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
Sunday, August 26, 2007
Sunday, August 12, 2007
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
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
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
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
Sunday, August 05, 2007
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
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
Saturday, August 04, 2007
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.
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.
Friday, August 03, 2007
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
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
Wednesday, August 01, 2007
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
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
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