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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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?

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

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

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

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

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

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

CommBank says earnings on track

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

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

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.

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

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