Blog
Fixed Rate Demand Set To Soar
2011 August 23
Fixed rate demand set to soar Tuesday, 23 August 2011 Jessica Darnbrough Further interest rate stability could increase the demand for fixed rate products, one industry stakeholder has claimed. Speaking to The Adviser, Citibank’s Matt Wood said right now borrowers are hesitant to lock themselves into a fixed rate product when there is a slight possibility that the Reserve Bank will cut rates. However, he said if the RBA holds again in September, momentum around fixed rate products will pick up pace. “Consumers are a little uncertain.
There has been a lot of media hype around the fact that the RBA could still make reductions to the cash rate,” he said. “I believe the RBA will keep rates on hold now for the foreseeable future, which will increase the popularity of fixed rate products. “I have no doubt that brokers are now talking about fixed rate products with their clients and we want to be part of those discussions, which is why we are always striving to provide both market leading service and a market leading rate.” Yesterday, Citibank slashed 34 basis points from its three year fixed rate, taking it to just 6.45 per cent. However, Citibank is not the only lender to trim its fixed rates.
Today, both Firstfolio and Australian First Mortgage cut their rates. Firstfolio trimmed its three year fixed rate by 30basis points, taking it to just 6.29 per cent. Similarly, AFM cut 30 basis points from its three year fixed rate Flexible Option product, taking it to 6.54 per cent. This is the second rate cut in as many weeks for the non-bank lender. AFM’s director Iain Forbes said, the new rate was not only comparable to the majors, but in many cases, beat what was currently on the market. “Our Flexible Option product offers a 100 per cent offset, as well as residential Construction loans, and an LVR to 95 per cent plus LMI, for owner occupied purchasers,” he said.
Source: http://www.theadviser.com.au
Interest rates remain on hold
2011 August 03
Interest rates remain on hold 3/08/2011 The news will come as a relief to mortgage holders, as economists had warned that recent unexpectedly high inflation figures could have led the RBA to hike the cash rate. Fuelled by the mining boom, the consumer price index (CPI) rose by 0.9% during the June quarter, but commentators have suggested that the RBA’s decision makers took softness in the economy’s other sectors into account when making their decision to hold fire.
“The Reserve Bank of Australia has accurately assessed the Australian economy, including the property market, and left rates on hold,” said Real Estate Institute of (Australia) REIA acting president Pamela Bennett. “The RBA has assessed that inflation is within its target zone, which is a relief for home buyers. However, it is concerning that, despite the state of housing affordability in Australia, some commentators were suggesting an increase in the cash rate.” Housing Industry Association chief economist Harley Dale added that, in times of economic uncertainty the normal rules shouldn’t apply, and that the RBA should continue to keep rates on hold throughout the year. “With fragile business and consumer confidence, the damage that could be wrought to the economy by lifting interest rates far outweighs any supposed risk of holding fire," he said, adding that – even if rates stay where they are – 2011/12 could be the weakest period for new home building in the last fifteen years. "We are seeing persistent weakness in the crucial new home building sector and indeed the situation is deteriorating," said Dale.
And, while mortgage holders can breathe a sigh of relief for the time being, Mortgage Choice spokesperson Kristy Sheppard warns that now is the time to budget for likely interest rate rises this year. "The official interest rate has remained steady for nine consecutive months now, a situation unseen for four years. How much longer this can last is anyone's guess but it is likely inflationary pressures will soon push the Reserve Bank into action, very possibly before the end of the year," she said. "Our message for those repaying debt at a variable interest rate is to celebrate today's cash rate outcome while taking a good look at your loan's financial buffer." The next RBA interest decision will be made on 6 September.
Could we see Interest Rates fall in coming months?
2011 July 20
by Peter Switzer
Could it be true? More and more so-called experts are raising the proposition that the next move in interest rates will be – wait for it – down. Over the past few weeks, the money market mob who use futures products to punt on upcoming changes to interest rates have been changing their odds quicker than a bookie at Flemington on Cup Day. When the Greek debt debacle was threatening a potential PIIGS contagion, where the desperate, debtor countries of Portugal, Ireland, Italy and Spain could be infected with the Greek default disease, there was talk of a 70 per cent and even a 90 per cent chance of a rate cut by year’s end. Don’t wish for rate cut This is wild talk and could only happen if the EU debt problem looks unstoppable. At this stage, it looks manageable and so a rate cut still looks unlikely. However, if a surprise development happens and international banks start doubting each other, then rates would fall in Australia – no doubt.
But don’t wish for this kind of disaster as you could lose your job, your business could go broke and it does not bear dreaming about simply for a rate cut. Now this is coming from a guy who regular readers will know has been bagging the Reserve Bank for raising rates too far and too fast for nearly two years. I got really hot under the collar after the November rate rise on Cup Day and that was the last we have had. And since then the Oz economy has nosedived and while I won’t blame this on that rate rise, it was a contributing ‘straw’ that just might have broken the back of the non-mining part of the economy. Data watch To put balance into this story, the reality is that the RBA assistant governor Philip Lowe, speaking in Adelaide not long ago was still beating the central bank’s drum that interest rates would have to rise at some point over the coming months. That’s why I can’t see a rate cut in the absence of a credit crunch for banking systems overseas. Phil and his mates are still petrified about inflation and that’s the big watch for all interest rate worriers out there.
The next Consumer Price Index reading is at the end of this month and if it’s on the high side, the RBA will get ready for another lift. However, if it’s a benign result, they will sit back on their hands. SME confidence low One thing is for certain – the RBA and its board are a bit surprised about the softness of the economy. The triple whammy of the floods, the rate rises and the high dollar have cut into the momentum of many businesses and it doesn’t look like it’s getting better. The recent Sensis Business Index, which is a good small and medium enterprise health thermometer was crook – really crook! “Weak consumer spending and an uncertain economic outlook have caused business confidence in Australia to tumble to a low not seen since the GFC and the introduction of the GST,” said Christena Singh, who oversees the survey. Just to make this even clearer on the off-chance a RBA board member reads this column but has missed this survey, note the following: “This is one of the largest quarterly falls in business confidence we have seen in the 18-year history of the report”. RBA’s changing view But wait, there are other worrying indicators that scream out that maybe the tough talk of rate rises has been overdone and so last week, the RBA turned a tad dovish putting out this observation that economic growth “is now unlikely to be as strong as earlier forecast”. Better late than never and this new view could help to repair the damage.
I suspect the talk of rate rises had a role to play in the unnecessary softness of the economy and SMEs aren’t optimistic about the future. “Overall, small businesses believe the economy is currently slowing and that it will have deteriorated in a year’s time,” Singh said. “This is the first time in a year we have seen perceptions of the economy trend into negative territory.” By the way, the RBA’s new less Bolshy attitude on rate rises was formed before the latest Sensis survey. Throw in recent weak car sales, the 0.6 per cent fall in retail spending in May, the fall in the TD Securities inflation gauge, the 2.7 per cent drop in house prices this year nationally and the fact that loans for housing are at the weakest level in 34 years and the RBA would have to be an economic wrecker to even think about a rate rise now. That said, I cannot see these guys cutting rates yet despite the case for it getting stronger by the day.
Real Estate "Tax Break Traps"
2011 June 20
Money reader Anna had a bad experience last year when she was audited after claiming capital work costs on a recently acquired investment property as immediate deductions. “I bought an investment unit and I carried out some repair and painting works and totally replaced the bathroom before I tenanted it, so I could charge a higher rent,” says Anna. “I thought I could write the cost of these works off as an immediate deduction.” Wrong, as Anna discovered. She could only claim these costs as capital works over a period of years. Anna also claimed the costs of buying the property, including stamp duty. This was also knocked back.
These costs can only be brought to account when you sell your investment property and work out the cost base for capital gains tax. Another common mistake landlords make, says the ATO, is to use a loan facility for both private and investing purposes – for example to buy a new car and an investment property – and to claim the total interest cost as a deduction. Only the interest payable on the property can be deducted, which is why it’s necessary to have a split loan. Travel expenses inspecting an investment property some distance from where you live can cause problems if you combine it with a holiday.
You can only claim expenses that directly relate to looking over your property. If you buy a rental property as a co-owner, you must divide the income and expenses of the property in line with your legal interest in it. And if you have a holiday home that you rent out at times, only claim deductions for the time it is available for rent. “It is also important you have a clear intention to rent the property. If you made no attempt to advertise or set the rent so high it is unlikely a tenant could be found, we would find that you had no intention of renting your property and your rental claims would not be allowed,” the ATO says. Common mistakes include claiming deductions for any expenses related to your private use of the property. When it comes to claiming your full depreciation allowances, it’s important to obtain a depreciation schedule from a reputable quantity surveyor. Costs vary but many firms, such as Washington Brown, guarantee that unless you save at least twice your fee in the first year the report will be free.
Article from June 2011 Money Magazine
Bank Valuations vs Market Value
2011 May 09
Bank valuations vs market value: what's the difference? 6/05/2011
When you apply for a home loan, the bank will value the property to determine the market value, right? Wrong! While it’s true that when you apply for a mortgage, your bank will place a value on the property you’re buying, the figure they come up with is not necessarily an accurate representation of the property’s value.
“Banks are willing to become business partners with property investors, so that you both can achieve something you couldn’t do without the other, but their support is not unconditional,” explains Bernard Kelly from www.retirelaughing.com. “Novice property investors often expect a bank valuation to mirror the market price. In fact, a bank valuation is only an internal control tool, which reflects what a bank can reasonably expect to recoup should it need to repossess and sell the property in distressed circumstances. This is why it’s less than market price.”
Generally, banks will value the property at the lower end of the scale as they need to protect their risk. If you stop making your repayments and they’re forced to sell the property to recover the money they’ve lent you, they want to be satisfied that they’ll be able to cover the debt. They need to factor in extra expenses like real estate commission, legal fees and timeliness, so it pays for them to be cautious in their estimate. Occasionally, banks may also apply conservative bank valuations if they change their internal policy, and decide they want to “move away from the total amount that they lend for housing”, Kelly confirms. “It happens from time to time.”
You only need to cast your mind back a few years, when we were in the grips of the GFC, to remember that lending criteria changed virtually by the day as banks scrambled to keep quality loans on their books. While banks may veer towards conservative values, the valuation put on a property by an insurance company is often above the market value, Kelly adds. “For insurance purposes, a valuation simply reflects what the insurance company would reasonably expect to pay out should the property need replacing – for example, if it was to be destroyed by lightning in say two years’ time,” he says. In this instance they need to factor in a little “cushion” to cope with inflation/CPI and rising costs of construction. “As you can see, valuations are tools the big corporates use for their own purposes,” Kelly says. “You should always keep in mind that they only loosely relate to the real market price.”
