances in its commercial, industrial property and investment property divisions.
However, the residential development business did record a small increase in pre-tax earnings, as it weathered mixed fortunes in housing markets across Australia.
The residential division's pre-tax profit rose five per cent to $34.3 million.
Asked if a rate rise later this year would affect the company, acting chief executive John Thomas said Australand had shielded itself against such an increase, in particular, by distancing itself from the first-home buyer market.
A rise of 25 basis points to 6.50 per cent has been predicted by many economists after last week's surprisingly strong inflation figures.
"From Australand's perspective, the markets that we are focussed on are unlikely to be affected significantly by interest rates," Mr Thomas said.
"The first home owners market is not where our focus has been. Our focus in on ... quality projects with existing underlying demand, fundamentally from the people who still have plenty of money.
"People in Sydney, for instance, in the eastern suburbs, on the North Shore, likely to be less affected by an interest rate rise.
"Interest rates will really have an effect in the longer term on affordability, particularly in the first home owner market, and those markets that are not performing strongly are the ones we've been pretty careful to keep ourselves out of."
Housing affordability, however, remained a concern for the company, said executive general manager residential, Peter Bourke.
"We still have affordability concerns in Perth and in Sydney, where it takes about 39 per cent of a weekly earnings to service a mortgage," he said.
"That is far too high, especially when you're talking Melbourne at about 28 per cent."
Mr Bourke attributed the affordability problems and spiralling rents in part to a lack of apartment construction, particularly in NSW.
"We have got a lack of apartment construction and some land constraints, and that is adding pressure on the demand supply relationship," he said.
"Apartment construction in the eastern states has basically stalled."
At 1218 AEST, Australand securities had fallen three cents to $2.27.
Source: AAP

Home construction surges 8 percent in Victoria

2007-07-29T00:54:00.000-07:00

Home construction activity in Victoria has surged seven per cent in 2006-07, figures show.
Building permit activity in the financial year to June 30 hit a record $16.7 billion, up from $15.6 billion in 2005-06, Building Commission data has revealed.
Victorian Planning Minister Justin Madden said the figures reflected the state's booming growth. "Given our growing population, it is reassuring news that we will have a strong supply of new homes to ensure Victoria continues to have more affordable housing than the national average,'' Mr Madden said.
Building permit activity in metropolitan Melbourne was up 9.4 per cent, while outer Melbourne rose five per cent and regional Victoria remained solid.
In Melbourne, almost 40 per cent of activity was recorded in the inner suburbs while outer Melbourne comprised 36.8 per cent and regional Victoria, 23.4 per cent.
Statewide, permits for home construction jumped 7.9 per cent in the last financial year, while permits to build apartments fell 12.8 per cent.
Commercial permit activity rose 13.1 per cent, retail increased by 9.1 per cent and industrial permit activity surged 7.9 per cent.
There were 97 permits issued where building work was valued at more than $10 million, 10 of which were in regional Victoria. Share this article

US subprime mortgage crisis spills over into 2nd Australian hedge fund

2007-07-26T04:00:00.000-07:00

As defaults in risky US subprime mortgages grow the fallout is damaging the US mortgage market as a whole, and now its affecting Australian Investment funds.
A second Australian hedge fund has been hit by the escalating subprime mortgage crisis gripping the United States.
The boutique company Absolute Capital has suspended two funds worth around $200 million that are exposed to defaults in the risky mortgages, and admits it is worried about the state of the debt market in the US.
Absolute's suspension comes a week after another fund, Basis Capital, told investors their investments were in jeopardy.
The local developments comes amid renewed fears that the US mortgage crisis will spill over into other parts of the world's biggest economy.
Absolute Capital describes itself as a specialised structured credit fund manager, playing the usual tactical game of balancing high risk with high return.
It has two funds worth around $200 million that are exposed to the crumbling subprime mortgage market in the United States.
In a letter to investors last night, Absolute said its portfolio was diversified and it had not engaged in risky end of the market.
Managing director Deon Joubert said although the subprime exposure was less than 5 per cent, the funds had to be closed to protect investors.
"Absolute Capital believes a temporary closure of the funds is the best defensive measure to protect the longer-term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds' investments," he said in a letter.
But Mr Joubert warns Absolute investors that any rush to withdraw their money could be even more problematic, given the number of bigger players already unwinding their positions.
"Given the reduced market liquidity Absolute Capital believes the funds are not placed to adequately satisfy or price withdrawal requests," the letter said.
Absolute says the funds' performance is down 4 to 6 per cent for July, and the processing of withdrawal requests could be delayed until late October.
Despite the subprime exposure, Mr Joubert remains optimistic.
"We are expecting that markets will settle over the next few months, in which case investors in the funds may be able to benefit from these opportunities and improved market conditions," he said in the letter.
The suspension of Absolute follows a similar but higher-stakes story for Basis Capital, which has two funds worth more than $1 billion that are exposed.
Basis has hired the private equity group Blackstone to help defend a fire sale, and the global rating group Standard & Poors has been criticised for failing to detect the fund's fragility.
Distress in US
Meanwhile, Wall Street bounced back this morning after yesterday's heavy losses were fuelled by concerns that subprime defaults were spreading to more traditional mortgages.
But the signs of distress remain, with sales of existing homes falling for the fourth straight month, taking the US housing slump to its lowest level since 2002.
Real estate analyst Mike Larson agrees with yesterday's prediction from the major US mortgage lender Countrywide that subprime uncertainty means a recovery might not be seen until 2009.
"We've seen a real deterioration in the mortgage finance industry," he said.
"A lot more loans are going sour and a lot more lenders are cutting back on the types of loans they'll make.
"We'll probably see a continued weak market for the rest of this year and into next year with relatively weak sales and stagnant to falling home prices."
The mortgage instability in the US is being compounded in Australia by another collapse in the risky property sector.
South Australian private mortgage firm John West and Associates has been placed in voluntary administration with debts of almost $10 million.
Source: ABC

Will mortgage rates rise after the election? Home buyers think so.

2007-07-23T04:18:00.000-07:00

Home buyers are jumping in ahead of the election in order to buy before a perceived mortgage rate increase would put a home beyond their reach. Also the Liberal Government suggestion of making people save for a 20 percent deposit has paniced many first time home buyers to act now.
Political debate about housing affordability, and promises to lure first homebuyer votes, are also weighing heavily on would-be homeowners.
Woodards real estate group chief John Piccolo said the election's impact on interest rates were also a consideration. "There seems to be a bit of frenzy among house hunters at the moment, and that may be because of the perception that after the election, the interest rates are more likely to go up than down," Mr Piccolo said. "I think that's creating some pent-up demand." Prime Minister John Howard is yet to name an election date for this year. Election to 'clam' marketReal Estate Institute of Victoria chief Enzo Raimondo said an election would usually calm the market right down. "Historically, what happens before an election is announced is everything stops,"
Mr Raimondo said. "People want to know the outcome before they spend their money." But Mr Piccolo believes first-time buyers are taking a "better the devil you know" approach. Affordability hurdleHousing Industry Association chief Caroline Lawrey said would-be first homebuyers were certainly watching the affordability debate closely. "If there's one party suggesting the first homeowner's grant might double, then you could understand why a young person would want to wait until after the election to buy," Ms Lawrey said. This month, Opposition Leader Kevin Rudd proposed a range of affordability initiatives. The initiatives included tax breaks for investors who build affordable housing, a tax-free savings account for first homebuyers, and increasing the first homeowners' grant for low-income earners. Treasurer Peter Costello responded with a proposal to release Commonwealth land for housing, calling on states to do the same. But State Planning Minister Justin Madden is keen to argue Victoria doesn't have a problem. Property prices risingOver the weekend, Mr Madden launched new figures on property price growth during 2006. He said the 6 per cent rise in Victoria's median price showed the market had returned to "sustainable levels of growth". But Mr Raimondo said he didn't believe affordability improved last year. He predicted house prices would rise well above the 6 per cent this year.
Source: The Herald

Mortgage and other debts explosion sparks enquiry

2007-07-19T03:51:00.000-07:00

An inquiry into home lending practices is to be launched as new research reveals a sharp jump in the number of households going into debt or drawing on their savings to make ends meet.
The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to Melbourne Institute research.
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 parliamentary inquiry, which will report before the election, responds to concerns that lenders are breaching the banking code in their tough treatment of people in financial difficulties.
Leader of the inquiry, Liberal Bruce Baird, said it would also look at declining credit standards and the level of home loan defaults.
"Given comments by the governor of the Reserve Bank and a recent report by the banking ombudsman, we wanted to see if there were issues in the approaches taken by the various banks," he said.
Negative equity in focus
Labor committee member Craig Emerson said parliamentarians were particularly concerned about western Sydney and the Illawarra region where many people now owe more on their mortgages than their homes are worth.
"Committee members support the deregulation of the financial system but one consequence has been that existing and new entrants into the market have sought to capture market share as a top priority and that has led to very aggressive lending practices," he said.
The Melbourne Institute research 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

Mortgage Funds top $22 billion

2007-07-15T01:21:00.000-07:00

Is there such a thing as too much money? Most of us would think not, but when large chunks of money are competing for a home, investors are often forced to take on more risk.
One area where this has happened in recent years is the mortgage fund market.
While mortgage funds don't have the sex appeal of share and property funds, they have captured a fair slice of the investment pool.
Australians are estimated to have more than $22 billion invested in mortgage funds, with the largest retail funds having assets of close to $2 billion.
The appeal of mortgage funds is simple. They provide a steady, regular income and should deliver a better long-term return than cash investments.
But traditional mortgage funds have been lagging the cash rate and the better returns are being generated by funds that pack more punch but also carry greater risks.
Morningstar performance figures for the past financial year show returns ranging from 5.19 per cent (Colonial First State's Bricks and Mortar Fund) to 9.46 per cent (Mirvac's AQUA High Income Fund).
The median return is 6.58 per cent. But comparing funds at the top and bottom of the ladder is more like comparing chop suey with mangos than apples with apples.
If a fund is showing returns of 9 per cent or more, says Morningstar's Anthony Serhan, it is almost certainly lending against construction and development. Borrowers don't pay higher interest rates because they want to; they do it because lenders charge them a higher rate to reflect the loan's higher risk.
It's a point that was lost on many investors who bought debentures and unsecured notes with groups like Fincorp, Australian Capital Reserve and Bridgecorp, and inevitably some mortgage fund investors will miss it too.
This isn't to say that mortgage funds fall into the same basket as these collapsed property lenders. Investors in these schemes often put their money into unsecured or secondary securities that rank behind secured lenders.
Most mortgage funds insist on first mortgage security, and while they may be creditors of the collapsed groups, Standard and Poor's fund analyst, Peter Ward, says they should get out relatively unscathed without causing losses to their investors.
The fact that mortgage funds are generally well diversified and don't put big slabs of their money with one borrower, also helps.
But you still need to understand just how much risk your mortgage fund is taking on and what protections it has in place.
Standard and Poor's has just completed a report on 52 mortgage funds and found big differences in what's on offer.
The report says conventional mortgage funds have been suffering from "milking the same cow" as the banks. Competing for loans has led to lower margins and, in some cases, lower credit standards.
Morningstar's Serhan says smaller mortgage players, especially, can't compete on price when the banks decide to buy market share.
They may be able to compete by establishing better relationships with borrowers, but some have chosen to move up the chain - to look at loans less fiercely contested by the banks.
At the same time, traditional mortgage funds have been showing less than spectacular returns.
S&P's report found they have increasingly underperformed bank bills, and Serhan says they have lost ground to newer listed debt investments (many of which are also a step or more up the risk scale).
Traditional funds still make up the bulk of the market, but the number of higher yield or higher risk products is growing to adapt to these market forces.
So is it a case of once bitten, twice shy? Take a lesson from Fincorp et al and avoid the higher yield mortgage funds like the plague?
Not necessarily. S&P gave four-star ratings to four high yield mortgage funds and said they should generate better short- to medium-term performance than the traditional funds. But you need to do your homework.
Ward says some of the more dubious practices in the industry (and these can occur in both higher yield and traditional funds) include lending against the "on completion" value of development projects (which includes the developers' profit) rather than the cost of the project, plus related party loans, insufficient liquidity within the fund, and high gearing levels. He says funds should be well diversified (geographically, across sectors and across borrowers), have a stable management team, and effectively manage arrears and defaults.
You also need to understand what the fund invests in. Ward says some mortgage funds have become hybrids and invest in fixed interest securities as well as mortgages, and there has been a rise in the number of residual product loans where mortgage funds lend against unsold units when a development is completed, in anticipation of the units being sold. As with development loans, interest on these loans is usually capitalised and represents higher risk.
S&P found widespread use of mezzanine finance (where higher geared loans are split, with the senior lender taking a first mortgage and other lenders providing additional finance) and some funds specialised in areas such as low-or no-doc lending.
If understanding all that sounds like hard work, you're right. Mortgage funds have become more complex and investors are further hampered by poor or inconsistent disclosure.
While he believes mortgage funds have a role in investors' portfolios, Serhan says they should provide standardised disclosure so that investors can compare risks between funds and understand measures such as the level of a fund's arrears. They may still not be comparing applies with apples, but at least it would look a bit less like chop suey.

Mortgage home loan demand growth above expectations

2007-07-13T21:03:00.000-07:00

OVER 66,000 Australians bit the bullet and took out a home loan in May, despite the rising cost of buying a property.

Growing job security, as the unemployment rate falls, rising wages and recent stability in interest rates have made people more comfortable about taking on debt, economists say.

In total, 66,040 owner-occupied housing loans were agreed to by banks and finance institutions in May, a seasonally adjusted increase of 0.1 per cent over loans committed in April, Australian Bureau of Statistics (ABS) data released today found.

This is the sixth straight month of growth in housing loans.

Economists had expected to see no growth in May.

The total value of dwelling commitments in May was $22.139 million, a 2.7 per cent increase on the previous month.

Housing affordability has been a hot topic in the political arena in the past week with the Opposition saying it will hold a summit in Canberra on July 26 to find ways to ease the pain for first homebuyers trying to get into the market, as well as tackle soaring rents.

The Government wants to conduct a national audit to find suitable land for housing and ease the cost burden on homebuyers.

The ABS data shows that first-time homebuyers made up 16.6 per cent of loans committed in May, down from 17.2 per cent the previous month, and well shy of the 26.1 per cent set in July 2001.

The average Australian home loan size was $268,900 in May.

Loan commitments in the country's largest housing market in NSW fell 2.6 per cent in May after four straight months of growth, while loans grew in Victoria by 1.7 per cent.
Demand for home loans growing

Growing job security, as the unemployment rate falls, rising wages and recent stability in interest rates have made people more comfortable about taking on debt, economists say.

In total, 66,040 owner-occupied housing loans were agreed to by banks and finance institutions in May, a seasonally adjusted increase of 0.1 per cent over loans committed in April, Australian Bureau of Statistics (ABS) data released today found.

This is the sixth straight month of growth in housing loans.

Economists had expected to see no growth in May.

The total value of dwelling commitments in May was $22.139 million, a 2.7 per cent increase on the previous month.

Housing affordability has been a hot topic in the political arena in the past week with the Opposition saying it will hold a summit in Canberra on July 26 to find ways to ease the pain for first homebuyers trying to get into the market, as well as tackle soaring rents.

The Government wants to conduct a national audit to find suitable land for housing and ease the cost burden on homebuyers.

The ABS data shows that first-time homebuyers made up 16.6 per cent of loans committed in May, down from 17.2 per cent the previous month, and well shy of the 26.1 per cent set in July 2001.

Loan commitments in the country's largest housing market in NSW fell 2.6 per cent in May after four straight months of growth, while loans grew in Victoria by 1.7 per cent.

In Queensland, loans rose by 1.4 per cent, a fourth straight month of growth, and in South Australia they rose by 0.7 per cent.

In Western Australia they dropped 7.3 per cent, almost whipping out the 7.9 per cent gain in the previous month, while the strongest state in the month was Tasmania, up 6.3 per cent.

In the Northern Territory loans rose 2.3 per cent and the in ACT they increased by 4.6 per cent.
In Queensland, loans rose by 1.4 per cent, a fourth straight month of growth, and in South Australia they rose by 0.7 per cent.

In Western Australia they dropped 7.3 per cent, almost whipping out the 7.9 per cent gain in the previous month, while the strongest state in the month was Tasmania, up 6.3 per cent.

In the Northern Territory loans rose 2.3 per cent and the in ACT they increased by 4.6 per cent.

Source: AAP

Queensland credit unions announce merger proposal

2007-07-09T02:13:00.000-07:00

The boards of the Queenslanders Credit Union and Ipswich-based Discovery Credit Union have announced a proposal to merge.

A proposal - which would create a new credit union with about $400 million in assets, eight branches and 80 staff - will be put to members of both credit unions at their respective annual general meetings in November.

The agreement ensures all staff will be retained and all existing branches will remain open. The merged credit union will trade under the new name Queenslanders Personal Banking.

The merger will also need approval from the Australian Prudential Regulatory Authority (APRA) and other relevant regulators.

Under the merger agreement, Ross McDowell, CEO of Queenslanders Credit Union, will be the CEO of the new organisation and the current management team of Discovery will be part of the new management structure.

John Weier, the general manager of Discovery will be the deputy CEO of the new credit union and will continue to play a major role in the development of the organisation in the greater Ipswich area.

All Discovery directors have been invited to join the board of the merged credit union.

"Discovery Credit Union has been proud to support many local sporting and community groups through ongoing sponsorship programs and this will not change if the merger proceeds," Mr Weier said.

"As all of our staff and branches will be retained, members will not notice any change except for the name."

In a joint statement, Mr McDowell and Mr Weier said the boards of both credit unions had recognised the potential for growth in the Ipswich area.

"(We) believe the merger will create a financially strong regional credit union with sufficient size to ensure that it can continue providing friendly, personalised service to members," they said.

"In addition, having the economies of scale of a large financial institution will allow the merged credit union to take advantage of the opportunities that are available in the western corridor due to the strong local economy and continuing development."

Housing affordability gets political boost

2007-07-07T01:27:00.000-07:00

Australian Labor Opposition Leader Kevin Rudd says he will hold a national housing affordability summit later this month to look at ways to ease the burden on families.

Releasing a paper in Brisbane entitled New Directions for Affordable Housing, Mr Rudd said representatives from the finance and property development industries and state governments would be invited to the summit in Canberra to work on solutions to the growing crisis.

Mr Rudd said land release strategies, urban infill, high government infrastructure charges and skills shortages in the building sector would be examined.

``Once we've had this national summit on housing affordability, we then want to work through the individual responses from the finance sector, from the housing sector and others, to then define and shape exactly the proposals we'll take to the next election,'' Mr Rudd said.

Mr Rudd said one new initiative raised in Labor's paper was allowing for new home deposit savings vehicles, which allowed higher returns and tax advantages to ``supercharge'' the savings capacity of young Australians.

Contributions would be made from pre-tax dollars and earnings could be taxed in the same way as super nest eggs with the money only able to be withdrawn to buy a first home.

``Our national government has to show leadership to find better ways of making it easier for working families to save for a deposit on their first home, and to deal with the overall problem of affordability,'' Mr Rudd said.

Source: Courier Mail

Online Banking acceptance increases

2007-06-05T02:35:00.000-07:00

The local bank branch as we know it could soon be just a memory with dramatic growth in online banking and use of the internet to pay bills, a survey reveals.

Over the past year, another 1.3 million Australians signed up to do their banking over the internet.

It has been 10 years since internet banking was introduced in Australia, and there are now 8.2 million Australians aged 16 and over going online to manage their money, equivalent to 52 per cent of the population.

The Commonwealth Bank's second e-money survey has found that Australians log into their bank accounts on average twice a week.

Checking balances

The most common reasons for logging in are checking on account balances, checking transaction histories and transferring funds between various accounts.

As well as paying bills, Australians use the internet to pay credit card bills (66 per cent), pay for travel or holidays (60 per cent), pay for entertainment (58 per cent), transfer money to family and friends (57 per cent), and arrange international money transfers (24 per cent).

Almost 40 per cent of Australians prefer online banking to other forms of banking.

Just 27 per cent opt to visit a branch, 20 per cent like using ATMs and just 12 per cent advocate telephone banking.

Last year's survey found that Australians in regional and rural areas preferred to go to their local branches to do their banking, but this year it found there was an equal preference for branch banking and online banking.

Australians are going ever deeper into debt to make ends meet

2007-05-27T22:11:00.000-07:00

Australians are getting overloaded with debt to make ends meet despite many working harder and longer hours, research from internet auction site eBay reveals.

The research shows Australia's love affair with credit was strong, with more than two-thirds of Australians happy to borrow money to maintain their lifestyle.

The nationwide survey of about 850 people revealed that seven out of 10 Australians were working longer and harder in an effort to meet obligations and negotiate some of life's bigger financial hurdles.

The researchers found that one-third of first-time car buyers used some form of credit to finance their car, while three out of 10 Australians used either a credit card or bank loan to fund moving out of home for the first time.

The survey also found that 45 per cent of new parents said that despite planning financially for their baby, they still had to fork out for unexpected costs.

EBay, in partnership with the founder of savings tips website SimpleSavings.com.au, Fiona Lippey, have produced the Stages of Life Survival Guide.

For more information on the eBay Stages of Life guide visit www.eBay.com.au/stagesoflife.
SOurce: AAP

Will Australia's rampant economy raise mortgage interest rates?

2007-05-22T23:23:00.000-07:00

The 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 strengthWestpac 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.
Source: AAP

Mortgage your stocks and shares investment portfolio

2007-05-21T15:55:00.000-07:00

Australians are borrowing at record levels to invest in shares, an asset class which is gaining in popularity over property.
An Australian Securities Exchange (ASX) survey found 46 per cent of respondents now own shares either directly or indirectly, down from 55 per cent in 2004.
Many of those who exited the market in the past two years did so to pay off debts on homes and investment properties, according to the research.
Shareholders are now just as likely to be female as male, aged 35 plus and university educated, with a household income of more than $100,000.
Their method of investing has also become more complex, the typical investor has a stake in nine companies, up from seven in 2004.
But the study also shows a remarkable geographic division in share ownership.
Between 2004 and 2006, direct share ownership in regional areas plunged from 45 per cent to 32 per cent, which the ASX believes is largely attributable to the financial strain of the drought.
While share market participation might be down, those who are investing are borrowing madly to take advantage of booming conditions.
Margin loans are at their highest level in Australian history, with demand jumping more than 40 per cent in December according to financial researcher Cannex.
Shares favoured over propertyConversely, investment for housing loans failed to post even a 10 per cent increase in the same quarter.
”The strong growth in the Australian stock market, thanks largely to China and the resources boom, has fuelled increased demand for margin lending as an investment tool,'' says Cannex financial analyst Michael Moran.
”This suggests investors are favouring equity to housing with its current affordability issues in many areas.''
The fact margin loans have skyrocketed in relation to housing investment loans mirror the fluctuations in each market, he says.
Housing investment soared after the property boom in 2003, but tapered off as prices plateaued in most Australian cities.
ASX market research manager Mary-Anne Muscat says many became shareholders accidentally, through demutualisations, the floating of public utilities and enterprises, or employee share schemes.
These “accidental'' share owners contrast with the sophisticated investors who now typify share ownership in Australia. The Advertiser

High-rise apartments are symbols of wealth and the cafe society lifestyle for the new rich and wannabes

2007-05-04T19:36:00.000-07:00

In 2006 the world's tallest apartment building opened in Melbourne. The 300m, 92-storey Eureka Tower can be seen as far away as the Portsea seaside resort, 115km to the south. Victorian Premier Steve Bracks calls it "an urban sculpture", while architecture reviewer Norman Day has described its beauty from afar as "compelling and dazzling". Eureka Tower, home to the wealthy and the brave. How else to describe homeowners prepared to part with more than $2 million to live above the clouds?
Since flats first appeared in Sydney and Melbourne in the early 20th century, the apartment v suburban home debate has raged among generations of architects, town planners, municipal councils and residents.
At Eureka's opening last year, its co-architect Karl Fender highlighted the tension: "A lot of people like the idea of their feet on the ground, and their back yard. It's been a state of mind," he said. "But more and more, and especially in Melbourne, it's being understood to be a very elegant, safe and sustainable way of living."
Eureka's 556-apartment density is an example of how far the humble flat has come in 100 years. Shunned and ridiculed by their critics, today's apartments are often linked with wealth, social position and cosmopolitan lifestyles.
"The city apartment has become respectable as well as trendy," Caroline Butler-Bowdon and Charles Pickett write in Homes in the Sky: Apartment Living in Australia. "As significant as the raw numbers is the renewed association of city apartment living with affluence." Their new book is the first serious history of Australia's apartment and flat development. Chapter one is titled Slums of the Future? A Century of Controversy, which confirms the book is less about architectural aesthetics (although there is a good deal of reviewer comment included) and more about the social impact of apartments on our suburbs and our population.
Although apartments became popular in cities such as Paris, London and New York in the late 1800s, the first flats did not appear in Australia in large numbers until the years before and during World War I. The Astor in Sydney's Macquarie Street, built in 1905, was the country's first purpose-built mansion flats, while in 1914 a multi-unit development in Chippendale became Australia's first public housing flats.
After the war, workers' flats became a target for commentators who feared a new form of the inner-city terrace house slum was emerging. "Suburban living was promoted as the panacea for the social and public health malaise afflicting cities," Butler-Bowdon tells Review, "and you get that very much in Sydney with the bubonic plague fears, for example ... The term 'slums of the future' was born, and we hear it again and again during the 20th century."
Enter Australian architecture's new dark side: "A very great danger has again crept in ... the danger lying in the areas of flats which are fast springing up in some suburbs," warned Sydney journalist and historian Charles E.W. Bean in 1925. "In these regions the children are again turned out into the streets ... for their normal playground." Grim predictions from Australia's official World War I historian.
Butler-Bowdon, a former Museum of Sydney curator, agrees flats often receive a raw deal from urban planners, architects and social historians. "I think they were at odds with the Australian self-image, which, despite our highly urbanised society, remained for many years (and arguably still today) focused on rural and suburban ideals," she says. "The suburban cottage was the nationalist touchstone and apartments remained excluded from that."
She adds that while middle-class flat life could be tolerated, "flats for workers really inflamed social and political anxieties, and we see this right from the beginning".
Blocks such as The Albany and Kingsclere in Sydney, the Melbourne Mansions that once dominated the top end of Collins Street, and long-gone Cliveden Mansions in East Melbourne became fashionable. At the same time, however, the block of flats phenomenon was spreading. "As far as respectable society and published opinion was concerned," write the authors, "apartments were alternatively a symbol of respectability and progress or a potential blight, depending primarily on their social setting."
Many Australians welcomed the chance to live in a flat; single women, widows, bachelors and country visitors in particular saw them as affordable, pleasant and secure alternatives to boarding houses and hotels. "Melbourne has taken to flats with some of the feverish eagerness of a teetotaller converted to liquor," wrote art critic Basil Burdett in the 1920s.
Between the two wars 70,000 new apartments were built in Sydney, while in Melbourne flats made up one-tenth of private dwellings by 1947. Both cities, because of their populations and flat proliferation, are featured heavily in Homes in the Sky, although developments in Brisbane and Perth in particular are included.
Architectural styles differ between cities. To make the most of harbour views, Sydney went up in height. So did Surfers Paradise, Australia's apartment capital, where an absence of height restrictions unleashed a flurry of residential tower developments from the late 1970s.
In Melbourne meanwhile, Butler-Bowdon says, there were "many more courtyard apartments: two to three-storey walk-ups that blended into the streetscape. We think it's part of the anti-flat opinions which were prevalent in Melbourne, and the regulations in Melbourne."
Another regional difference: Melbourne's ugly public housing high-rise towers in areas such as Fitzroy, Carlton and North Melbourne are still considered blots on the landscape. (The authors point out that some private developments such as Harry Seidler's 1962 Blues Point Tower and East Circular Quay's "toaster" apartments have also ignited community furore.)
Butler-Bowdon describes the public housing tower as "a powerful symbol of social and physical failure to most people". Private high-rise development in the '60s and '70s, meanwhile, also receives a whack from the author, who calls it "an absolute festival of the cheap and nasty: the speculative property boom".
Although high-rise blocks usually attract all the negative comments, Butler-Bowdon wonders why critics often overlook the two or three-storey walk-up, a matchbox-style block with no verandas or balconies, small internal spaces and, often, an external communal staircase.
In 1937 architect Morton Herman was one of the first to criticise walk-ups. "Sydney is fast becoming swamped by innumerable box-like blocks which march, cheek by jowl, down uninteresting streets in increasingly dull suburbs," he wrote.
Years later architect Norman Edwards agreed: "The red texture brick home unit block has done even more to desecrate Sydney's fine natural environment than the proverbial red brick and tile bungalow."
Canberra architect Roger Pegrum is one who, in the '70s, summed up society's anti-flat feeling. Writing in Architecture in Australia, he observed that "soon, few people in the inner suburbs can afford to stay in their detached house, even if they do not object to living in the constant shadow of a large non-human ant-heap. None of this explains why 'home units' should be so bloody ugly."
Flats have always posed a challenge to the traditional Australian quarter-acre-block view of perfect domesticity, but perhaps never more so than at the start of the 21st century. In 2007 more flats are being built in Brisbane, Melbourne and Sydney than houses and, according to Butler-Bowdon and Pickett, urban demographers predict "that by 2030, 45 per cent of Sydney households will be living in flats". Homes in the Sky is an affectionate review of domestic architecture's poor cousin. "We see quite often through history, flat dwellers are part of the floating population of big cities," Butler-Bowdon says. "I think for many flat dwellers, their apartment is their castle. They just love their flat."
Homes in the Sky: Apartment Living in Sydney, Museum of Sydney, May 12-August 26, is curated by Caroline Butler-Bowdon.
Source: The Australian

Home buyers going for low or even no deposit mortgages in home affordability crisis

2007-04-27T22:38:00.000-07:00

The home affordability crisis is driving first-time home buyers to seek out low deposit or even no deposit mortgage lenders to break into homeownership.
Average deposits for first-time buyers have shrunk to between three and six per cent in recent years compared with the traditional 10 to 20 per cent, Raine and Horne Financial Services said.
"Very few applicants have a 20 per cent deposit," said Gary Lees who is the general manager of Raine & Horne Financial Services.
Shrinking deposits highlight how housing affordability is increasingly out of reach for more people across Australia.
Would-be buyer are tapping a growing supply of mortgages that require little or no deposit in return for higher interest rates at a time when slumping vacancy rates are driving up rents.
"For many, especially those who are renting, this is a hopelessly difficult target," Mr Lees said.
Median house prices climbed 1.2 per cent in Sydney to $526,158 during the fourth quarter of 2006 compared with the previous three months, according to Australian Property Monitors.
By comparison the median price in Melbourne was $366,415 in the fourth quarter - up 1.4 per cent. The popularity for low and no-deposit loans may also be a driven by the supply of the loans as well as impatience among young or the so called Generation Y who don't want to take the time to save.
"There has been a real explosion of those type of products over the last couple of years," said Paul Lahiff, who is the managing director for mortgage broker Mortgage Choice.
"Gen Ys are 'I want it now'.
"They want to do everything and they want to do it yesterday.
Mr Lahiff says that he has not seen a higher rate of delinquency on low or no-deposit mortgages.
Even so, three interest rate rises last year has sparked record bankruptcies after some people got too heavily in debt buying properties during the last property bubble that ended in 2003.
Trouble is some areas to the west and south of Sydney have seen prices slide since then.
Bankruptcies surged 9.5 per cent since the final three months of 2006 to 6585, the highest since the June quarter of 1998, according to data this month from Insolvency and Trustee Service Australia .
In NSW bankruptcies rose 7.1 per cent to 2404, while in Victoria they were up 7.8 per cent 1491 - both records.
The growing preference for low and no deposit home loans are not limited to lower income buyers, Raine & Horne's Lees said.
"Even in Sydney's more affluent areas like the eastern suburbs, a large percentage of first homebuyers are using no deposit home loans," he said. Source: AAP

Mortgage home loans to become a lifelong commitment

2007-04-25T15:18:00.001-07:00

Housing affordability is at a record low so mortgage lenders are devising new loan products to bridge the gap for first-time home buyers eager to get a start.
Yesterday Savings & Loan Credit Union started to offer 40 year home loans to customers, taking us one step closer to Japan's multi-generation property loans.
And the appearance of shared equity loans such as that offered by Adelaide Bank/Rismark is another attempt to bridge the affordability gap for potential home buyers at a time when rents are also soaring.
Sceptics claim that the housing market will quickly absorb any affordability short cuts, much as the first home owners grant quickly resulted in prices inflating by a similar amount.
The first independent analysis of shared equity loans disagrees with this idea.
Financial researcher Cannex found that shared equity products are unlikely to have any effect on property prices unless they become very widespread.
Even then, the effects are likely to be modest "because by using this form of loan a borrower with affordability issues has quite different needs from a property upgrader who can suddenly afford one more bedroom.''
The shared equity loan lowers the bar for home ownership by funding 20 per cent of the house with an interest free equity finance mortgage (EFM).
A conventional home loan and deposit covers the remaining 80 per cent of the house value.
The catch is that the issuer of the EFM gets to keep up to 40 per cent of the capital growth on the house.
Surprisingly, Cannex found this sort of a deal can work in the home owner's favour, particularly in times of low to moderate house price growth.
The first saving is in mortgage insurance, which might otherwise have been required if a very large proportion of the property price was being borrowed.
Using historic prices, Cannex found that buyers who used a shared equity loan would have been ahead in the muddling main markets of Sydney, Melbourne and Brisbane but way behind in the faster growing markets like Perth and Darwin.
So the trick is to only used shared equity in markets which are unlikely to experience sharp price growth.
Savings & Loans chief Greg Connor said the new 40-year loans came after requests from members who could not break into the property market.
He said they would reduce the minimum payment on a $250,000 loan by as much as $95.21 a month.
"We see extended terms as a stepping stone for most borrowers who can move to a standard length mortgage after becoming established,'' said Mr Connor.
Of course the price of a 40-year loan term is that it takes a lot longer to start making a dent in the loan principal and you pay interest for a lot longer.
Source: The Herald Sun

Mortgage home loans to become a lifelong commitment

2007-04-25T15:18:00.000-07:00

CommBank says earnings on track

2007-04-21T01:39:00.000-07:00

Australia's second largest bank Commonwealth Bank of Australia Ltd says it remains on track to deliver cash earnings per share (EPS) growth that meets or exceeds the average of its peers.
In a third quarter trading update the bank said trading conditions and underlying credit growth remained favourable.
"The earnings momentum of the first half has been maintained in the third quarter of the group's 2007 financial year," it said.
During the quarter, CBA said trading conditions in its retail bank business had remained relatively strong, supported by steady housing growth and continuing favourable credit quality.
"In Australia, the retail bank continued to target profitable growth in each of its key products," it said.
Home lending balance growth has been in line with market.
In credit cards, recent growth rates had also been in line with market even though the bank continued to avoid zero rate balance transfer offers.
"Retail deposit growth, which has been influenced by normal seasonal factors, has been in line with system with continuing strong inflows into Netbank Saver," it added.
"Consumer credit quality has remained sound."
CBA said there had been some seasonal increase in arrears.
"Loss rates in unsecured lending - which includes credit cards - are trending slightly below expectations," it added.
The bank also said its institutional banking business had delivered strong balance growth with stable margins and that the global markets and treasury units had performed well.
"The local business banking market remained competitive, however margins have been stable," it said.
"Overall credit quality in the corporate book remains good, although there has been a slight increase in the level of impaired assets."
The wealth management business continued to benefit from a positive investment environment and strong retail funds flows.
Funds under management at March 31 totalled $130.8 billion, up 10.2 per cent for the nine months and two per cent for the quarter.
"It is pleasing to see that our focus on profitable growth is continuing to deliver results," chief executive Ralph Norris said.
"Not only have we maintained the earnings momentum from the first half, but we are continuing to make good progress with our key strategic initiatives.
"With good underlying credit growth and sound credit quality, I remain positive about the outlook and am confident in the ability of the group to again deliver strong earnings per share growth for the full year."
Source : AAP

Mortgage loans become lifelong interest

2007-04-16T04:30:00.000-07:00

40-year home loans being offered.

With housing affordability officially at record lows, financial engineering is reaching out to close the gap for first-time home buyers eager to get a start.
Yesterday Savings & Loan Credit Union started to offer 40 year home loans to customers, taking us one step closer to Japan's multi-generation property loans.
And the appearance of shared equity loans such as that offered by Adelaide Bank/Rismark is another attempt to bridge the affordability gap for potential home buyers at a time when rents are also soaring.
Sceptics claim that the housing market will quickly absorb any affordability short cuts, much as the first home owners grant quickly resulted in prices inflating by a similar amount.
The first independent analysis of shared equity loans disagrees with this idea.
Financial researcher Cannex found that shared equity products are unlikely to have any effect on property prices unless they become very widespread.
Even then, the effects are likely to be modest "because by using this form of loan a borrower with affordability issues has quite different needs from a property upgrader who can suddenly afford one more bedroom.''
The shared equity loan lowers the bar for home ownership by funding 20 per cent of the house with an interest free equity finance mortgage (EFM).
A conventional home loan and deposit covers the remaining 80 per cent of the house value.
The catch is that the issuer of the EFM gets to keep up to 40 per cent of the capital growth on the house.
Surprisingly, Cannex found this sort of a deal can work in the home owner's favour, particularly in times of low to moderate house price growth.
The first saving is in mortgage insurance, which might otherwise have been required if a very large proportion of the property price was being borrowed.
Using historic prices, Cannex found that buyers who used a shared equity loan would have been ahead in the muddling main markets of Sydney, Melbourne and Brisbane but way behind in the faster growing markets like Perth and Darwin.
So the trick is to only used shared equity in markets which are unlikely to experience sharp price growth.
Savings & Loans chief Greg Connor said the new 40-year loans came after requests from members who could not break into the property market.
He said they would reduce the minimum payment on a $250,000 loan by as much as $95.21 a month.
"We see extended terms as a stepping stone for most borrowers who can move to a standard length mortgage after becoming established,'' said Mr Connor.
Of course the price of a 40-year loan term is that it takes a lot longer to start making a dent in the loan principal and you pay interest for a lot longer.
Source: The Herald Sun

New shared equity mortgage loans may flood the property market with home buyers and force prices up

2007-03-29T04:36:00.000-07:00

Equity finance mortgages, just released from the Adelaide Bank could make property ownership easier, but analysts warn it could boost house prices because it fuels demand without addressing supply.
The announcement came just a day after economic analysis released by the Federal Labor Party claimed housing affordability across the nation was in crisis.
The loan product allows home owners to borrow as little as 75 per cent of the value of their home, after putting up a 5 per cent deposit.
The other 20 per cent will be covered by what is called an equity finance mortgage or EFM.
The borrower pays no interest or principal repayments on this 25-year mortgage, but when they sell the house, the bank gets 40 per cent of the total capital gains. On the upside, if the house declines in value, the bank absorbs up to a maximum of 20 per cent of the losses.
The loan effectively allows people to buy a house up to 25 per cent more expensive than is possible under a traditional home loan.
Adelaide Bank chief general manager, banking, Stephen Small said the bank, and its partner Rismark International had been developing the product for about four years.
"The EFM is an ideal home loan for a first-time buyer lacking the full finances required for entry into the home-owner market," Mr Small said.
"If and only if the property increases in value will the lender be entitled to a share of the capital gains."
If the house loses value, and the bank absorbs 20 per cent of the capital loss, it was effectively a negative interest rate, Mr Small said.
He said the new loan would allow people to buy homes up to 25 per cent more expensive and cut 20 per cent off the cost of their mortgages.
CommSec senior financial analyst Carlos Castillo said that if such loans became widespread, the effect would likely be an increase in house prices.
"If it does become more widespread it does mean there is more demand for properties and people can afford to pay more than in the past," Mr Castillo said.
"I don't think it's outside of the realms of possibility that rather than increasing affordability and keeping house prices where they are, that house prices might just ratchet up by the amount of the benefit that comes from this type of product."
Mr Castillo said this would only happen if other banks took up the product and it became widespread.
"History suggests that if this product does find a market out there then it wouldn't take too long for other players to . . . replicate the product."
Rismark managing director Christopher Joye said the key target market were people who were priced out of the home ownership market, those who already had a mortgage but wanted to free up income, or those who wanted to buy a larger home.
Real Estate Institute of Australia president Mark Sanderson said anything which helped people get out of the renting cycle and into home ownership was welcome.
Australian Consumers' Association spokesperson Nick Coates said consumers needed to make sure they knew what they were signing up for.
"As shared appreciation mortgages become more widely available the things that consumers need to watch on them are how much interest they pay on them," he said.
"By that I mean what it is at the end when you work out how much the house has appreciated.
"The critical thing there is you are satisfied with the valuation and you believe the valuation reflects the value of your house."
Herald Sun

Finance Markets expect mortgage interest rates to rise on wage increase pressures.

2007-03-28T01:23:00.000-07:00

The Reserve Bank of Australia's suspicion that wage pressure is accelerating is being confirmed by economic data, placing more pressure on interest rates.
The Australian bank bill futures market yesterday put the chance of a rate rise at the next Reserve Bank board meeting at 50 per cent, while a rate hike in the next 12 months is considered a certainty.
Early assessments by private sector economists suggest that March quarter inflation will push the annual rate higher, rather than lower as expected.
The RBA set interest rates to keep inflation between 2 and 3 per cent.
The Australian Industry Group's March quarter manufacturing survey, out next month, shows rising cost pressures on business.
AIG chief economist Tony Pensabene said yesterday that companies were also pushing up selling prices, although profit margins were still being eroded.
"Skill shortages and shortages of labour generally are putting pressure on companies to deliver wages either to reward or retain staff. There are also clear signs that the drought is having an impact on supply chains, and that has put some pressure on particular food sectors.
The AIG survey is consistent with the findings of the National Australia Bank and the ACCI business surveys.
The monthly NAB survey shows that both wages levels and spare capacity are at levels to raise concern at the Reserve Bank.
It shows the average wage rise increased from 4.5 to 4.75 per cent in the second half of last year, and moved to 5.25 per cent in both January and February.
NAB chief economist Jeff Oughton warns that the survey figures are typically about a percentage point higher than the official national wage price index, but they underscore the rising wage pressure.
Both the NAB and the AIG surveys show companies are running out of spare production capacity. These surveys are the only direct measure of how closely the economy is approaching the limits of its capacity and are closely followed by the Reserve Bank. The NAB survey shows business is operating at a record 83.9 per cent of its capacity.
The latest ACCI-St George survey shows that in the December quarter wage and other cost pressures were at their highest level since the survey began in 1994.
However, the business surveys show that cost pressures are not fully reflected in sales prices. The NAB survey shows retail prices are only rising at an annual rate of 1.9 per cent. Both AIG and ACCI surveys show a moderate lift in selling prices.
Westpac inflation expert Anthony Thompson said the headline rate of inflation for the quarter was likely to be 0.8 or 0.9 per cent, compared with the December quarter's 0.1 per cent fall in consumer prices.
"Petrol prices have ratcheted higher, whereas early in the quarter it had looked as though they might fall by an average of 4.5 per cent."
He said a very preliminary estimate suggested the core inflation rate for the quarter might rise from the December quarter's 0.5 to 0.7 per cent.
"Domestic demand, particularly from consumers, is proving extremely resilient to last year's rate hikes."
The monthly inflation index compiled by the Melbourne Institute and TD Securities shows that, excluding volatile items and housing rent, price pressure in February was the most intense in the past four years.
Source: The Australian

House rents Jump with big increases for years to come as housing shortage forecast to take 4 years to ease

2007-02-22T16:08:00.000-08:00

Australia's rental crisis is set to worsen and sharp rises in rents will continue for at least four years as Capital cities shrinking rental housing supply, especially in Sydney, will take years to ease a report warns.
Rents will jump due to a dramatic fall in the number of apartments built this financial year, the report by industry analysts BIS Shrapnel says.
BIS Shrapnel is predicting apartment rents will rise 42 per cent in the five years to June 2011 - equating to an average of 7.3 per cent every year.
Report author Angie Zigomanis said, since investors began to leave the property market two years ago, off-the-plan sales, which trigger building, had fallen sharply.
"Most new apartment developments won't go ahead until they have sold enough off-the-plan to get enough money to get finance,'' he said.
"At the moment there are no investors in the market to do those pre-sales. The lag between off-the-plan apartment sales and completion means that, even if investors do return, it would take some years before their purchases are translated to new rental supply. The deficiency of rental dwellings will potentially be sustained through to 2011 and beyond.''
Weak growth in the cost of rent in recent years would lead to sharp rises as a shortage of rental stock emerged this year. Rents would rise 7.3 per cent each year, or 42 per cent over the next five years.
But investors would have to wait until mid-next year to see a better return in property prices.
He said two to three years of rental growth was necessary before yields improved to a level which would draw investors back to the apartment market.
"In many instances the value of investment apartments in Sydney has declined in the past two to three years,'' Mr Zigomanis said.
Prices would remain static or decline marginally over the next financial year.
Mr Zigomanis said a peak in vacancy rates in 2003 and lower rental returns had deterred investors.
"A peak in vacancy rates lead to static rents and low rental returns which caused investors to beat a retreat,'' Mr Zigomanis said.
"Since investors have left the market, pre-sales which trigger construction have fallen away and new apartment completions have been drying up.
"Consequently, we expect new apartment completions will show a dramatic decline over 2006/07.''
In June last year, Sydney rents were 6 per cent lower than the June 2000 peak, adjusted for inflation, after showing increases below long-term trends.
Sydney's rental vacancy rate was 1.6 per cent in January, according to Real Estate Institute of NSW figures.
"While attention was focused on rising interest rates last year, the situation for tenants was steadily worsening,'' REINSW president Cristine Castle said.
"The NSW Government needs to take immediate action to encourage investors to enter the property market, which would provide more accommodation for tenants,'' she said.

Sources: Daily Telegraph and AAP

Mortgage interest rates set to rise on economic growth outlook and jobs glut push inflation higher

2007-02-21T13:39:00.000-08:00

Inflation is not only high but accelerating, according to a report that strengthens the case for the Reserve Bank to raise interest rates next month for the fourth time in a twelve month period.
The TD Securities-Melbourne Institute Monthly Inflation Gauge showed prices increased by 0.3 per cent last month.
The rise was the third consecutive month of accelerating inflation and came despite the RBA's 0.25 per cent increase in official interest rates in November to 6.25 per cent. Inflation was 3.8 per cent last year, the survey found.
"My reading is that they will look at this and they will look at some of the signals of the underlying strength in the economy — the jobs numbers, the job ads numbers, that kind of stuff — and they are probably going to say 'it's time to go now'," said Don Harding, an economist at the University of Melbourne.
Higher inflation in December came as the price for bananas fell 40 per cent. The gauge last reached 3.8 per cent in August and has not been above it since May's 4 per cent. Both months brought rate rises.
While the study cites higher petrol prices as a source of upward price pressure, CommSec chief equities economist Craig James said in a report that petrol had fallen 1.4¢ in the past week and could fall another 7¢ in the coming fortnight.
Economists are split over the prospect of another imminent rise. ANZ chief economist Saul Eslake said housing figures for November, also released yesterday, showed a market that was slowing even before that month's rate increase. Commitments, or offers for mortgages that either have been or are expected to be accepted, fell by 1.2 per cent over the year to November 30.
"They (the housing finance figures) continue to suggest, as have earlier data, that the interest rate increases that took place during 2006 have flattened the trend in housing finance — I suppose, as you would expect," Mr Eslake said.
The figures would reverse some of the momentum towards higher rates that was built up after unemployment figures released last week showed stronger than expected jobs growth. "You could say, after the data of last week, that it (the housing finance data) perhaps slightly dampens the prospect of a further tightening of monetary policy in February, which the market had increasingly started to price in."
As recently as January 5, futures markets had priced a 28 per cent chance of an interest rate rise into the 30-day bank bill futures for March delivery. That market had yesterday priced in a better than 50 per cent chance.
Westpac senior economist Andrew Hanlan disagreed with Mr Eslake's appraisal and said the housing figures added to the case for another rate rise. Mr Hanlan described the drop of 0.6 per cent in loans to owner-occupiers as "very modest", and showed that previous rises had been less effective than might have been expected.
"Most people would have expected larger reaction to the interest rate tightening than we've seen," Mr Hanlan said.
"The fact that it came in basically flat in November, given the tightening of policy, is quite a resilient result."
Commonwealth Bank senior economist Michael Workman said the housing figures for November showed no impact from that month's rate rise, so they would be of little help to the RBA when it next considered raising rates. "We believe that December (and) January numbers will also show this gradual moderation as the interest rate effects work their way through the system," Mr Workman said.
"It's a pretty finely judged situation about whether there is going to be another rate rise."

Source: The Age, Melbourne Australia

Brisbane man charged over property fraud

2007-02-06T01:08:00.000-08:00

POLICE have charged a 42-year-old Brisbane man with fraud offences totalling more than $800,000.

The man, from Kenmore in Brisbane's west, allegedly used a forged birth certificate to obtain a Queensland driver's licence and bank mortgages for the purchase of three homes in Brisbane.

Police also allege he obtained personal finance totalling $90,000 through credit cards.

The man was arrested last night and is currently being held in the Brisbane watchhouse.

He will appear in the Brisbane Magistrates Court 5th February 2007.

Source: AAP

First time home buyer and investment property hotspots in Adelaide South Australia

2007-02-05T12:39:00.000-08:00

If you are a first home buyer or a property investor then take a look at Adelaide's hotspots, Mile End and Port Adelaide in South Australia's for capital growth.
But property investors who want a high yield rental income, it's a better bet to look in the city, outer suburbs or Iron Triangle towns.
A recent survey by Smart Money asked 10 of the state's biggest real estate companies for their views on which areas offer the best potential for property investors.
"Generally suburbs which are closer to the city and beach have provided better capital return over the long term," Raine & Horne manager for Burnside and Norwood, Joe DeConno, said.
L.J. Hooker regional director Rod Adcock said Mile End and Port Adelaide were "under-valued, close to the CBD and mainly comprise properties that would respond to update and improvement, therefore with potential capital growth".
Other capital growth hot spots include North Adelaide, Stirling, Payneham, Norwood and Brighton. No suburbs on the capital growth list made the high-yield list. "You are not going to get high yields in low risk areas," said Elders City Plus managing director Robin Turner, who recommends investors put capital growth above yield.
Mr DeConno said outer lying suburbs give better rental yield as purchase prices are lower.
"Some of these suburbs have recently also provided excellent capital growth, but this may not be as consistent as some of the inner suburbs are," Mr DeConno said.
Apart from the city itself, the best areas for yield include Elizabeth, Hackham, Whyalla and Port Pirie.
Professionals SA chief executive Ted Piteo said the city benefited from the growth of accommodation for overseas, interstate and country students, and more young professionals were moving to the CBD.
"Inner-city living represents great value for this market because of the proximity to all their required facilities," he said.
Mr Turner said pressures such as water restrictions and high fuel costs were making city living more desirable.
"A lot of ageing baby boomers are now looking at the city lifestyle," he said. So what is the best type of property to buy? Apartments, townhouses, units or stand-alone houses?
The answers varied widely among real estate agents, but bigger properties able to be subdivided were a popular choice.
"Land is the scarcest of commodities," Mr Turner said
Source: The Advertiser South Australia

Property Investors sell out of residential real estate

2007-01-27T23:00:00.000-08:00

The tax advantages under the Government's new superannuation laws are encouraging some property investors to sell-up and boost their super.

But this strategy is only likely to benefit a small section of the market.

Housing Industry Association (HIA) chief economist Simon Tennent said he believes the super changes, which come into effect on July 1, have triggered an exit from the property market, particularly for disappointed investors or those nearing retirement.

Under the Federal Government's new super regulations, money received from a taxed super fund will be tax-free for people over the age of 60, making it the most tax-effective investment for retirement.

At present, money is taxed when put into the fund, while within the fund, and generally when withdrawn.

Once the new laws are in place, an individual will be limited to investments totalling $150,000 a year or a maximum $450,000 within a three-year period.

However, at present the Government is allowing deposits of up to $1 million to be put into super before the June 30, 2007, cut-off date.

This transitional phase has opened a window of opportunity for some investors to boost their retirement savings by selling other investments, such as property.

Mr Tennent said some investors had become disheartened with the property market due to recent low house price growth, which he did not see picking up for at least 12 to 18 months.

"I don't think prices will keep accelerating because we've hit an affordability threshold,'' he said.

"And as this coincides with changes to superannuation, our view is that there will be a flow of funds out of property.''

However, ANZ financial planner Ron Holmes said there were a lot of issues to consider before deciding to move property investments into super.

"It is a complex area; There's so many possible 'maybes' and 'what-ifs', and everybody's circumstances are so different,'' he said.

Mr Holmes said the investor's age, if they were retired or when they were planning to retire, and whether they were married, all played a role in determining if this strategy would be beneficial.
Other important considerations were house price appreciation, how much capital gains tax investors would pay when selling their property, and how much they were saving in investment property tax deductions, he said.

Mr Holmes said this strategy would probably only benefit a very narrow part of the market, including those who were nearing retirement and were planning to sell properties valued at about $1 million if they were single or $2 million if they were married.

He said many of those approaching retirement, but with a lower value investment property, could sell their property at anytime after the June 30 cut-off date and still invest the money in super.

"If they're a married couple, and they've got a $900,000 property and they sell it, they can still put $450,000 each into their super after June 30,'' he said.

Mr Holmes said waiting until retirement to sell investment property could also have benefits, with retirees paying less capital gains tax on their properties due to their lower income, Mr Holmes said.

He said younger investors needed to be wary that moving property investments into super would restrict their access to that money, while they would also lose their tax offsets.

"I can't see it as being a very attractive strategy if currently it's providing you with tax offsets and the property is growing,'' he said.

However, he said that before making any decisions, investors should closely examine their individual situation.

"Go along and talk to your licensed tax adviser and your licensed financial planner before you do a thing,'' he said.
source: AAP

Australia's big four banks raise fixed interest mortgage rates

2007-01-24T22:12:00.000-08:00

Australia's four biggest banks have given their strongest indication that they anticipate interest rates will rise over the long term by increasing their fixed interest mortgage rates.
The nation's biggest bank, the Commonwealth Bank, on Tuesday raised its one- and three-year fixed rates by 11 basis points to 7.35 per cent.
National Australia Bank yesterday lifted its introductory one-year fixed rate for the second time since December - up 9 basis points to 6.74 per cent. However, it left its three-year fixed rate unchanged at 7.18 per cent - the cheapest rate of the majors.
Westpac and ANZ increased their three-year fixed rates by 16 basis points to 7.35 per cent in December.
Cannex financial analyst Harry Senlitonga said that in "general the trend is moving up a bit" for three-year fixed rates. He said this was an indication the banks believed rates were on the way up.
He said three-year fixed rates had increased between 5 to 10 basis points.
Mr Senlitonga said that another factor that could be contributing to the higher fixed rates was demand.
"(For) a product which has a strong demand, they will price it higher," he said.
Major banks said last year that most of their customers were switching from variable to fixed rates.
A CBA spokesman said "fixed rates are not tied to any Reserve Bank movement, they fluctuate regularly in line with movements in the cash market".
He also said CBA was "competitive with all of the other banks" and that all of its fixed rate offerings were "competitive".
Since December, the money market three-year fixed rate has increased from 6.54 per cent to 6.68 per cent.
Going against the trend was St George Bank, which this week dropped its three-year fixed rate from 7.19 per cent to 6.95 per cent.
Credit ratings agency Fitch Ratings said it expected growth in the Australian banking sector to moderate in 2007 due to competition and slower growth in housing finance.
In a report released yesterday, Fitch said it also believed asset quality would come under pressure.
"For a number of years, asset quality at the Australian banks has been near pristine; this is clearly unsustainable in the medium term," said Fitch associate director Tim Roche.
Of bigger concern was the explosion of leveraged buyout activity by private equity firms in the Australian corporate sector and higher gearing levels.
"If this were to coincide with weaker economic conditions it may lead to an increase in unemployment which is likely to have a negative impact on bank asset quality," Mr Roche said.

Source: Newscorp

Canberra home rental scarcity creates rent rise surge

2006-12-18T23:07:00.000-08:00

The residential home rental market in Canberra Australia is now almost impossible to break in to and it's going to get even harder as rents climb, the Real Estate Institute of Australia (REIA) says.New REIA market figures show Canberra has the tightest vacancy rate in Australia, with just 1.1 per cent of properties vacant currently.
Across Australia, vacancy rates are extremely low, in Sydney the rate is 1.7 per cent, in Adelaide 1.5 per cent and the highest rate is in Perth at 2.1 per cent.
REIA ACT President Peter Blackshaw said he has never seen such a shortage of accommodation in the Australian Capital Territory.
"At the moment it's very, very tight - it's certainly the tightest that I've known it and I've lived in Canberra for nearly 20 years and the really alarming thing is it's going to get a lot worse,'' Mr Blackshaw told ABC radio today.
The market is so tight, he said, because there are not enough people investing in residential property, instead they are putting their money into the stock market or other investments.
"The local government takes such a big proportion of the rent through land tax and rates that (residential property) just doesn't make sense as an investment,'' he said.
One way to fix the situation would be to abolish land tax, he said, or at least start cutting it back. If the Government does not start cutting back land tax, Mr Blackshaw said there was a risk some really serious social problems would arise.
"The people who are going to be hurt in this situation are the low income earners because they're going to be outbid by people coming in from outside of Canberra.''
And the difficulty in finding a rental property will not be the only problem for Canberrans, Mr Blackshaw also said rents are starting to rise significantly.
The next time a lease expires or a property becomes vacant, he said, landlords will be able to demand a significant increase on rent, in some instances more than ten per cent.
ACT Chief Minister John Stanhope said the real reason for the low vacancy rate in the ACT is that the economy is so strong.
"The fact is, we are now dealing with the pressures of a busting, booming economy and I think it's fantastic,'' Mr Stanhope told ABC radio.
"I must say I find it ironic that here we are complaining about the incidence that we have this enormously strong economy.''
Mr Stanhope said he was investigating the possibility of reducing land tax and was awaiting advice from both the Skills Commission and the Affordable Housing Taskforce.

Source: AAP

Mortgage approvals back slide

2006-12-10T01:55:00.000-08:00

Demandfor mortgages was subdued in October, data released today showed, as rising interest rates and a patchy housing market curbed enthusiasm from consumers to borrow.

Housing finance approvals for owner occupied housing fell for a second month in a row, easing 0.1 per cent in October, seasonally adjusted.

Market economists had expected a flat result.

The data takes into the account the May and August interest rate rises, but precedes the November rate hike.

source: AAP

Property gives the best returns overall

2006-12-10T01:50:00.000-08:00

Investors should be devoting at least 20 per cent of their investment portfolio to direct property assets in the retail, office and industrial sectors, a study shows.
The study commissioned by the Australian Direct Property Investment Association (ADPIA) found increasing the direct, or commercial, property component in an investment portfolio significantly reduced risk and the chance of investment loss.
The research looked at the performance of 11 different asset classes over 10 and 20 year periods, such as local and overseas shares, residential and listed property, Australian fixed interest and cash, and managed funds.
"ADPIA's view is we should have at least 20 per cent in direct property," ADPIA immediate past-president and executive committee member Richard Cutler said.
Mr Cutler, who also heads up Macquarie Bank's Direct Property division, said there was a very significant mismatch between the findings and what was happening in the market, with the allocation to commercial property from investors and their advisers declining since the 1980s.
"It (property) is the financial wealth of the world and ... we've got a very low and decreasing allocation to it," he said.
"So common sense says we've got it back to front and this research will really flesh that out."
Atchison Consultants managing director Ken Atchison, who carried out the study for ADPIA, said the decline was caused by a lack of available research, as well as behavioural finance.
"A market goes bad and everybody withdraws – that's the time when you should invest ... it's a classical psychological reaction," Mr Atchison said.
Investment in direct property peaked in the property boom of the late 1980s and early 1990s.
He said the research showed direct property provided strong total returns of 9.5 per cent in the 20 years to June 30, 2006, and 10.5 per cent over the 10-year period, with industrial and retail assets the best performers.
In the 10 years to June 30, direct property also produced the highest levels of income return of any other asset class, at 7.2 per cent, the report found.
According to the study, the asset class also exhibited the lowest volatility of income returns over both periods, a valuable characteristic that made a significant difference to long-term returns because it reduced the chance of making a timing error entering or exiting the market, Mr Atchison said.
He said a fully diversified property portfolio should be made up of "four states, three sectors", being NSW, Victoria, Queensland and Western Australia, and across the office, retail and industrial sectors.
ADPIA represents property industry professionals such as fund managers, custodians and financiers and was set up as the peak industry body in 1999.

Source: AAP

Mortgage lenders defies trend to post a big profit

2006-12-03T16:56:00.000-08:00

Australian Mortgage Lender Aussie Home Loans Group's aggressive expansion has helped bump up its annual profit despite stagnant east coast housing markets.
The mortgage lender and broker formed by John Symond yesterday posted a 44 per cent rise in net annual profit for 2005-06 to $19.7 million.
Aussie said it processed more than $10 billion worth of housing loan applications throughout the year, with the average loan size increasing to $242,000, which is higher than the Australian Bureau of Statistics average of $221,000.
Mr Symond told AAP that even though the Perth residential property market was "going gangbusters", challenging conditions in NSW had made the overall situation tough.
But he said the unlisted Aussie Home Loans was able to maintain profit growth, employing more people and rolling out more branches. "Our mortgage writers don't write any more business but there's more of them and we're touching more people," Mr Symond said.
In the year to June 30, Aussie increased its sales force by 19 per cent to 600 mortgage advisers.
"We have also very successfully rolled out about 14 new franchise businesses at a rate of about one a month," Mr Symond said.
"These have mostly been in parts of regional Australia we have not serviced before, so more consumers are being touched by the Aussie brand."
Aussie's credit card business was also growing fast and now had more than 100,000 customers, Mr Symond said.
Aggressive growth would continue in 2007 through the rollout of more franchise businesses and the establishment of new products.
Capital expenditure over the next 12 months was expected to hit about $10 million.
As for the group's future profitability, Mr Symond said Aussie had a "confident view of the medium term".
This month's quarter of a percentage point interest rate rise to 6.25 per cent had caused more caution in the housing market, Mr Symond said.
But he felt another rate rise was unlikely.
"We might have reached the top of the cycle this time and I'm hopeful the Reserve Bank will see no reason for an increase next year - unless of course inflation gets ugly again.
"And if the economy was to slow I don't think they'll hesitate in bringing rates back down.
"The market is certainly going to hurt for a few years to come.
"Consumer debt is at astronomical levels, so people won't go out and randomly spend.
"That's what the RBA want and that's what the RBA will probably get."
AAP

Home loan mortgage Interest rates could go higher

2006-10-30T16:19:00.000-08:00

The stage is set for a November home loan interest rate rise and possibly another rise in mortgage rates in 2007, with a solid rise in consumer prices in the third quarter pointing to inflation pressures in the domestic economy.
An Australian Bureau of Statistics (ABS) report showed the nation's consumer price index (CPI) rose 0.9 per cent in the quarter, for an annual rate of 3.9 per cent. In the June quarter, the CPI rose 1.6 per cent. The median market forecast for the headline CPI was for a rise of 0.8 per cent in the CPI in the September quarter, for an annual pace of 3.8 per cent.
Commonwealth Bank chief economist Michael Blythe said the suggested the central bank would raise rates next month. "Clearly we're still waiting to see what those key underlying measures are, but all indications are that it will be high enough to tick off that November rate rise," he said.
Westpac bank senior economist Andrew Hanlan said the figures confirmed that inflation was a challenge for the economy and the Reserve Bank of Australia (RBA).The RBA's inflation comfort zone for inflation is 2 to 3 per cent. The RBA would likely have to adjust rates following its November 7 board meeting, Mr Hanlan said."We need to see the Reserve Bank nudge things higher and we expect that in November," he said.But depending on how entrenched inflation is in the economy, Mr Hanlan said there is still a risk still that the central bank could raise rates again in February.Mr Hanlan said inflation is being impacted by rising global prices."Those rising global prices are feeding through to the whole pricing chain and we saw that earlier in the week with the producer price index rising quite a bit," he said. RBC senior economist Su-Lin Ong also said the results would put pressure on the RBA to raise rates for a third time this year. "The data and the details today support another hike from the Reserve Bank, most likely in November," she said.
"It (would be) a pretty prudent move given that there are clearly some underlying pressures in the economy." Source AAP

Home loans grow as UK house prices hit new high.

2006-10-22T12:57:00.000-07:00

Mortgage sizes grow as house prices in England and Wales surged an annual 11.5 per cent in October, taking asking prices to a record high, a survey showed today, in a further sign higher borrowing costs have not stifled demand.

The Rightmove house price index showed prices rose 2.0 per cent in October month-on-month, pushing the annual rate to its highest level this year. The figures were not adjusted to take into account seasonal changes in the market.

The asking price for an average house rose to 218,954 pounds (AU$541,232) in October, up from 214,566 in the previous month and beating the previous record of 217,580 pounds set in July.

The Rightmove data is in tune with other surveys showing the housing market shrugging off a Bank of England rate rise to 4.75 per cent in August. Most economists expect benchmark borrowing rates to rise further to 5.0 per cent next month.

"We have never (before) had a sustained low inflation, low interest rate economy combined with widespread home ownership," said Miles Shipside, commercial director at Rightmove, a leading property Web site.

"These unique conditions help push prices higher and higher. However, supply of houses coming onto the market is dropping as prices increase, because fewer home owners can afford to trade up."

Rightmove said the rise in prices was driven by a growing shortage of supply but added many first-time buyers are being priced out of the market given wage rises under five per cent while house price inflation runs above 10 per cent.

Asking prices in London and the southeast continued to lead the pack. Average London prices rose an annual 19 per cent to 335,507 pounds.

City bonuses and a surge in foreign interest have exaggerated gains in London's most desirable boroughs.

Rightmove said the cost of an average home in London's exclusive neighbourhood Kensington and Chelsea.

Source: Reuters

Low mortgage interest rates drive gain in new home starts

2006-10-19T20:50:00.000-07:00

Low mortgage interest rates are boosting the new home buyers and home building companies. The construction of new privately-owned residences increased nearly six percent last month compared to August, according to a joint report by the U.S. Census Bureau and the Department of Housing and Urban Development. The report also showed housing starts to be 19.9 percent below the August 2005 rate.
New home starts have slowed from the unsustainable levels of the last few years but the market has proven to resilient.
As long a long-term mortgage rates remaining low and there is a continued job growth across most industries the housing marketing will be in good shape, especially at the high end of the market.

2006-10-12T13:58:00.000-07:00

Queensland bank, investment and insurance group Suncorp-Metway looks set to secure one of the largest takeovers in Australian corporate history with its $7.9 billion bid for general insurer Promina Group.
The board of Promina - which owns brands such as AAMI and Australia's Pensioners Insurance Agency - has said it is "favourably disposed" to the conditional offer.
The Brisbane, Queensland based bank, insurance and wealth management group has offered 0.2618 of its shares and $1.80 cash per Promina share, valuing Promina at $7.87 billion.
The news pushed Promina shares into new record territory, with the stock jumping almost 19 per cent to an intraday high of $7.70. The shares were up 66 cents at $7.14 at 1534 AEST.
Suncorp gained 90 cents or 4 per cent to $23.20 by that time.
If approved, it will be the largest takeover in the financial services sector since the Commonwealth Bank's $9.1 billion purchase of Colonial Ltd in 2000.
Outside of that sector, the size of the deal compares with BHP Billiton's $9.2 billion buyout of WMC Resources in 2005.
Both insurers remained tight-lipped about the deal today short of issuing statements confirming the bid, after market speculation about a possible takeover pushed Promina shares more than 6 per cent higher yesterday.
Suncorp has said the merger gives it an expanded national presence, improved geographic diversity and a significant boost to its presence in the wealth management and life insurance markets.
"The proposal is in line with its strategy to pursue value accretive acquisitions which meet its investment criteria, create value for shareholders and enhance earnings per share," Suncorp has said.
The offer brings a sense of confirmation to months of speculation about a round of consolidation among Australia's top four insurers.
However, Suncorp itself was considered one of the more likely takeover targets.
With Promina eager to move ahead with the merger, the companies are progressing with due diligence and negotiations for a formal merger agreement.
But approval from Australian and New Zealand regulators could still remain potential barriers to the acquisition.
CommSec analyst Carlos Castillo has said there are unlikely to be many rival bids emerging from the woodwork with competition constraints likely to keep most players at bay.
"This has been something that's been in the pipeline for quite a while," he said.
"It's (the market) obviously not factoring anyone else coming in and making a bigger offer and trumping Suncorp.
"I think that's pretty unlikely because Suncorp is the one that can extract the most synergies out of an acquisition of Promina.
"Any other potential bidders, if they want to pay more, then they're really going to be doing so for strategic reasons not because they feel they can get more value out of the acquisition than Suncorp."
The move will have ramifications for the broader financial sector with Insurance Australia Group (IAG) - Australia's second largest insurer by earned premium behind QBE - standing to benefit from the transaction.
"If this takeover goes ahead then it's hard to see anyone being able to buy IAG without further competition concerns being raised unless they're an offshore person who has no participation in the market at the moment," Mr Castillo said.
Deutsche Bank analyst James Coghill has said the disruption a merger is likely to cause Promina and Suncorp would improve IAG's attractiveness in the medium-term.
"In terms of alternative bids, we see limited scope given competition constraints for IAG, and lower synergy potential from QBE, Wesfarmers and Allianz," Mr Coghill said.
"Furthermore, both QBE and Allianz have the ability to acquire offshore at more attractive multiples."
Bank of Queensland managing director David Liddy has said the merger is good news for his bank.
"It's a positive from our point of view, we stick to the view that we are a bank and what we are trying to do is get more Bank of Queensland customers in Queensland," he said.
Mr Liddy has said the regional bank performed well after Suncorp's $1.26 billion acquisition of general insurance business GIO from AMP in 2001.
Source: AAP

Reverse Mortgages. Are they a cause for concern for our aged?

2006-10-12T04:48:00.000-07:00

vphSeveral consumer groups are calling for better protection for aged homeowners being sold reverse mortgages to fund their retirement.
Australia's ageing population are mostly asset rich but cash poor. And most have one asset that has doubled or trebled in value in the last few years, and that’s the family home.
Reverse mortgages have been available in the US for decades, and some banks tried to market them in Australia in the nineties with limited success.
Their time and need has now come, as the cash strapped baby boomers head to retirement with little superannuation or other assets to support them in retirement.
In 2004, about $250 million was lent through reverse mortgages. Last year, it was $650 million. According to Kieran Dell, executive director of the industry body Senior Australians Equity Release Association of Lenders (SEQUAL), that's just the beginning.
"It wouldn't surprise me if it exceeded a billion dollars in this calendar year," he says, adding that it could reach up to $5 billion in the next few years.
"You won't see the rump of those baby boomers hitting retirement and then spending their superannuation for another 10 years. So it's going from a small base but it is growing very fast."
But the Australian Consumers Association has called for regulation of the sector, concerned that pushy selling practices could put them in an unfair position.
Launched during the boom when house values were screaming up, many property markets are now falling while interest rates are rising.
"Reverse mortgages are an emotive issue," says Denis Orrock, the general manager of InfoChoice.
"Slogans such as 'nothing to pay till you die' hardly aid the industry's quest for recognition as a legitimate financial tool for senior citizens."
Horror stories from Britain of aged pensioners being evicted from their homes as their reverse mortgage debt exceeded the homes' value stalled the market here in the 1980s. Yet new demographics and lifestyle considerations are pushing more people to consider going back into debt.
Life expectancy is longer, lifestyle expectations are higher and Australia's ageing population needs more money to live on. There are a lot of retirees who own their own homes and many who are under-funded for retirement. People leaving the workforce now have an average of only $125,000 in super, so borrowing against the family home can look like an attractive option.
But in doing so, borrowers take on a major risk. In an environment of sluggish property growth and higher interest rates, the debt compounds rapidly and may leave once-secure home owners with little to call their own or pass on to their beneficiaries.
Depending on how the funds are accessed, Centrelink may assess the money under the income test and reduce the age pension.
Any mortgage broker can sell a reverse mortgage, whether or not they submit to an Australian Securities and Investments Commission-approved dispute resolution system such as the Banking and Financial Services Ombudsman. Sales are commission-based, which means the bigger the loan, the greater the broker fee. Commission figures are closely guarded, but those the ACA knows about average from 1.2 to 2.3 per cent. If there is a combination of an upfront commission and a trail fee, the inital fee may be 0.7 to 1 per cent and the ongoing trail 0.2 to 0.4 per cent.
"You don't want a situation where inappropriate advice is given by a broker or a planner because of the size of the commission they're earning," says Nick Coates, an ACA senior policy officer.
In the absence of regulation, best practice in the area is guided by a voluntary industry code developed by SEQUAL, which represents about 95 per cent of providers. It requires members to include a no-negative equity guarantee in their contracts. This is meant to ensure that no one will lose their home over a reverse mortgage.
Because it's a voluntary code, a proven breach doesn't carry the force of law. The penalty is expulsion from SEQUAL or, as Dell puts it "a public relations disaster".
But the equity guarantee is not iron-clad. It is conditional on a borrower meeting all the terms and conditions of the loan, which may include, for example, maintenance and regular home valuations at the borrower's cost.
"We still have concerns that there are ways in which the contracts can avoid a no-negative-equity guarantee if the customer was found to be in default," Coates says.
"If you hadn't done some simple administrative tasks like paid your council rates or reported on the state of your property each year you could technically be in default, which means they could reserve the right to say the [guarantee] doesn't apply.
"Most financial institutions when questioned about that say, we're reasonable and won't apply it. Sure, they may well be reasonable but it still provides a gap for those that aren't reasonable. There's no guarantee."
The products are complicated, and many borrowers have trouble understanding all their ramifications. Dianne Carmody, general manager, Banking and Financial Services Ombudsman, says it has received only a small handful of complaints relating to reverse mortgages from SEQUAL members but all related to borrowers misunderstanding the terms and conditions.
Paul Gillett, a solicitor with the Consumer Legal Service in Victoria, has had many calls from clients who don't understand the products. "They're a relatively new product and people are prone to misunderstanding their nature," he says. "The negative side is that providers may be taking advantage of people in this regard."
SEQUAL's code requires people to consult a lawyer, and strongly encourages them to seek licensed financial advice and to talk to their beneficiaries as well. The association argues that making financial advice mandatory could actually disadvantage certain people. Some consumer groups agree, concerned that unscrupulous planners may push higher loan amounts or products people don't need. In addition, the financial advice would be yet another cost borne by the borrower.
With reverse mortgages, it's a case of borrower beware. "The borrower needs to understand the structure of the loan, the impact it may have on future equity and the impact it will have on their estate,'" Orrock says. "They also need to ensure that they only draw down the amount they require and not be coerced into taking a large lump sum.
"The lenders should at all times provide the borrower with an accurate picture as to how the loan will perform under conservative conditions moderate property growth and a higher interest rate environment. This will ensure the borrower can understand the concept of capitalisation of interest.
"Finally, the borrower needs to seek independent legal and financial advice."
Impact on Centrelink benefitsThe first $40,000 is not counted as an asset for 90 days. If the money is placed into a bank account, it is subject to the deeming provisions of the income test. Where more than $40,000 is borrowed, the amount in excess is counted as an asset with the $40,000 being counted after 90 days. If the whole amount is immediately spent, the rule will not apply unless the funds are spent on assets or an income stream. Where the loan is drawn down on a regular basis there is no effect on the income. Some reverse mortgage providers offer regular payments by holding the proceeds of the loan in an offset account. The balance of the account is classed as an asset and subject to the deeming provisions but the interest charged on the loan may be reduced.
Source: The Institute of Chartered Accountants in Australia

More Homeowners are changing over to fixed interest rate mortgage loans

2006-09-02T15:02:00.000-07:00

The number of home-buyers locking in their mortgages to a fixed interest rate, rather than the variable rate, to avoid the possinblity of a still higher interest rate burden has nearly doubled during the past year.

Australians borrowed a total of $20.53 billion during June in a sign of a rebound in the national property market. The surge was led by people buying investment properties to take advantage of the tax breaks on offer last year.

The property finance results showed people borrowed 2 per cent more during June compared with the month before.

Nearly 64,000 houses were bought despite the Reserve Bank of Australia raising rates just one month earlier.

The number of new mortgages taken out and fixed for two years has started to climb, according to the Australian Bureau of Statistics' figures.

During June, 10,963 loans were fixed, which accounted for 16.7 per cent of all the mortgages.

The result was up from just 10.3 per cent last year, showing home-buyers were concerned about the future movements of interest rates.

Economists said yesterday the 2 per cent rise in borrowing levels was further justification for the RBA's August rate rise.

The double blow of two rate increases is expected to cool the national appetite to borrow money.

TD Securities chief economist Stephen Koukoulas said there was room for growth in the housing market over the next few months. "Housing finance commitments are continuing to power ahead," he said. "The level of interest rates were no constraint to stronger levels of activity."

Mr Koukoulas said the level of investment in housing should move even higher later this year.

But one downside in the finance figures was a sustained fall in the number of first home buyers.

Of all of the purchases, 17 per cent were first-time buyers - the lowest for a year. CommSec economist Craig James said the size of mortgages was forcing those who rent to stay put.

The average home loan is now $227,800 in Australia.

The value has fallen over the past six months and is growing at the slowest rate in nearly five years.

"First home buyers are heading for the exit doors, with the exodus likely to continue in coming months," Mr James said.

"First home buyers are caught between a rock and a hard place. Mortgages are more expensive, causing buyers to retreat to the sidelines."

Economists said the growth in borrowings would not overly concern the RBA because it would have factored it into the decision to raise rates. The next rate movement is still expected to be in November.
Souce: Newscorp

Home builders slide in soft market

2006-07-16T01:19:00.000-07:00

Shares of U.S. home builders slid on Friday after market leader D.R. Horton Inc., The USA’s largest home builder, slashed its forecast and a report showed consumer confidence was eroding.

The Dow Jones U.S. Home Construction Index, a barometer for home-building stocks, was 4.9 percent down at 570.02. It hit a two-year low and has lost half its value since peaking a year ago.

Yet, the drop came as no surprise to investors, who had for the past few years resisted awarding home-builder stocks higher valuations, despite pleas from the companies themselves.

"This means that investors have anticipated that earnings for the companies would come down," said Victory Capital Management analyst Michael Koskuba.

For about the past three years, as they repeatedly turned in double-digit profit growth, U.S. home builders complained the stock market did not value them fairly, with their average price-to-earnings ratio hitting only as high as about 9.6.

And over the past two years, the average P/E of large U.S. home builders was 7.34, about half the S&P 500's P/E of 15.95.

"Essentially investors thought that earnings would come down for these companies," Koskuba said.

The large, publicly traded home builders argued they were no longer cyclical stocks. They said they had grown so big that when the market soured, they could increase their earnings by taking market share away from the smaller private builders.

But investors didn't buy the theory.

"Although they were posting extremely high growth for that five-year period, they were not afforded market multiples because in the back of investors' minds was always the fact that home building was cyclical," Koskuba said.

Because investors never pumped up the P/Es, the fall hasn't been as dramatic, and the average for the top home builders is now about 4.85.

Horton shares fell as much as 11 percent to a two-year low, and were down 7.2 percent at $21.21 in late Friday trading. It was among the top losers on a down day for New York stocks.

Following Horton's announcement late on Thursday, on Friday morning the University of Michigan's preliminary July reading on consumer sentiment was 83.0, down from June's 84.9. It was lower than the median forecast of Wall Street economists polled by Reuters for a reading of 85.5.

Among U.S. builders, Meritage Homes Corp. (MTH.N: Quote, Profile, Research) shed 7.7 percent to $38.85, and Centex Corp. (CTX.N: Quote, Profile, Research) fell 4.6 percent to $45.20. Pulte Homes Inc. (PHM.N: Quote, Profile, Research) dropped 3.9 percent to $26.95 and Beazer Homes USA Inc. (BZH.N: Quote, Profile, Research) lost 5.5 percent to $38.57.

In the options market, defensive trading is being seen throughout the housing sector, with increasing put volume in Toll Brothers Inc.(TOL.N: Quote, Profile, Research), Beazer, The Ryland Group Inc.(RYL.N: Quote, Profile, Research) and Pulte, said Frederic Ruffy, analyst at Optionetics, a California-based options education firm.

Investors often turn to equity puts, which give the right to sell the stock at a preset price and time, to protect existing stock holdings or bet on further weakness in a stock.

"At some point they will be attractive again," Koskuba said. "But as long as the numbers keep going down, investors are still scared of going back in."

Source: Reuters New York

Bank of Japan look to raise interest ates for first time in six years

2006-07-12T23:28:00.000-07:00

The Bank of Japan will probably raise interest rates for the first time in almost six years this week as the world's second-biggest economy emerges from a decade-long battle with deflation.

Governor Toshihiko Fukui and his policy-board colleagues will increase the key overnight rate between banks by 0.25 percentage point on July 14, according to all 16 economists surveyed by Bloomberg News.

Japanese companies including Matsushita Electric Industrial Co. have completed the job cuts, factory closures and debt reorganization that followed the bursting of the bubble economy in the early 1990s and now plan to increase investment at the fastest pace in 16 years. Fukui said last month he's concerned that prolonging the zero-rate policy could promote unnecessary investment and kindle inflation.

"The ending of zero rates will be testament that Japan's long struggle with excess is now over and that the economic cycle is back to normal,'' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. ``We look for the economy to enter a sweet spot as it fully transits from deflation to inflation.''

Sixteen central banks raised interest rates in June, including the U.S. Federal Reserve, the European Central Bank and those of South Korea and India.

Japan's largest companies plan to increase investment this year at the fastest pace since 1990, the Bank of Japan's Tankan business confidence survey showed last week.

Consumer Prices

Matsushita, the world's-biggest consumer electronics maker, is building the world's biggest plasma display factory to increase production. Honda Motor Co. said in May it would build its first car plant in Japan in 30 years.

Other evidence supports the bank's contention that economic growth will be sustained as companies divert rising profit to expansion rather than debt repayment.

Japan's consumer prices rose for a seventh month in May when the unemployment rate fell to an eight-year low of 4 percent, and in June bank lending climbed the most in a decade, recent reports showed.

"Companies are cranking up spending plans and it's hard to anticipate that momentum will slow any time soon,'' said Akio Makabe, professor of economics at Shinshu University. ``A recovery of the job market will help boost household spending.''

The yen rose to a four-week high this week on speculation an interest-rate increase will lure investors to yen-denominated assets. The Nikkei 225 Stock Average has rebounded more than 8 percent since June 13, when it set a seven-month low amid concern a spate of global interest-rate increases would stunt world economic growth.

Business Support

The government's opposition to an interest-rate increase has eased. The Cabinet Office on July 7 said the gross domestic production deflator, a broad measure of price changes in the economy, will turn positive in 2006 for the first year in eight.

Prime Minister Junichiro Koizumi on July 4 said the bank should make its own decision on interest rates, dropping previous calls for the bank to act cautiously.

The government opposed the bank's last rate increase in August 2000. Seven months later, the bank had to cut rates back to near zero as an Internet-led global economic boom faltered, allowing the government to accuse it of making a policy mistake.

Businesses are getting used to the idea of higher borrowing costs. Only 3.6 percent of companies polled by the Mainichi Newspaper said they consider a rate increase this week would be too soon, according to a July 9 poll, and 89.9 percent said a rate increase would be acceptable as long as the bank exercised appropriate judgment.

Second Rate Increase

"The necessary economic conditions mentioned by the Bank of Japan for a rate hike are taking shape,'' Fujio Mitarai, head of the Japan Business Federation and chairman of Canon Inc., said on July 10.

The central bank will keep rates low even after a first rate increase because the pace of economic expansion will slow next year and inflation will be subdued, economists said.

Nine of the 15 surveyed economists said the bank won't make an additional increase this year. Eight said the key rate will be capped at 0.75 percent or below by the end of next year.

"The Bank of Japan will likely attempt a second rate hike this year, but there is no guarantee that upcoming economic data will justify such a move,'' said Teizo Taya, advisor to the Daiwa Institute of Research and a former central bank policy board member.

The bank will this week also raise its discount rate, with which it makes overnight loans directly to financial institutions, and cap a gain in the interbank overnight loan rate to between 0.4 percent and 0.5 percent from 0.1 percent, the surveyed economists said.
Source: Bloomberg

Korean mortgage rates are set to rise over the next months

2006-06-11T02:54:00.000-07:00

Households face heavier interest costs from this month as banks are set to raise mortgage borrowing rates following the Bank of Korea’s (BOK) increase in the key short-term call rate last Thursday.
The interest rates for mortgage loans are expected to keep rising in the months to come as the central bank, in an apparent move to fight growing inflationary pressures, has signaled a further call rate hike.
The rate rise may pressure households to tighten their belts to cover rising interest costs. Banks expect the rise to decrease demand for new loans and thus help stabilize the volatile real estate market.
Last week, Woori Bank, a state-owned lender, raised borrowing rates for its housing collateral loans 0.23 percentage points to 5.29-6.59 percent, immediately after the BOK hiked its call rate by 25 basis points to 4.25 percent. That means a household borrowing 100 million won from Woori should pay 230,000 won more interest annually.
Hana Bank, the country’s fourth-largest lender, also slightly increased its mortgage loan rates. The bank said it plans to raise mortgage loan rates for those owning apartments in volatile areas by 0.5 percentage points, making it clear it will take stronger action to help curb real estate speculation.
Other banks, such as Kookmin and Shinhan, will follow Woori and Hana to increase mortgage loan rates from today.
Banks tend to link mortgage loan rates to the rates of certificates of deposit (CDs). CD rates have risen steadily as the central bank has tightened its monetary policy since late last year, but banks have cut mortgage loan rates to draw more loan-seekers.
``The government’s real estate policymakers see the banks’ mortgage loan policies as fueling property demand and helping destabilize the market,’’ a BOK official said. ``Cooling down the property market has been the top priority of the government’s real estate policy, but banks refused to follow by maintaining low interest rates for mortgage loans.’’
But the situation is a lot different now. If banks raise mortgage loan rates, policymakers believe demand for loans will fall, and this will ultimately help ease the property bubble. However, market watchers point out the rate hikes will give households a greater financial burden and will thus negatively affect the reviving household spending.
According to Barclays Capital, growing household debt has spurred domestic consumption in South Korea. However, as banks are tightening lending policies for mortgage loans, consumer spending may fall, negatively affecting the country’s economic growth, the bank said.
During a meeting with bank CEOs on May 19, BOK Governor Lee Seong-tae said the government’s tighter anti-speculation measures, in place since March 30, are now affecting the borrowing patterns of housing loan seekers. Demand for mortgage loans has remained strong, but the measures will slow the pace of their growth.
Affected by the government’s real estate policy, commercial banks are instead focusing more on corporate client loans. Most banks plan to expand loans to small and medium-sized enterprises (SMEs) in a bid to diversify their income sources.
Source: Korea Times

Bank's mortgage customers to get money back

2006-06-09T13:59:00.000-07:00

Canada's Bank of Montreal will refund a total of $7.1 million, including interest, to about 28,000 mortgage customers who overpaid penalties on certain mortgage pre-payment and early-renewal transactions, the bank announced on Friday.
The bank said it identified an inconsistency between in the way some mortgage contracts explained how interest penalties were calculated and the way the calculations were actually done.
Some customers paid less than their contract called for, but the bank said it would not attempt to recover the funds they should have paid.
Customers who want more information or who believe they may have been affected but who have not received a cheque by June 23, should contact the bank's dedicated customer service line at 1-866-895-3760.
Bank of Montreal shares traded Friday at $61.62, down nine cents, at the Toronto Stock Exchange.
Source: Toronto Star

Study finds most US property executives plan to invest outside US

2006-06-09T11:21:00.000-07:00

More than 60% of real estate executives, investors and other experts expect to invest in properties or land outside the U.S. in the next 12 months, according to a new study released this week. The Bryan Cave Real Estate Executives Forecast Survey found 61% of real estate professionals plan to park cash outside the U.S., with the greatest interest being in Mexico and China. The survey, which polled 343 professionals, including public and private real estate company executives, investors, opportunity funds, commercial mortgage bankers, lenders and brokers, showed 15% consider Mexico as a key investment market, while another 15% named China. Other countries of interest included the U.K., Canada and Japan, where 12%, 8% and 8%, respectively, of those surveyed plan to invest in land or property. The results appear to echo the views of a number of real estate executives attending the National Association of Real Estate Investment Trusts investor conference in Manhattan this week. A growing number of real estate investment trusts, such as ProLogis (PLD), Simon Property Group Inc. (SPG), Kimco Realty Corp. (KIM), Public Storage Inc. (PSA), Host Hotels & Resorts Inc. (HST) and Vornado Realty Trust (VNO) have been either expanding or looking to expand outside the U.S. In some cases, such as ProLogis, the expansion is aimed at meeting the needs of tenants who wish to have a global presence. It's "business driven" and "customer driven," allowing the company to leverage its customer relationships and operating platform on a global basis, ProLogis Chief Executive Jeff Schwartz said. Public Storage's decision to acquire rival Shurgard Storage Centers Inc. (SHU) will move the company into the global arena, thanks to Shurgard's well-established international platform. For others, such as Vornado, it's a chance to make selective opportunistic investments in markets where returns may be higher than those in the U.S. However, President Mike Fascitelli said his company is starting small and using joint venture partners. "We made a total investment of $25 million in India, and we'd like to invest more there," Fascitelli said. "While international is something we aspire to and look at, I think it's going to be small initially unless we find a distressed opportunity." Many see opportunity in China but are cautious about making big investments there. "There's so much capital chasing deals there," Simon Property Chief Executive David Simon said. "I think you're going to see a number of high-profile mistakes." He speculates some will wind up building or acquiring properties that wind up being bad investments. Host Hotels Chief Executive Chris Nassetta concurs he sees opportunity in Asia but said the lack of transparency and glut of capital chasing after deals is making him cautious. "We're going to be there over the next five years, but we're going to be really, really cautious because of the transparency issues, particularly in China," Nassetta said. "There are more crains in China right now than anywhere else in the world," which could lead to overbuilding problems. If this happens, there could be opportunistic ways to enter the market. Sam Zell, chairman of Equity Office Properties Trust (EOP), Equity Residential (EQR) and Equity Lifestyle Properties Inc. (ELS), said he sees the biggest growth in real estate over the next 10 years coming overseas. "Growth and opportunity is going to be much more focused outside the U.S. than it is here," as countries adopt REIT structures and real estate securitization. "Brazil, Mexico, Russia, China and India will produce five times as much real estate in the next 10 years as will be done in the U.S.," Zell said. But Zell said he has no interest in expanding his publicly traded REITs over there, as he doesn't believe the tax structures and other factors would benefit U.S. REITs. Instead, Zell said he is seeking out international investment through his private entities. The Bryan Cave survey, which was conducted between March 15 and March 27, also asked respondents about the domestic real estate market. The study found 63% believe the U.S. real estate market will strengthen in the next 12 months, 47% think it will stay the same, and 35% believe it will weaken.
Source: Market Watch

London home buyers require a savings ethic

2006-06-09T10:55:00.000-07:00

London first time home buyers saving for a deposit may not achieve their goal before 2012, when infaltion, house price increases and wages are considered.
With house price inflation continuing to grow, aspiring homeowners must save for longer to put down the deposit for their first home, data from the Co-operative Bank reveals.
Presuming the current inflation rate of 3.6 per cent per year remains stable, first time buyers saving £307.50 per month, half the current average mortgage repayment, would be saving for six years and two months for the ten per cent deposit of £25,183 required in London by 2012.
David Newman, director of marketing at Co-operative Bank, said: "This data reveals the problems new home buyers face in what is clearly for many a marathon rather than a sprint when running up a decent deposit."
Aspiring first time buyers must get into the savings habit quickly and take some advice "sooner rather than later", Mr Newman continued.
"There are many alternatives available to help first time buyers onto the property ladder, from no deposit or low deposit mortgages, to parental guarantor schemes and packages for graduates."
The findings come as F&C asset management claims that indebtedness in the UK is at record levels, with money being cycled into different types of products rather than saved.

UK mortgage rates stay put for tenth month straight

2006-06-09T10:22:00.000-07:00

The Bank of England has kept interest rates at 4.5 per cent for the tenth consecutive month.
Amid signs of economic growth and fears of growing inflation, economic analysts have warned that the bank may increase rates in a month's time.
Frances Walker, a spokesperson for Consumer Credit Counselling Service advised first time buyers and aspiring homeowners that although a potential rise in interest rates would not have an immediate effect, people will "have to plan to find more money to repay their mortgages and if your mortgage goes up you'll have to think how you can manage".
"If you have a fixed-rate mortgage, which most people have, it won't have any impact on you in the short-term," Ms Walker continued.
First time buyers who are not on a fixed-rate mortgage and are repaying on a debt management plan would have to pay more for their mortgage and reduce the amount of unsecured debt they repay.A spokesperson for Citizen's Advice said first time buyers with variable mortgages would feel the impact of a rise in interest rates most, with the anticipated 0.25 per cent increase leading to a £40 or £50 rise in monthly repayments.
"But some people may be speculating if there is a rise in interest rates that potentially might lead to an increase in mortgage arrears or possibly repossessions," the spokesperson continued.

Home mortgage and home equity loan changes pose a risk

2006-06-09T09:59:00.000-07:00

Rapid change in the home mortgage and home equity lending industry raises fundamental issues about fairness and levels of risk, Federal Reserve Governor Mark Olson said on Wednesday.
Olson did not address the outlook for the U.S. economy or interest rates in comments to a Federal Reserve Board public hearing on the home equity market.
The Chicago hearing will be the first of four to be staged over the next month, and Olson noted it has been four years since the Fed last held such hearings.

"In those four years it is hard to believe so much change has taken place in the industry," he said.
The growth in nontraditional loan products such as adjustable rate mortgages "certainly is the most significant change that has taken place in the marketplace and it has raised some real issues," Olson said.
The central banker said the rise of the secondary mortgage market has created a "voracious appetite" for loan products and that "it is not clear we have the same checks and balances, and that underwriting is done as carefully."
The fundamental asymmetry of knowledge between mortgage lender and recipient also creates "a real responsibility for mortgage lenders not to be abusive of that process," he said.
"Every time I have sat down to close my own mortgage loan I have felt at a disadvantage in terms of my understanding; so I can imagine what a first time buyer must feel," Olson said.
Source: Reuters

First time buyers are flat out winners

2006-06-09T09:39:00.000-07:00

Flats from £130,000? Susan Emmett spots a bargain development in the South East Kennet Island is attracting first-time buyers with its contemporary architecture. It would have scored higher if the houses on the development were as well designed as the flats
Finding a home that first-time buyers can afford gives a whole new meaning to the term househunting. As property prices are well beyond the reach of most aspiring homeowners, this is no ordinary search.
In London and the South East the average home costs about £165,000, and though the number of homes being built is increasing, 70 per cent of all new homes are now priced at more than £150,000. It is no surprise, then, that when the Kennet Island development in Reading went on sale, most of the available homes sold almost instantly. Buyers camped out overnight to snap up flats that started at £130,000. All that remains of the first 41 homes put on the market are four three-bedroom, three-storey houses with a £265,000-plus price tag.
The £200 million scheme by St James Homes is huge and will even include a set of lakes for wildlife. Once finished, Kennet Island will have 850 flats and houses, as well as shops and cafés around a central square. It is all happening on the ultimate brownfield site: the former sewage works along the A33 relief road that links Reading to the M4. Set on the edge of Whitley, the area is known for its large spreads of council housing and problems with vandalism and antisocial behaviour. But do not let that put you off. Though Kennet Island is Reading’s largest single-site development, it is also part of a much bigger picture. The so-called A33 corridor in the southwest of town is a new neighbourhood in the making. Other builders are putting up pubs, restaurants, a four-star hotel with a gym and loads of new offices. There are plans for a private hospital. Near by are two large retail parks, where you will find a Morrisons supermarket, PC World and a B&Q. Madejski Stadium, home to Reading Football Club, is also a neighbour.
The scheme has proved a magnet to first-time buyers, who have been priced out of towns along the M4, and some investors aiming to let the homes to students at Reading University. In response to the early demand, the next batch of properties to be put on the market in the next few weeks will all be flats.
In the long term, however, the aim is to create a mixed communtiy with properties of all shapes and sizes. One-bedroom flats cost between £130,000 and £165,000; two-bedders fetch between £160,000 and £195,000. Two- bedroom houses will cost between £195,000 and £220,000; a three-bedroom will sell from £265,000; and a four-bedroom house will start at £275,000.
All the homes have a contemporary feel. The flats are eye-catching and the design includes wood and white render on the balconies to add interest. But the houses tend to be lacklustre, offering nothing but the price to excite the buyer.
St James, which was born out of a joint venture between Thames Water and the Berkeley Group in 1997, promises high quality at an affordable price. Gerry McCormack, of St James, which usually operates at the top of the market, speaks of applying “the same principles we use in our luxury housing”. But don’t get too excited by the glossy marketing. By this he means that the development pays attention to detail and includes good-quality fittings, but not an expanse of parquet flooring or indoor swimming pools.
You do, however, get a few extras that are not normally included in the sales price at new developments, such as household appliances. The other bonus is that even the smallest one-bedroom flat tends to be a little larger than starter homes offered by competitors. Barratt’s iPads, launched with much fanfare earlier this year, are just 380 sq ft, compared with the 519 sq ft for a one-bedder at Kennet Island.
The real attraction is the location and the potential capital growth. In a competitive market, successful developers must have an edge. St James is offering these properties at keen prices in the hope of creating a buzz and attracting enough people to build a new community. This will enable the builder to charge more for future homes on the site. It will also mean that those who get in early are likely to reap decent returns in the long term.
In the short term, however, buyers will have to put up with living in a building site. The scheme is huge and will not be finished for about ten years. If you cannot put up with builders for a decade, there are more pleasant parts of town to choose.
Source: The Times

US Hud reforms aim to reduce closing and settlement fees

2006-06-09T03:06:00.000-07:00

WASHINGTON, June 8 - The U.S. Housing and Urban Development Secretary Alphonso Jackson said on Thursday he expected to finalize long-awaited reforms to mortgage settlement regulations by the end of the summer.
Jackson, speaking to reporters after a speech to a home ownership conference, said the reforms would be submitted in a proposed rule that would still be subject to congressional and industry comment.
The action would end a more than two-year hiatus in HUD's efforts to reform regulations under the 1974 Real Estate Settlement Procedures Act, or RESPA, which governs all U.S. home purchases.
Jackson declined to discuss the contents of the proposed rule.
"I think we have taken the input -- the good and the bad -- and we've tried to put it in that rule," he said. "I think the bulk of the industry groups and Congress will be pleased with what we've come out with."
Jackson in March 2004 withdrew a proposal made by his predecessor, Mel Martinez, to launch reforms intended to give buyers more clarity on their actual mortgage settlement costs, which often are criticized as confusing and surprisingly high when consumers get to the closing table.
Americans spend more than $55 billion a year on closing costs and fees that can boost the cost of buying a home by thousands of dollars. Changing the way these fees are determined and disclosed has been a contentious issue for the mortgage and settlement services industry.
Among reforms in the last RESPA proposal, made in 2002, were proposed changes to HUD's good faith estimate settlement cost disclosures, changes to the way lender payments to brokers are recorded and disclosed, and changes to allow mortgages and settlement services to be "bundled" into guaranteed-cost packages
Jackson withdrew the proposal in order to hold a series of round-table discussions with industry group.
Brian Levy, general counsel for Shelter Mortgage Inc. In Milwaukee and president of the Real Estate Services Providers Council, a trade group representing mortgage and services firms such as title insurers, said meaningful changes will still be problematic because stakeholders in the home buying industry have too many diverging interests.
He said changes in industry practices, including guaranteed-cost alternatives to packaging of services, have made the need for reform less urgent.
"The perceived consumer abuses in the marketplace have been largely addressed by predatory lending legislation that wasn't on the radar when RESPA first got targeted for reform," Levy said.
Source: Reuters

Mortgage rates fall on weak employment figures

2006-06-09T02:38:00.000-07:00

Mortgage rates in the US fell as a weaker-than-expected employment report helped ease concerns about inflation.
Mortgage lender Freddie Mac reported that rates on 30-year, fixed-rate mortgages averaged 6.62%, down from 6.67% last week, the highest level in nearly four years.
Rates on 15-year, fixed-rate mortgages fell this week to 6.23% from 6.26%. Rates on one-year adjustable-rate mortgages declined to 5.63% from 5.68% and five-year adjustable-rate mortgages dropped to 6.2% from 6.26%.
The rates do not include add-on fees known as points.
Source: Associated Press

Mortgage Fraud Sting catches Atlanta woman a second time

2006-06-07T01:02:00.000-07:00

An Atlanta woman out on bond for mortgage fraud charges has been arrested again after getting caught in a second mortgage fraud sting.
The U.S. Attorney's Office reported late June 5 the May 30 arrest of Lanmasha Weslanda Mixon-Hampton of Atlanta in connection with an FBI sting involving a co-conspirator from her prior mortgage fraud case and the interstate transportation of stolen travelers checks, fraudulent credit cards and false identifications.
Mixon-Hampton was previously arrested at the closing table on Feb. 17 in an FBI mortgage fraud sting where the stolen identity of a disabled retiree was used in at attempt to obtain a million-dollar refinance loan for 940 Glengate Place in Atlanta, where Mixon-Hampton then resided. Mixon-Hampton was released on bond and indicted for the mortgage fraud and aggravated identity theft on March 14.
"The sting operations that resulted in both arrests of this defendant are examples of the tools now used by law enforcement to fight identify theft and mortgage fraud schemes that continue to adversely effect Atlanta citizens and their neighborhoods," said U.S. Attorney David E. Nahmias. "Such proactive initiative by law enforcement is one of the reasons that Georgia's mortgage fraud national ranking has recently decreased from number one to number three."
A criminal complaint charges Mixon-Hampton with mail and wire fraud, interstate transportation of stolen goods and commission of these offenses while on release for mortgage fraud offenses. Mixon-Hampton allegedly caused $50,000 worth of stolen American Express Travelers Cheques to be sent to her in Atlanta from Hawaii, which she then attempted to negotiate using a false identity and forwarded the remainder to Florida for sale and negotiation. Mixon-Hampton was arrested in an FBI sting on May 30, when cash "proceeds" from the stolen checks and the fraudulent credit card she had ordered were delivered to her, while she was on bond on the earlier mortgage fraud charges.
After appearing before U.S. Magistrate Judge Linda T. Walker on June 5, Mixon-Hampton was ordered to be detained without bond.

Source: Atlanta Business Chronicle

Irish pay third of their income on their mortgage

2006-06-07T00:13:00.000-07:00

First time buyers spending third of income on mortgage.
Couples buying their first home spend up to a third of their income on a mortgage, a survey showed today.
According to a new Affordability Index by EBS Building Society and DKM Economic Consultants average monthly repayments begin at over €1,300 and top €1,700 in some parts of Dublin.
Nationally mortgages cost on average 27% of earnings while those in the capital will be hit harder by the continued property boom spending 32% of what they make.
The figures show a 3% jump on last year.
Dara Deering, EBS head of mortgages, said: “First time buyers make up a very important segment of the overall mortgage market and are expected to contribute €8.5bn to the market this year.
“With rising property prices and interest rates, affordability is the key issue for many first time buyers.”
Ms Deering also warned that house price growth is impacting on affordability and said EBS expected to see stronger than forecasted growth this year.
She said: “Future affordability should be a key factor in the choice of a mortgage and lenders need to take a responsible approach to affordability and encourage consumers to consider the impact of possible interest rate rises in the future.”
EBS financiers noted mortgage rates have been on an upward path since December last year with further increases in the pipeline over the remainder of the year.
And they said the Index demonstrates the adverse impact on net mortgage repayments, which will be particularly difficult for first-time buyer couples with every 0.25% increase in rates resulting in a monthly €14 rise or €168 a year for every €100,000 borrowed.
Annette Hughes, director of DKM Economic Consultants, said the Index can be seen as an indication of a couple’s mortgage-paying commitments in the early years, each on average earnings.
“Affordability is the most important barometer as to whether the property market is reaching saturation point. The general consensus is that we will see further interest rate increases over the remainder of 2006,” she said.
“While the amount of any individual increase may not impact significantly on borrowers, combined increases in mortgage rates over the next 18 months could have a significant impact on housing affordability.”
The EBS said it expects 47,000 first time buyers will take out a mortgage this year with the average price nationally at the moment at €292,000 and €388,000 in Dublin.

Source: Ireland Online

Reserve Bank of Australia leaves rates unchanged

2006-06-06T22:30:00.000-07:00

The Reserve Bank of Australia has left official interest rates unchanged at 5.75 per cent.
The central bank lifted interest rates by 25 basis points to 5.75 per cent last month.
Economists were unanimous in their expectation that interest rates would not be changed following the RBA's board meeting yesterday.
Commsec chief equities economist Craig James said rates were rising around the world.
He said the Reserve Bank would continue to look for any inflation signals in the domestic economy.
"They'll be looking at growth overall in the economy, wages pressures particularly. If wages are starting to creep up that may lead businesses to pass that through in terms of higher prices," he told Sky News.
"The rising price of crude oil puts upward pressure on the headline rate of inflation, and if that starts to get passed through to generalised price measures, then again the Reserve Bank is concerned."
Economists and the Federal Government will now turn their attention to the March national account figures due out today.
Analysts are tipping a quarterly increase of around 0.7 per cent, which would give Australia annual GDP growth of 2.7 per cent.
Macquarie Bank economist Daniel McCormack said it was too soon to expect another rate hike from the central bank.
"The RBA would like to sit back and assess the impact of the May hike before they decide whether another move is necessary," he said.
There has been no post-hike data yet released so the bank is is wait-and-see mode, he said.
However, Mr McCormack said markets are pricing in a chance of another move over the second half of this year.
"We expect the earliest window for a move is August after the next CPI [inflation] release in late July but we don't expect any move before then," he said.
Westpac senior economist Anthony Thompson said the decision was no surprise.
"The market was unanimous in expecting the rates would be left on hold after the surprise move in May," he said.
"We think clearly the bank will want to give some time to see the full effect of the May increase before contemplating their future direction."
Westpac expects interest rates will be left on hold for the rest of the year.

Source: AAP

Bank account fees are being flattened

2006-06-06T21:44:00.000-07:00

Bank customers can save on transaction account fees providing they read the fine print.
Turned off by the high cost of a la carte banking services, account holders are switching to "all-you-can-eat" accounts. These come at a modest fixed price no matter how often you transact.
However, Nick Coates, the senior policy officer with the Australian Consumers Association, says: "Four or five dollars a month doesn't sound like much, but you need to read the fine print to assess whether these accounts suit you,"
When the Commonwealth Bank unveiled its Streamline e-Access and Streamline Unlimited accounts recently, it became the last major bank to add flat-fee transaction accounts to its product mix.
Streamline e-Access is a transaction account with unlimited electronic transactions including CBA ATMs, self-service telephone banking, NetBank and Eftpos for $4 a month.
Streamline Unlimited gives unlimited electronic transactions coupled with unlimited branch and agency withdrawals, cheques written and assisted telephone banking for $6 a month.
Denise Orrock, the general manager of researcher InfoChoice, says CBA had in the past shown a reluctance to introduce this style of account because of the workload involved in moving customers to new accounts.
"Saying that, the ANZ has been very successful with its own accounts in the all-you-can-eat space for quite a number of years," he says, "[and] it's rare that any initiative that achieves a degree of success is not adopted by the balance of the banking powers."
However, even CBA admits that consumer resistance to rising fees played as much a part as competitive pressures. A recent Nielsen Media Research survey showed CBA had the lowest customer satisfaction rating - in a year when satisfaction with banks overall had sunk to a three-year low.
Michael Cameron, CBA's group executive of retail banking services, says the two new flat-fee accounts complement other initiatives designed to woo disgruntled customers, including the introduction of a low-rate credit card and the removal of "everyday" transaction fees on NetBank.
"We have heard our customers loud and clear when it comes to fees and services," he says. "There will be a significant benefit to customers by providing them with the ability to reduce the transaction account fees that they pay."
Such accounts mean customers no longer have to ration their transactions and worry about costs each time they key in their PIN. However, some transactions are excluded or limited.

Source, The Age , Denise Cullen