Australian homeowners could cope with higher interest rates and a downturn in the economy, the nation's top banker forecast last night.
Reserve Bank governor Glenn Stevens blamed the housing bubble, which has burst in some states, on banks giving away mortgages too cheaply.
Three interest rate rises this year, ordered by the Reserve Bank, are expected to knock some confidence out of the market which has started to return to health. There is speculation a fourth rate rise could hit as early as February. Mr Stevens said easier and cheaper access to loans was a prime reason for the skyrocketing prices of Australia's 8 million existing dwellings.
However, he said while some households had too much debt, there would not be great damage if the economy began to decline. The prediction was based on a Reserve Bank analysis, which tipped people would trim their spending habits rather than lose their house. Economists are now punting that the Reserve Bank could order yet another rates rise in a bid to cool the economy. Slower economic growth could halt that move but the jobs market in Australia remains red-hot. Mr Stevens gave no clear direction on the future movements of interest rates.
However, there was a hint that the central bank thought Australian households could cope with higher rates -- particularly through the indication that people would reduce their spending. Mr Stevens said the higher level of debt people had built up made them vulnerable to small changes in the economy. "A very large change in the household sector's balance sheets has made households more sensitive to changes in their circumstances,'' he said.
The RBA has tipped that if there was an economic downturn, it would be businesses which would be hit the hardest. Businesses supplying into discretionary consumer markets would feel the effect quite quickly, Mr Stevens said.
Source: Herald Sun
Monday, December 18, 2006
Sunday, December 10, 2006
Mortgage brokers rise to Australia's first choice according to survey
Mortgage brokers are becoming the first choice for home buyers when they're arranging a loan, a survey shows.
The Mortgage Industry Association of Australia(MIAA)/BankWest home finance survey released today showed more than 41 per cent of recent or intending homebuyers would go to a mortgage broker.
That figure compares with 37.5 per cent who regarded banks as their first preference.
MIAA chief executive Phil Naylor said the figures showed a rise in the public acceptance of brokers. "Public awareness of brokers is now more than 90 per cent," he said.
It is the first time the survey has shown homebuyers prefer arranging their loan through a broker rather than going straight to a bank.
BankWest's head of broker sales, Phil Colton said the research highlighted that banks really couldn't afford to ignore the broking industry.
The research shows that borrowers preferred brokers mainly because they did all the legwork for customers, but also because they could offer a range of loan options from different lenders. The MIAA/Bank West survey is conducted twice a year.
Source: AAP
The Mortgage Industry Association of Australia(MIAA)/BankWest home finance survey released today showed more than 41 per cent of recent or intending homebuyers would go to a mortgage broker.
That figure compares with 37.5 per cent who regarded banks as their first preference.
MIAA chief executive Phil Naylor said the figures showed a rise in the public acceptance of brokers. "Public awareness of brokers is now more than 90 per cent," he said.
It is the first time the survey has shown homebuyers prefer arranging their loan through a broker rather than going straight to a bank.
BankWest's head of broker sales, Phil Colton said the research highlighted that banks really couldn't afford to ignore the broking industry.
The research shows that borrowers preferred brokers mainly because they did all the legwork for customers, but also because they could offer a range of loan options from different lenders. The MIAA/Bank West survey is conducted twice a year.
Source: AAP
Lower home loan demand won't affect interest rates
A fall in applications and approvals for housing loans in August was unlikely to have an effect on [reducing] interest rates, economists said today.
Housing finance commitments for owner-occupied housing fell 1 per cent in August, seasonally adjusted, to 63,217, the Australian Bureau of Statistics said.
Total housing finance by value fell 1.3 per cent in August, seasonally adjusted, to $19.852 billion.
Housing finance by value for owner occupation fell 1.3 per cent, adjusted, to $13.956 billion.
Economists had been looking for a 1 per cent fall in the number of housing finance commitments for owner-occupiers.
Macquarie Bank senior economist Brian Redican said the data was in line with the Reserve Bank of Australia's (RBA) interest rate hike to 6.0 per cent in August.
"It's really not surprising given that the Reserve Bank was raising interest rates in August and that there were some more dire warnings about the housing market there," Mr Redican said.
"But this kind of decline after some healthy months won't pose any concerns for policy makers so I don't think it will have any influence on the current policy debate."
Commonwealth Bank senior economist Michael Workman said the modest fall indicated there was still some underlying strength in the housing market.
"If anything, this is still one of those things indicating that the economy still has a fair bit of momentum," Mr Workman said.
"And it's just one of those issues that would easily stack into this view there are no signs of weakness that could delay a rate rise."
Citigroup director and strategist Stephen Halmarick said the RBA would be pleased with the results, with the August rate hike appearing to have softened the market.
"I think the data so far from the August rate hike has shown there is a little bit of reduction in momentum in the household part of the economy, but it's not dramatic," he said.
However, he said new RBA governor Glenn Stevens would likely signal a continuing tightening bias in his speech tonight at the Australian Business Economists' annual forecasting conference.
"But that bias remains a patient one," he said.
He said the RBA would likely watch further developments before making another rate move.
He said Citigroup did not expect rates to rise again this year, although the tightening bias was expected to remain into next year.
Source: AAP
Housing finance commitments for owner-occupied housing fell 1 per cent in August, seasonally adjusted, to 63,217, the Australian Bureau of Statistics said.
Total housing finance by value fell 1.3 per cent in August, seasonally adjusted, to $19.852 billion.
Housing finance by value for owner occupation fell 1.3 per cent, adjusted, to $13.956 billion.
Economists had been looking for a 1 per cent fall in the number of housing finance commitments for owner-occupiers.
Macquarie Bank senior economist Brian Redican said the data was in line with the Reserve Bank of Australia's (RBA) interest rate hike to 6.0 per cent in August.
"It's really not surprising given that the Reserve Bank was raising interest rates in August and that there were some more dire warnings about the housing market there," Mr Redican said.
"But this kind of decline after some healthy months won't pose any concerns for policy makers so I don't think it will have any influence on the current policy debate."
Commonwealth Bank senior economist Michael Workman said the modest fall indicated there was still some underlying strength in the housing market.
"If anything, this is still one of those things indicating that the economy still has a fair bit of momentum," Mr Workman said.
"And it's just one of those issues that would easily stack into this view there are no signs of weakness that could delay a rate rise."
Citigroup director and strategist Stephen Halmarick said the RBA would be pleased with the results, with the August rate hike appearing to have softened the market.
"I think the data so far from the August rate hike has shown there is a little bit of reduction in momentum in the household part of the economy, but it's not dramatic," he said.
However, he said new RBA governor Glenn Stevens would likely signal a continuing tightening bias in his speech tonight at the Australian Business Economists' annual forecasting conference.
"But that bias remains a patient one," he said.
He said the RBA would likely watch further developments before making another rate move.
He said Citigroup did not expect rates to rise again this year, although the tightening bias was expected to remain into next year.
Source: AAP
Sunday, December 03, 2006
Australian Home sales bounce back
New home sales in Australia rose last month thanks to strong improvements in housing markets in New South Wales, Victoria and Queensland markets, figures show.
The latest Housing Industry Association's (HIA) new home sales survey shows sales of new homes and units by Australia's largest builders and developers rose by 1.3 per cent in October to 7434 dwellings.
That followed a fall of 3 per cent to a 21 month low of 7342 dwellings in September.
The survey also found that new house sales increased by 4.6 per cent in October while sales of multi-unit fell by 16 per cent.
HIA executive director of economics and housing Simon Tennent said the results reflected the dual nature of the nation's economic growth and housing affordability across the states.
"New home sales were resilient in the eastern states as house prices continue to grow in line with consumer prices," he said.
New South Wales, Victoria and Queensland detached housing sales were up strongly, while the accelerating house prices and land constraints in Western Australia meant the new home sales market continued to struggle, he said.
In October, detached house sales fell by 21.9 per cent in WA and 0.9 per cent in South Australia but rose by 16.7 per cent in NSW, 15 per cent in Victoria and 8.5 per cent in Queensland.
"The real test will be in the first quarter of 2007 when the combined affect of three interest rate rises start to squeeze household budgets, particularly in the resource-poor states," Mr Tennent said.
The Reserve Bank of Australia lifted interest rates this month by 25 basis points to 6.25 per cent.
That followed hikes by the same amount in May and August.
Economists say it is not likely that the RBA will lift rates again at the first board meeting of the year in February as the RBA will want to see how the three hikes have trickled through the economy.
Source: AAP
The latest Housing Industry Association's (HIA) new home sales survey shows sales of new homes and units by Australia's largest builders and developers rose by 1.3 per cent in October to 7434 dwellings.
That followed a fall of 3 per cent to a 21 month low of 7342 dwellings in September.
The survey also found that new house sales increased by 4.6 per cent in October while sales of multi-unit fell by 16 per cent.
HIA executive director of economics and housing Simon Tennent said the results reflected the dual nature of the nation's economic growth and housing affordability across the states.
"New home sales were resilient in the eastern states as house prices continue to grow in line with consumer prices," he said.
New South Wales, Victoria and Queensland detached housing sales were up strongly, while the accelerating house prices and land constraints in Western Australia meant the new home sales market continued to struggle, he said.
In October, detached house sales fell by 21.9 per cent in WA and 0.9 per cent in South Australia but rose by 16.7 per cent in NSW, 15 per cent in Victoria and 8.5 per cent in Queensland.
"The real test will be in the first quarter of 2007 when the combined affect of three interest rate rises start to squeeze household budgets, particularly in the resource-poor states," Mr Tennent said.
The Reserve Bank of Australia lifted interest rates this month by 25 basis points to 6.25 per cent.
That followed hikes by the same amount in May and August.
Economists say it is not likely that the RBA will lift rates again at the first board meeting of the year in February as the RBA will want to see how the three hikes have trickled through the economy.
Source: AAP
Monday, October 30, 2006
Mortgage shoppers tipped that rents to skyrocket
Mortgage shoppers and first time home buyers have been warned that rents will skyrocket over the next five years due to a housing shortage across the country, an economic forecaster said.
Research firm BIS Shrapnel said it expects national building commencements to fall for a third straight year, dropping five per cent to 142,500 new homes in 2006/07 following a four per cent drop in 2005/06.
BIS Shrapnel senior project manager Jason Anderson said such a result would inflame the country's already tight rental market, which is meeting increased demand from a growing population. "Rental markets throughout Australia are as tight as a drum, with vacancy rates in all capital cities below 2.5 per cent as at June 2006," he said. "With the supply of new dwellings decreasing, rental markets are set to tighten even further in 2007 and 2008."
Mr Anderson said strong population growth supported by increased overseas migration would push demand for new homes, particularly for rental property use, up to about 165,000 in 2006/07, leaving a shortfall of about 22,500 homes.
As a result, rents in Sydney are forecast to rise five per cent this year and by as much as 40 per cent in the next five years."
The extreme undersupply in the Sydney market will trigger a substantial and extended adjustment to residential rentals," he said. New housing starts are expected to fall in all states across the country as a result of limited land supply for new housing development and a predicted rise in interest rates.
Housing starts are tipped to drop nine per cent in both Victoria and South Australia, eight per cent in the Northern Territory, six per cent in Tasmania, five per cent in the ACT, four per cent in Western Australia, and three per cent in both NSW and Queensland.
But while the shortage of housing will squeeze those in the rental market, Mr Anderson said a rise in rents, particularly in Sydney, is needed to encourage investors back into the market. "A very large increase in rents is required to improve yields on residential property in order to draw investors back into the market and push up the number of new dwellings back towards underlying demand," he said.
Source: AAP
Research firm BIS Shrapnel said it expects national building commencements to fall for a third straight year, dropping five per cent to 142,500 new homes in 2006/07 following a four per cent drop in 2005/06.
BIS Shrapnel senior project manager Jason Anderson said such a result would inflame the country's already tight rental market, which is meeting increased demand from a growing population. "Rental markets throughout Australia are as tight as a drum, with vacancy rates in all capital cities below 2.5 per cent as at June 2006," he said. "With the supply of new dwellings decreasing, rental markets are set to tighten even further in 2007 and 2008."
Mr Anderson said strong population growth supported by increased overseas migration would push demand for new homes, particularly for rental property use, up to about 165,000 in 2006/07, leaving a shortfall of about 22,500 homes.
As a result, rents in Sydney are forecast to rise five per cent this year and by as much as 40 per cent in the next five years."
The extreme undersupply in the Sydney market will trigger a substantial and extended adjustment to residential rentals," he said. New housing starts are expected to fall in all states across the country as a result of limited land supply for new housing development and a predicted rise in interest rates.
Housing starts are tipped to drop nine per cent in both Victoria and South Australia, eight per cent in the Northern Territory, six per cent in Tasmania, five per cent in the ACT, four per cent in Western Australia, and three per cent in both NSW and Queensland.
But while the shortage of housing will squeeze those in the rental market, Mr Anderson said a rise in rents, particularly in Sydney, is needed to encourage investors back into the market. "A very large increase in rents is required to improve yields on residential property in order to draw investors back into the market and push up the number of new dwellings back towards underlying demand," he said.
Source: AAP
Sunday, October 22, 2006
Mortgage Shoppers benefit as major home loan lenders drop home loan rates for new mortgage business.
Major home loan lenders dramatically lower effective interest rates to compete for mortgage shoppers home loan business. As the big mortgage players slashing margins to lower the effective mortgage interest rates to attract home buyers and mortgage refinance business, the smaller home loan lenders plan to join in.
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP
Thursday, October 19, 2006
Sacked mortgage staff refuse to train their overseas replacements
Regional mortgage lender St George Bank has hit union trouble in its bid to sack local IT specialists and repleace them with cheap overseas labour.
The Finance Sector Union (FSU) will meet St George Bank management today, after staff who are being made redundant refused to train their replacements yesterday.
FSU national secretary Paul Schroder says the jobs of 60 IT staff from Kogarah in Sydney are being outsourced.Mr Schroder says the staff voted to defy orders to train their replacements, who were flown in from overseas this week.“You can get people to work for less than $100 per week to do this work,” he said.“This bank is a profitable bank - it doesn’t need to do this but it is doing this to cut its own costs.“We think that’s the wrong decision for the whole economy and for the bank in particular.“But it’s particularly nasty to expect the people who are losing their jobs to train the people who are taking them.”St George Bank spokesman Jeremy Griffith says the workers do not have to train their replacements if they do not want to.The bank says it has invited staff to apply for jobs in other areas.
If you are a mortgage shopper we suggest that you consider your values when placing your business. After all the mortgage business is a local business, and should be using local people to service the community.
The Finance Sector Union (FSU) will meet St George Bank management today, after staff who are being made redundant refused to train their replacements yesterday.
FSU national secretary Paul Schroder says the jobs of 60 IT staff from Kogarah in Sydney are being outsourced.Mr Schroder says the staff voted to defy orders to train their replacements, who were flown in from overseas this week.“You can get people to work for less than $100 per week to do this work,” he said.“This bank is a profitable bank - it doesn’t need to do this but it is doing this to cut its own costs.“We think that’s the wrong decision for the whole economy and for the bank in particular.“But it’s particularly nasty to expect the people who are losing their jobs to train the people who are taking them.”St George Bank spokesman Jeremy Griffith says the workers do not have to train their replacements if they do not want to.The bank says it has invited staff to apply for jobs in other areas.
If you are a mortgage shopper we suggest that you consider your values when placing your business. After all the mortgage business is a local business, and should be using local people to service the community.
Tuesday, October 10, 2006
Property investment soars as Aussie investors look for overseas hotspots
Australian property investors are sending huge amounts of investment offshore in search of higher returns and diversified portfolios.
Research by real estate money management firm Jones Lang LaSalle found that Australian investors poured $US5.3 billion ($7.06 billion) into overseas real estate in the first half of this year, up from only $US1.2 billion ($1.6 billion) in the first half of 2005.
Jones Lang LaSalle head of forecasting services John Sears said an increase in the amount of superannuation allocated to listed property trusts (LPT) was largely driving the flight overseas, with LPTs seeking to diversify their portfolios and capitalise on high overseas yields. "There's a huge amount of money flowing into LPTs and they need to find stock,'' he said. "Because there's so much money, there's a lack of stock available in Australia. "LPTs are traditionally seen as a high yielding asset ... So to get the yields, they have to look overseas.''
As a result, Australia is now the third largest international investor in property after the United States and the Middle East. The company's Australian head of research Kathryn Matthews said around 80 per cent of the funds spent overseas in the first half of 2006 were invested in countries outside the Asia Pacific region, particularly in the US. "The US received almost half of our overseas purchases, making Australians the third largest cross border investors in the US,'' she said.
However, Ms Matthews said Australians were increasingly interested in European markets. "Australians invested particularly heavily in Germany where they purchased around $US1 billion ($1.33 billion) worth of assets in the first half of 2006,'' she said. Germany accounted for 19 per cent of Australian offshore property investment in the first six months of this year, followed by Belgium with 6 per cent, the United Kingdom with 3 per cent, Poland and the Netherlands with 2 per cent each, and France with 1 per cent.
Mr Sears said the rising interest in investing in Germany was a result of the county's relatively high yields for the European region coupled with low interest rates, which made borrowing money to invest in the country cheaper.
Source: AAP
Research by real estate money management firm Jones Lang LaSalle found that Australian investors poured $US5.3 billion ($7.06 billion) into overseas real estate in the first half of this year, up from only $US1.2 billion ($1.6 billion) in the first half of 2005.
Jones Lang LaSalle head of forecasting services John Sears said an increase in the amount of superannuation allocated to listed property trusts (LPT) was largely driving the flight overseas, with LPTs seeking to diversify their portfolios and capitalise on high overseas yields. "There's a huge amount of money flowing into LPTs and they need to find stock,'' he said. "Because there's so much money, there's a lack of stock available in Australia. "LPTs are traditionally seen as a high yielding asset ... So to get the yields, they have to look overseas.''
As a result, Australia is now the third largest international investor in property after the United States and the Middle East. The company's Australian head of research Kathryn Matthews said around 80 per cent of the funds spent overseas in the first half of 2006 were invested in countries outside the Asia Pacific region, particularly in the US. "The US received almost half of our overseas purchases, making Australians the third largest cross border investors in the US,'' she said.
However, Ms Matthews said Australians were increasingly interested in European markets. "Australians invested particularly heavily in Germany where they purchased around $US1 billion ($1.33 billion) worth of assets in the first half of 2006,'' she said. Germany accounted for 19 per cent of Australian offshore property investment in the first six months of this year, followed by Belgium with 6 per cent, the United Kingdom with 3 per cent, Poland and the Netherlands with 2 per cent each, and France with 1 per cent.
Mr Sears said the rising interest in investing in Germany was a result of the county's relatively high yields for the European region coupled with low interest rates, which made borrowing money to invest in the country cheaper.
Source: AAP
Saturday, September 02, 2006
The High price of lower mortgage repayments with interest only home loans
With Mortgage finance there is no such thing as a free lunch. Home buyers and homeowners scrambling to lower their mortgage repayments need to think about all the implications for they change to an interest only home loan.
Because there is a high price to pay, eventually, for interest-only mortgage home loans.
The latest interest rate rise has seen many borrowers scrambling for strategies to make their home loan repayments more affordable.
Options include extending the loan term, refinancing on a better rate, old-fashioned belt-tightening and, more controversially, opting for an interest-only product.
Cannex figures show only one in every 100 Australian owner-occupiers sign up for interest-only deals, but anecdotal evidence suggests more people are being tempted to cut growing repayments any way they can.
"I've had a number of clients asking about them recently [because] they're much cheaper than a principal and interest repayment loan," says Anna Mandoki, a financial counsellor with the Financial and Consumer Rights Council in Victoria.
However, she notes a pattern of emerging problems associated with these products: "I would caution people to really think carefully before they consider interest only repayments."
For borrowers suffering the pinch, the appeal of interest-only loans is obvious. Home buyers grappling with a typical $250,000, 25-year mortgage would save themselves $270 a month by abandoning attempts to chip away at the principal and resigning themselves to covering only the outstanding interest bill, according to Cannex calculations.
And those struggling to cover the cost of higher-priced properties in cities such as Sydney and Melbourne, the "savings" would be even more considerable, allowing them to get a toehold in the market at minimal cost.
For all these reasons, a product that was solely a property investor option now has strong appeal for cash-strapped owner-occupiers, says Lisa Montgomery, the national manager of marketing and consumer advocacy with Resi Mortgage Corporation.
But she warns that with the property boom over, home owners can no longer rely on capital gains to carry them through, and that the short-term relief associated with lower repayments can have serious long-term ramifications.
And as David Tennant, director of the Care Financial Counselling Service in Canberra, says, the proliferation of home loans that don't require people to put down deposits, or even stump up their borrowing costs, means many borrowers are already starting out behind the eight ball.
"It's just digging people further into crisis," he says. "It's quite conceivable that we could see situations which started out as negative equity get so much worse."
There's a high price to pay, eventually, for interest-only loans.
The latest interest rate rise has seen many borrowers scrambling for strategies to make their home loan repayments more affordable.
Options include extending the loan term, refinancing on a better rate, old-fashioned belt-tightening and, more controversially, opting for an interest-only product.
Cannex figures show only one in every 100 Australian owner-occupiers sign up for interest-only deals, but anecdotal evidence suggests more people are being tempted to cut growing repayments any way they can.
"I've had a number of clients asking about them recently [because] they're much cheaper than a proper principal repayment loan," says Anna Mandoki, a financial counsellor with the Financial and Consumer Rights Council in Victoria.
However, she notes a pattern of emerging problems associated with these products: "I would caution people to really think carefully before they [go ahead]."
For borrowers suffering the pinch, the appeal of interest-only loans is obvious. Home buyers grappling with a typical $250,000, 25-year mortgage would save themselves $270 a month by abandoning attempts to chip away at the principal and resigning themselves to covering only the outstanding interest bill, according to Cannex calculations.
And those struggling to cover the cost of higher-priced properties in cities such as Sydney and Melbourne, the "savings" would be even more considerable, allowing them to get a toehold in the market at minimal cost.
For all these reasons, a product that was solely a property investor option now has strong appeal for cash-strapped owner-occupiers, says Lisa Montgomery, the national manager of marketing and consumer advocacy with Resi Mortgage Corporation.
But she warns that with the property boom over, home owners can no longer rely on capital gains to carry them through, and that the short-term relief associated with lower repayments can have serious long-term ramifications.
And as David Tennant, director of the Care Financial Counselling Service in Canberra, says, the proliferation of home loans that don't require people to put down deposits, or even stump up their borrowing costs, means many borrowers are already starting out behind the eight ball.
"It's just digging people further into crisis," he says. "It's quite conceivable that we could see situations which started out as negative equity get so much worse."
In Britain, alarm bells are already ringing over the number of interest-only mortgages being taken out, with the regulator, the Financial Services Authority, sending a thinly veiled warning to lenders to get their house in order and putting such products at the top of its list of "emerging retail risks".
One in four borrowers are taking out the mortgages but many have little hope of paying off the capital sum at the end of the term, The Guardian newspaper reported recently.
"Many borrowers, particularly those who have remortgaged to a cheaper deal, may not even understand that they have a loan which, when it matures in 15, 20 or 25 years' time, will leave them with a huge bill," it reported.
"In the worst case, householders in their 50s and 60s could face repossession if they cannot stump up tens or even hundreds of thousands of pounds."
The Australian situation isn't so dire, but in a case which she describes as "the tip of the iceberg", Mandoki says she recently saw a client lose her house after she fell ill, and became unable to meet the repayments on an interest-only mortgage secured through a non-mainstream lender.
Ironically, with a different type of loan, the situation may have been salvageable through the Mortgage Relief Scheme that operates out of Victoria's Department of Human Services, Mandoki says. The scheme offers home owners short-term interest-free loans to help overcome difficulties with home-loan repayments resulting from an unavoidable change in circumstances, such as becoming sick or losing a job.
"But one of the conditions is that it can't be an interest-only loan," she says.
Yet even during affordability crunches, Phil Naylor, chief executive of the Mortgage Industry Association of Australia, says the Australian dream of home ownership is still alive, and recent research shows 90 per cent of borrowers want to pay off their loan sooner.
However, he notes that industry, governments and regulators, need to keep a close eye on trends in this area.
"As it's a time when house prices are high, savings are low, lifestyle compromises are minimal, and people are made to be more responsible for their finances for retirement, the use of these loans for owner-occupants, particularly first-home buyers, should not be encouraged," Naylor says.
Montgomery says that while financial institutions won't turf undisciplined borrowers out of their homes at the end of the term, opting for an interest-only deal means you can only postpone, rather than evade, the repayment of principal: "It must be paid back at some time or another," she says.
And while some suggest proceeding with caution when it comes to interest-only loans, Tennant advises borrowers not to even go there.
"If the only way you can get into the housing market is to take out an interest-only loan, then you can't afford it and you need to rethink your housing needs," he says.
In Australia, about 8.7 million individuals are affected by rate hikes.
Source: Sydney Morning Herald and Cannex
Because there is a high price to pay, eventually, for interest-only mortgage home loans.
The latest interest rate rise has seen many borrowers scrambling for strategies to make their home loan repayments more affordable.
Options include extending the loan term, refinancing on a better rate, old-fashioned belt-tightening and, more controversially, opting for an interest-only product.
Cannex figures show only one in every 100 Australian owner-occupiers sign up for interest-only deals, but anecdotal evidence suggests more people are being tempted to cut growing repayments any way they can.
"I've had a number of clients asking about them recently [because] they're much cheaper than a principal and interest repayment loan," says Anna Mandoki, a financial counsellor with the Financial and Consumer Rights Council in Victoria.
However, she notes a pattern of emerging problems associated with these products: "I would caution people to really think carefully before they consider interest only repayments."
For borrowers suffering the pinch, the appeal of interest-only loans is obvious. Home buyers grappling with a typical $250,000, 25-year mortgage would save themselves $270 a month by abandoning attempts to chip away at the principal and resigning themselves to covering only the outstanding interest bill, according to Cannex calculations.
And those struggling to cover the cost of higher-priced properties in cities such as Sydney and Melbourne, the "savings" would be even more considerable, allowing them to get a toehold in the market at minimal cost.
For all these reasons, a product that was solely a property investor option now has strong appeal for cash-strapped owner-occupiers, says Lisa Montgomery, the national manager of marketing and consumer advocacy with Resi Mortgage Corporation.
But she warns that with the property boom over, home owners can no longer rely on capital gains to carry them through, and that the short-term relief associated with lower repayments can have serious long-term ramifications.
And as David Tennant, director of the Care Financial Counselling Service in Canberra, says, the proliferation of home loans that don't require people to put down deposits, or even stump up their borrowing costs, means many borrowers are already starting out behind the eight ball.
"It's just digging people further into crisis," he says. "It's quite conceivable that we could see situations which started out as negative equity get so much worse."
There's a high price to pay, eventually, for interest-only loans.
The latest interest rate rise has seen many borrowers scrambling for strategies to make their home loan repayments more affordable.
Options include extending the loan term, refinancing on a better rate, old-fashioned belt-tightening and, more controversially, opting for an interest-only product.
Cannex figures show only one in every 100 Australian owner-occupiers sign up for interest-only deals, but anecdotal evidence suggests more people are being tempted to cut growing repayments any way they can.
"I've had a number of clients asking about them recently [because] they're much cheaper than a proper principal repayment loan," says Anna Mandoki, a financial counsellor with the Financial and Consumer Rights Council in Victoria.
However, she notes a pattern of emerging problems associated with these products: "I would caution people to really think carefully before they [go ahead]."
For borrowers suffering the pinch, the appeal of interest-only loans is obvious. Home buyers grappling with a typical $250,000, 25-year mortgage would save themselves $270 a month by abandoning attempts to chip away at the principal and resigning themselves to covering only the outstanding interest bill, according to Cannex calculations.
And those struggling to cover the cost of higher-priced properties in cities such as Sydney and Melbourne, the "savings" would be even more considerable, allowing them to get a toehold in the market at minimal cost.
For all these reasons, a product that was solely a property investor option now has strong appeal for cash-strapped owner-occupiers, says Lisa Montgomery, the national manager of marketing and consumer advocacy with Resi Mortgage Corporation.
But she warns that with the property boom over, home owners can no longer rely on capital gains to carry them through, and that the short-term relief associated with lower repayments can have serious long-term ramifications.
And as David Tennant, director of the Care Financial Counselling Service in Canberra, says, the proliferation of home loans that don't require people to put down deposits, or even stump up their borrowing costs, means many borrowers are already starting out behind the eight ball.
"It's just digging people further into crisis," he says. "It's quite conceivable that we could see situations which started out as negative equity get so much worse."
In Britain, alarm bells are already ringing over the number of interest-only mortgages being taken out, with the regulator, the Financial Services Authority, sending a thinly veiled warning to lenders to get their house in order and putting such products at the top of its list of "emerging retail risks".
One in four borrowers are taking out the mortgages but many have little hope of paying off the capital sum at the end of the term, The Guardian newspaper reported recently.
"Many borrowers, particularly those who have remortgaged to a cheaper deal, may not even understand that they have a loan which, when it matures in 15, 20 or 25 years' time, will leave them with a huge bill," it reported.
"In the worst case, householders in their 50s and 60s could face repossession if they cannot stump up tens or even hundreds of thousands of pounds."
The Australian situation isn't so dire, but in a case which she describes as "the tip of the iceberg", Mandoki says she recently saw a client lose her house after she fell ill, and became unable to meet the repayments on an interest-only mortgage secured through a non-mainstream lender.
Ironically, with a different type of loan, the situation may have been salvageable through the Mortgage Relief Scheme that operates out of Victoria's Department of Human Services, Mandoki says. The scheme offers home owners short-term interest-free loans to help overcome difficulties with home-loan repayments resulting from an unavoidable change in circumstances, such as becoming sick or losing a job.
"But one of the conditions is that it can't be an interest-only loan," she says.
Yet even during affordability crunches, Phil Naylor, chief executive of the Mortgage Industry Association of Australia, says the Australian dream of home ownership is still alive, and recent research shows 90 per cent of borrowers want to pay off their loan sooner.
However, he notes that industry, governments and regulators, need to keep a close eye on trends in this area.
"As it's a time when house prices are high, savings are low, lifestyle compromises are minimal, and people are made to be more responsible for their finances for retirement, the use of these loans for owner-occupants, particularly first-home buyers, should not be encouraged," Naylor says.
Montgomery says that while financial institutions won't turf undisciplined borrowers out of their homes at the end of the term, opting for an interest-only deal means you can only postpone, rather than evade, the repayment of principal: "It must be paid back at some time or another," she says.
And while some suggest proceeding with caution when it comes to interest-only loans, Tennant advises borrowers not to even go there.
"If the only way you can get into the housing market is to take out an interest-only loan, then you can't afford it and you need to rethink your housing needs," he says.
In Australia, about 8.7 million individuals are affected by rate hikes.
Source: Sydney Morning Herald and Cannex
Thursday, July 13, 2006
Mortgage shopper warning: Use caution at the real estate auction
The key to buying wisely at a real estate auction is to establish what you want first and to decide on what you are prepared to pay for a property before the auction.
Its wise not to get carried away by the emotions that course in your veins at the typical auction. These emotions can include:
Its wise not to get carried away by the emotions that course in your veins at the typical auction. These emotions can include:
- The urge to own.
- The fear of loss.
- The desire to win at all costs.
- The need for fun and good cheer.
- The fear of suffering loss of face.
It all happens at the auction, because auctions create a super hot sales environment where all of the above can fester and thrive. First they gather a lot of potential buyers all cashed up with money burning a hole in their pockets to bid on just one property. Then they create the illusion that the property can be bought for a song, where you can steal the property from the hapless, desperate seller.
The other illusion auctioneers want you to buy into , like all real estate agents is that they are on your [the buyers] side. Believing this is the biggest blunder that buyers can make. The Real Estate Agent is sworn to his or her fiduciary duty to look after the principal's best interest. The principal is the one who pays the agent the commission. At auctions, that is always the buyer! So, if the agent is ethical, he or she will take every last dollar that he can from you, the buyer, because that's what he or she is paid to do. So don't try to become friendly with the Auction agent, because he or she will only assume you are sucker that can be taken advantage of. Be warm, be civil, be polite, but be disinterested and vague. It could save you thousands.
Then the auctioneer removes from the buyer the time to think and ponder. You are forced to bid faster than you can think. A good auctioneer creates an avalanche effect and all the dreams of buying a bargain evaporate as the reality of what's happening sinks in. You don't want a bargain any more, you want to pocess this scarce property before you, you want to win at all costs. You are being worked by a master of psychology and he's winning, not you.
Finally the last two bidders slug it out as the early dreamers are tossed aside as also-rans. The auctioneer will spur the competitive spirit out of these last to drive bidders till one drops exhausted, beaten and ashamed he didn't have the resources at his disposal that the winner did. anyway he reasons, the guy had more money than sense.
The winner is then congratulated and can celebrate whilst the losers can do as they please.
Then when you think it couldn't get any worse, the last deep cut. No cooling off. You can suffer buyers remorse at your leisure. The auction system has removed all your consumer rights that Ralph Nader and others that followed him fought so hard to win for you.
Now you have been slapped into reality land, let's see what you can do to equalise the situation in your favour.
- Here are some tips on how to do it:
After finding out how much you want to spend, make inquiries about the contract, what the property includes and be certain it's clear of major defects. - Have a building report and pest inspection done before the auction.
- On auction day, make sure the contract has not been altered.
- Arrive on time for the auction, never early.
- Never introduce yourself to the auctioneer and let them know you are interested in the property. Stay out of his figuring. Auctioneers feed on this desire to big note yourself and know how to work it. Under no circumstances let the auctioneer know what price you are willing to pay.
- Remember that the Auctioneer has to work in the best interest of the Vendor, not you.
- That's your job, so do it well.
- Never make the first bid. [The one's that do never finish up with the property, but do add to the price.]
- Slow the bidding down, don't add to the feeding frenzy.
- Never bid till you know that the property is "on the market."
- Always look disinterested.
- Always think before you bid. Tease the auctioneer and the other bidders.
- Never allow the auctioneer to flatter you or bully you. He's in control of the auction, but you must in in control of you.
- If he tries to squeeze you, relax and disassociate yourself. See it happening from a distance. Never take it personally.
Friday, June 09, 2006
Home Sellers shun real estate agents
Real estate agents are defending the commissions they take from property sales as new figures show nearly a quarter of New Zealand home sellers are shunning their services.
Commission rates in New Zealand generally range from about 2 to 4 per cent – a gain for agents of about $6100 to $12,200 on the average $305,000 property.
Last year, 23.7 per cent of the 137,005 residential sales in New Zealand were made without a real estate agent.
The average house price in New Zealand hit a record high of $305,000 in April last year, but price growth is slowing.
Wanting to hold on to their capital gain, New Zealanders are selling their homes privately, negating real estate agents' commission.
Christchurch couple David and Rachael Houston have decided to sell their Halswell family home by advertising in the newspaper, rather than using an agent.
David Houston, a lawyer, said selling their $500,000 home privately would save them about $20,000 in agent's fees and commission.
They have so far spent only $70 on one advertisement and report plenty of interest.
Houston said that while there were some good agents, the huge increase in commission that agents were getting – just because house prices had gone up – was difficult to justify. He said private sales were a great option for those sellers confident enough to go it alone.
"There's some people out there who should absolutely use a real estate agent as they could get themselves into a lot of trouble," Houston said.
"If you've got the confidence to back yourself, there's no reason why you shouldn't try to sell it yourself for a couple of hundred dollars of ads."
Thousands of Kiwis are also wired for sales via the internet, with many listing their homes on the online auction site Trade Me. The site lists properties for just $49.95, which includes 20 photos.
Another popular sales option is a marketing company, which for a fee of about $400 to $500 will advertise a property but leave the negotiations up to the buyer and seller.
Ali Clarke, the managing director of HomeSell, which offers marketing services to real estate buyers and sellers, said more homeowners were selling privately to avoid paying commission and to have more control over their sale.
Clarke said that with present house prices, the commission could end up being thousands of dollars, and many homeowners saw that as a lost opportunity for other investments.
Commission rates in New Zealand generally range from about 2 to 4 per cent – a gain for agents of about $6100 to $12,200 on the average $305,000 property.
Last year, 23.7 per cent of the 137,005 residential sales in New Zealand were made without a real estate agent.
The average house price in New Zealand hit a record high of $305,000 in April last year, but price growth is slowing.
Wanting to hold on to their capital gain, New Zealanders are selling their homes privately, negating real estate agents' commission.
Christchurch couple David and Rachael Houston have decided to sell their Halswell family home by advertising in the newspaper, rather than using an agent.
David Houston, a lawyer, said selling their $500,000 home privately would save them about $20,000 in agent's fees and commission.
They have so far spent only $70 on one advertisement and report plenty of interest.
Houston said that while there were some good agents, the huge increase in commission that agents were getting – just because house prices had gone up – was difficult to justify. He said private sales were a great option for those sellers confident enough to go it alone.
"There's some people out there who should absolutely use a real estate agent as they could get themselves into a lot of trouble," Houston said.
"If you've got the confidence to back yourself, there's no reason why you shouldn't try to sell it yourself for a couple of hundred dollars of ads."
Thousands of Kiwis are also wired for sales via the internet, with many listing their homes on the online auction site Trade Me. The site lists properties for just $49.95, which includes 20 photos.
Another popular sales option is a marketing company, which for a fee of about $400 to $500 will advertise a property but leave the negotiations up to the buyer and seller.
Ali Clarke, the managing director of HomeSell, which offers marketing services to real estate buyers and sellers, said more homeowners were selling privately to avoid paying commission and to have more control over their sale.
Clarke said that with present house prices, the commission could end up being thousands of dollars, and many homeowners saw that as a lost opportunity for other investments.
UK House prices to rise 7%
First time home buyers in the UK may struggle to find affordable homes over the coming months as house prices are set to increase by seven per cent, predictions indicate.
The forecast from the Council of Mortgage lenders (CML) is more than triple the two per cent inflation expected at the start of the year.Lending is also likely to be more buoyant for those looking for a mortgage, reaching £310 billion rather than the £285 billion previously forecast.
Jim Cunningham, CML senior economist, said: "The immediate signs are that demand will remain robust over the next few months."
However, the CML expects that the strength of the housing market will cause interest rate rises, with interest forecast at 4.75 per cent at the end of the year.
The increases would be "likely to result in a modest fall in the level of transactions in the second half of this year", Mr Cunningham continued.
First time buyers should remain aware that higher interest rates may cause more people to fall behind with mortgage repayments, leading to more repossessions, according to CML predictions.
The trend of decreasing transactions predicted for the second half of the year was expected to continue into 2007.
For first time buyers, prospects look bright in 2008 when lower inflation may see interest rates reduce.
The forecast from the Council of Mortgage lenders (CML) is more than triple the two per cent inflation expected at the start of the year.Lending is also likely to be more buoyant for those looking for a mortgage, reaching £310 billion rather than the £285 billion previously forecast.
Jim Cunningham, CML senior economist, said: "The immediate signs are that demand will remain robust over the next few months."
However, the CML expects that the strength of the housing market will cause interest rate rises, with interest forecast at 4.75 per cent at the end of the year.
The increases would be "likely to result in a modest fall in the level of transactions in the second half of this year", Mr Cunningham continued.
First time buyers should remain aware that higher interest rates may cause more people to fall behind with mortgage repayments, leading to more repossessions, according to CML predictions.
The trend of decreasing transactions predicted for the second half of the year was expected to continue into 2007.
For first time buyers, prospects look bright in 2008 when lower inflation may see interest rates reduce.
First time home buyers ignore mortgage rate increase
Recent RBA induced mortgage rate increases are unlikely to stop first-home buyers from entering the housing market, with finance-boosting tax cuts helping to cushion the blow, according to analysts.
While last month's rate rise came as a surprise to many, it is not expected to significantly dent the confidence of prospective home buyers, with conditions continuing to prove favourable.Housing finance figures published earlier this week by the Australian Bureau of Statistics (ABS) showed the proportion of all home loans taken out by first home buyers rose to a four-year high of 19.1 per cent in April, from 18.4 per cent in March.
CommSec chief equities economist Craig James said while the latest rate rise would have scared some potential buyers off and caused others to redo their sums, for most it should not have had too much of an impact.
"In May, people would have weighed up the fact that rates have gone up, but there is also a tax cut coming through," he said.
"So in terms of servicing the debt, most probably it would have worked out as pretty much line-ball.
Advertisement:"I think we're going to see first home buyers as a proportion of the market continue to edge a little bit higher, holding in the order of 19 to 20 per cent of the market."In early May, the Reserve Bank of Australia lifted the cash rate by a quarter per cent to 5.75 per cent.
Recent stronger-than-expected data had led to renewed talk of another rate rise this year, but Mr James said potential first-home buyers would again do their sums.
"They'll factor in a quarter per cent rate hike, and provided that's affordable, then clearly their plans won't change," he said.
House prices in most capital cities had flattened out, income levels were rising and the jobs market was strong, meaning improved affordability and access to the housing market, he said.
The Mortgage Industry Association of Australia (MIAA) said the May rate rise was unlikely to have much of an effect on new home buyers when taken in context.
"In some areas of Australia we're seeing the pressure on housing prices dropping a bit, so that's making housing a little bit more affordable," MIAA chief executive Phil Naylor said.
"Especially with those tax cuts brought into the mix, provided people divert that into their mortgages rather than elsewhere, that should counteract any impact of the interest rate increase."
The trend in the proportion of all home loans taken out by first home buyers had been gradually rising in the few months to April and was likely to lift further, Mr Naylor said.
"It might bounce down a little bit if the impact of the interest rate increase comes in, but we think the trend will still continue upwards over the longer term," he said.
Source: News Corp
While last month's rate rise came as a surprise to many, it is not expected to significantly dent the confidence of prospective home buyers, with conditions continuing to prove favourable.Housing finance figures published earlier this week by the Australian Bureau of Statistics (ABS) showed the proportion of all home loans taken out by first home buyers rose to a four-year high of 19.1 per cent in April, from 18.4 per cent in March.
CommSec chief equities economist Craig James said while the latest rate rise would have scared some potential buyers off and caused others to redo their sums, for most it should not have had too much of an impact.
"In May, people would have weighed up the fact that rates have gone up, but there is also a tax cut coming through," he said.
"So in terms of servicing the debt, most probably it would have worked out as pretty much line-ball.
Advertisement:"I think we're going to see first home buyers as a proportion of the market continue to edge a little bit higher, holding in the order of 19 to 20 per cent of the market."In early May, the Reserve Bank of Australia lifted the cash rate by a quarter per cent to 5.75 per cent.
Recent stronger-than-expected data had led to renewed talk of another rate rise this year, but Mr James said potential first-home buyers would again do their sums.
"They'll factor in a quarter per cent rate hike, and provided that's affordable, then clearly their plans won't change," he said.
House prices in most capital cities had flattened out, income levels were rising and the jobs market was strong, meaning improved affordability and access to the housing market, he said.
The Mortgage Industry Association of Australia (MIAA) said the May rate rise was unlikely to have much of an effect on new home buyers when taken in context.
"In some areas of Australia we're seeing the pressure on housing prices dropping a bit, so that's making housing a little bit more affordable," MIAA chief executive Phil Naylor said.
"Especially with those tax cuts brought into the mix, provided people divert that into their mortgages rather than elsewhere, that should counteract any impact of the interest rate increase."
The trend in the proportion of all home loans taken out by first home buyers had been gradually rising in the few months to April and was likely to lift further, Mr Naylor said.
"It might bounce down a little bit if the impact of the interest rate increase comes in, but we think the trend will still continue upwards over the longer term," he said.
Source: News Corp
Home mortgage lending changes in non traditional loan products
Rapid change in the home mortgage and home equity lending industry raises fundamental issues about fairness and levels of risk, Federal Reserve Governor Mark Olson said on Wednesday.
Olson did not address the outlook for the U.S. economy or interest rates in comments to a Federal Reserve Board public hearing on the home equity market.
The Chicago hearing will be the first of four to be staged over the next month, and Olson noted it has been four years since the Fed last held such hearings.
"In those four years it is hard to believe so much change has taken place in the industry," he said.
The growth in non-traditional loan products such as adjustable rate mortgages "certainly is the most significant change that has taken place in the marketplace and it has raised some real issues," Olson said.
The central banker said the rise of the secondary mortgage market has created a "voracious appetite" for loan products and that "it is not clear we have the same checks and balances, and that underwriting is done as carefully."
The fundamental asymmetry of knowledge between mortgage lender and recipient also creates "a real responsibility for mortgage lenders not to be abusive of that process," he said.
"Every time I have sat down to close my own mortgage loan I have felt at a disadvantage in terms of my understanding; so I can imagine what a first time buyer must feel," Olson said.
Source: Reuters
Olson did not address the outlook for the U.S. economy or interest rates in comments to a Federal Reserve Board public hearing on the home equity market.
The Chicago hearing will be the first of four to be staged over the next month, and Olson noted it has been four years since the Fed last held such hearings.
"In those four years it is hard to believe so much change has taken place in the industry," he said.
The growth in non-traditional loan products such as adjustable rate mortgages "certainly is the most significant change that has taken place in the marketplace and it has raised some real issues," Olson said.
The central banker said the rise of the secondary mortgage market has created a "voracious appetite" for loan products and that "it is not clear we have the same checks and balances, and that underwriting is done as carefully."
The fundamental asymmetry of knowledge between mortgage lender and recipient also creates "a real responsibility for mortgage lenders not to be abusive of that process," he said.
"Every time I have sat down to close my own mortgage loan I have felt at a disadvantage in terms of my understanding; so I can imagine what a first time buyer must feel," Olson said.
Source: Reuters
US Mortgage foreclosure rate ramps up following job losses.
US home foreclosures on home mortgages are on the way up.
Nationally, foreclosures are up 38 percent, higher than in any quarter of last year, property tracker RealtyTrac Inc. said. The numbers are even grimmer in the Midwest. Michigan and Ohio, battered by automotive-related job losses, together recorded 45,000 mortgages entering some stage of foreclosure in the first quarter.
Those are increases of 91 percent and 39 percent, respectively, compared with last year's fourth quarter.
There are many reasons for the growing number of defaults, and there are suggestions that the foreclosure trend may soon worsen.
Layoffs attributable to corporate downsizings, health care issues, increasing debt levels and rising interest rates all are factors.
In addition, a growing number of homeowners are relying on adjustable-rate mortgages, catching some people by surprise when their monthly payment rises.
Significantly, some of those ARMs were offered with an initial three-year to five-year period in which the rate was fixed.
At the end of that period, the mortgages will be reset at prevailing rates, potentially upending borrowers because interest rates have been rising.
For many such people, that moment is approaching.
"The increases we've been seeing in foreclosures don't even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable-rate mortgages are reset over the next 18 months," said Rick Sharga, vice president of marketing at RealtyTrac.
Another factor is the impact of rising property values.
And in some cases people stretched to qualify for a mortgage only to be undone by higher utility and gasoline costs.
"During the refinancing boom people found themselves qualified for homes they might not have qualified for if the interest rates were higher," said Jeff Metcalf, chief executive of Record Information Services Inc., a Kaneville, Ill.-based collector of market data.
Losing jobs can and has triggered mortgage defaults.
Consider Archie Tolar, who said he once earned about $3,000 a month as a salesman at a suburban Chevrolet dealership.
Since losing his job in 2002, Tolar has struggled to make ends meet, relying mostly on $400 a month in disability payments.
"To go from $3,000 a month to $400 doesn't even cover the mortgage," the Harvey, Ill., resident said. ABN Amro Mortgage Group Inc. filed a mortgage foreclosure against him in April.
Although the numbers are higher, they are below where they have been during recessionary periods, said Alexis McGee, president of Foreclosures.com, another property tracker.
"It's a big jump, but from very, very low numbers on a historic basis," McGee said.
Source: Chicago Tribunal
Nationally, foreclosures are up 38 percent, higher than in any quarter of last year, property tracker RealtyTrac Inc. said. The numbers are even grimmer in the Midwest. Michigan and Ohio, battered by automotive-related job losses, together recorded 45,000 mortgages entering some stage of foreclosure in the first quarter.
Those are increases of 91 percent and 39 percent, respectively, compared with last year's fourth quarter.
There are many reasons for the growing number of defaults, and there are suggestions that the foreclosure trend may soon worsen.
Layoffs attributable to corporate downsizings, health care issues, increasing debt levels and rising interest rates all are factors.
In addition, a growing number of homeowners are relying on adjustable-rate mortgages, catching some people by surprise when their monthly payment rises.
Significantly, some of those ARMs were offered with an initial three-year to five-year period in which the rate was fixed.
At the end of that period, the mortgages will be reset at prevailing rates, potentially upending borrowers because interest rates have been rising.
For many such people, that moment is approaching.
"The increases we've been seeing in foreclosures don't even reflect the worst-case scenario that could happen when the $2.7 trillion in adjustable-rate mortgages are reset over the next 18 months," said Rick Sharga, vice president of marketing at RealtyTrac.
Another factor is the impact of rising property values.
And in some cases people stretched to qualify for a mortgage only to be undone by higher utility and gasoline costs.
"During the refinancing boom people found themselves qualified for homes they might not have qualified for if the interest rates were higher," said Jeff Metcalf, chief executive of Record Information Services Inc., a Kaneville, Ill.-based collector of market data.
Losing jobs can and has triggered mortgage defaults.
Consider Archie Tolar, who said he once earned about $3,000 a month as a salesman at a suburban Chevrolet dealership.
Since losing his job in 2002, Tolar has struggled to make ends meet, relying mostly on $400 a month in disability payments.
"To go from $3,000 a month to $400 doesn't even cover the mortgage," the Harvey, Ill., resident said. ABN Amro Mortgage Group Inc. filed a mortgage foreclosure against him in April.
Although the numbers are higher, they are below where they have been during recessionary periods, said Alexis McGee, president of Foreclosures.com, another property tracker.
"It's a big jump, but from very, very low numbers on a historic basis," McGee said.
Source: Chicago Tribunal
Slower home market opens the door for investors
The Mortgage Bankers Association reports that a growing number of homeowners are having a tough time making their mortgage payments, and rising interest rates are making refinances and quick sales difficult. Investors who specialize in foreclosures thrive in this climate, posting ads in poor neighborhoods with promises of speedy cash sales or weeding through court filings to locate distressed homeowners. While some investors offer enough money for homeowners to pay off the mortgage and pocket the difference, others persuade cash-strapped homeowners to sign over the title, remain in the home as a tenant, and possibly repurchase the property at a later date. However, some experts urge homeowners to obtain advice from a financial counselor or seek help from their lender instead, as some of these transactions result in the homeowner being evicted after signing the property over to the investor. Legislation has either been passed or is under consideration in several states--including Illinois--that would force foreclosure rescue companies to clearly disclose the terms of the deal and give homeowners a certain number of days to back out.
Source: Wall Street Journal
Source: Wall Street Journal
$300K is now the average mortgage
Figures released by Australian Finance Group (AFG) reveal that the average new Australian mortgage broke through the $300,000 mark in May 06. The average new mortgage in May was $301,000; up from $264,000 in May 05. This represents an 11% increase in the past 12 months.
Driving the trend is Western Australia, where the average new mortgage rose to $319,000 - a 35% rise over the past year. AFG, the nation's largest mortgage broker, also recorded its biggest ever proportion of mortgages advanced to investors in WA, where 48% of new loans were for investment purposes.
Queensland figures also showed strong increases, with the average mortgage in that state sitting on $297,000, up from $243,000 in May 05.
Other states showed less dramatic increases, with NSW shifting from $367,000 in May 05 to $371,000 in May 06.
Victoria showed an upward trend from $248,000 last year to the current figure of $276,000.
The report also showed that for the first time, more than 20% of new borrowers are choosing fixed interest rate mortgages. This trend is not surprising as borrowers brace themselves against possible future rate hikes.
Overall, however, it appears that May's interest rate rise has had little impact on the nation's mortgage market.
"We had our best month ever in May, so there's no sign at all that the rate rise has had an impact on our business," said Malcolm Watkins, executive director of AFG. "While the $300,000 may not be a definitive figure, it's strongly indicative of what the market is doing, especially with the continuing resource boom driving WA."
Driving the trend is Western Australia, where the average new mortgage rose to $319,000 - a 35% rise over the past year. AFG, the nation's largest mortgage broker, also recorded its biggest ever proportion of mortgages advanced to investors in WA, where 48% of new loans were for investment purposes.
Queensland figures also showed strong increases, with the average mortgage in that state sitting on $297,000, up from $243,000 in May 05.
Other states showed less dramatic increases, with NSW shifting from $367,000 in May 05 to $371,000 in May 06.
Victoria showed an upward trend from $248,000 last year to the current figure of $276,000.
The report also showed that for the first time, more than 20% of new borrowers are choosing fixed interest rate mortgages. This trend is not surprising as borrowers brace themselves against possible future rate hikes.
Overall, however, it appears that May's interest rate rise has had little impact on the nation's mortgage market.
"We had our best month ever in May, so there's no sign at all that the rate rise has had an impact on our business," said Malcolm Watkins, executive director of AFG. "While the $300,000 may not be a definitive figure, it's strongly indicative of what the market is doing, especially with the continuing resource boom driving WA."
Wednesday, June 07, 2006
Home loan approvals down in ACT as first home buyers re-enter the housing market
The slowdown in the housing sector has been further confirmed, with figures showing a drop in home loans before the Reserve Bank last lifted interest rates.
The Australian Bureau of Statistics said the number of mortgage approvals fell 0.5 per cent to 59,459 during April. There was a 1.6-per-cent drop in home loans for the construction of dwellings, ahead of the May interest rate rise.
The Reserve Bank board is meeting today for the first time since that rise.
Home loans numbers for the purchase of new homes increased 0.7 per cent.
But mortgage loans for the purchase of established homes dropped 0.5 per cent, falling to 52,254.
The fall in mortgage loans was steepest in the ACT, where home loans were down 14.8 per cent (following a 31.7 per cent increase in March).
Mortgage home loans rose 6.6 per cent in Tasmania, 4 per cent in Western Australia, 2 per cent in NSW, 1 per cent in the Northern Territory and 0.6 per cent in Queensland.
However, mortgage approvals were down only 0.1 per cent in Victoria and the home loan market stayed steady in South Australia.
The Australian Bureau of Statistics said the number of mortgage approvals fell 0.5 per cent to 59,459 during April. There was a 1.6-per-cent drop in home loans for the construction of dwellings, ahead of the May interest rate rise.
The Reserve Bank board is meeting today for the first time since that rise.
Home loans numbers for the purchase of new homes increased 0.7 per cent.
But mortgage loans for the purchase of established homes dropped 0.5 per cent, falling to 52,254.
The fall in mortgage loans was steepest in the ACT, where home loans were down 14.8 per cent (following a 31.7 per cent increase in March).
Mortgage home loans rose 6.6 per cent in Tasmania, 4 per cent in Western Australia, 2 per cent in NSW, 1 per cent in the Northern Territory and 0.6 per cent in Queensland.
However, mortgage approvals were down only 0.1 per cent in Victoria and the home loan market stayed steady in South Australia.
National Australia Bank lead credit rate increases
The major banks and credit unions have increased credit card interest rates by up to four times the Reserve Bank's official rate rise, according to source research firm Cannex.
National Australia Bank passed on larger than official rate increases to its customers since the official rate rise.
On May 15, it raised its rates on gold rewards cards by 0.85 percentage points - more than three times the 0.25 percentage point rate rise on May 3.
Rates on other NAB cards, including standard Visa and Mastercards, were increased by 0.34 percentage points.
The country's big credit unions managed to get their rate rises in place in April before the RBA move, raising the rate on the national MyCard Mastercard by 1 percentage point.
St George, Westpac, ANZ and Commonwealth Bank have only introduced rate increases of 25 basis points in line with the official rate rise.
The news is better for Queensland consumers after Suncorp slashed 1.95 percentage points from the rate of its Suncorp Clear Options Standard Visa card on May 15. Bank of Queensland was in line with the RBA rise, but raised two of its products by only 20 basis points.
Australian Consumers' Association senior policy officer Nick Coates says those institutions raising rates above the official ones are "price gouging".
"We believe that when there is an official increase of one quarter per cent the banks and other card issuers should not be allowed to make higher increases," he says.
"This behaviour suggests that some banks are using credit card customers to claw back revenue they lost as a result of the RBA's recent clampdown on bank interchange fees."
NAB head of cards Andrew Maitland defended the rate rises on gold cardholders, asserting in a statement emailed to The Courier-Mail that rival products marketed by ANZ and Commonwealth Bank carried higher rates.
NAB spokeswoman Kerrina Lawrence says different percentage increases were passed on to cardholders depending on the competitive position of each product in the market.
"It takes into account the RBA's rate rise and NAB's competitive position," she says.
CUSCAL, which represents 85 per cent of Australian credit unions, yesterday distanced itself from the decision to raise rates on credit cards marketed by its members.
The head of public affairs at CUSCAL, Julie Sheather, says the move to increase rates was made by Citibank which is the official issuer of the MyCard product marketed by credit unions.
Since acquiring the CUSCAL credit card business in May 2004, Citibank has assumed control over interest rate decisions.
The ACA's Mr Coates queries the size of the rate hikes on credit union Mastercards.
"We would like to think that alternative financial institutions bring greater competition to the marketplace because they need to be able to break down some of the pricing structures existing between the banks."
The higher-than-expected rate increases come as banks' reputations are again under pressure.
Nielsen Media researches rolling survey says the average satisfaction reading for the four major banks slumped by 3 percentage points in the March quarter alone -- and higher fees and charges were to blame.
The average satisfaction reading for the four major banks has now fallen to its lowest in three years.
According to the Neilsen reputation survey, ANZ was the worst performer in the March quarter, falling 5.1 percentage points to a reading of 82.3 per cent.
In terms of poor performance for the quarter, it was followed by Westpac (which fell 3 percentage points to 77.8 per cent), Commonwealth Bank (down 2.8 percentage points to 72 per cent) and National Australia Bank (down 1.3 percentage points to 77.8 per cent).
National Australia Bank passed on larger than official rate increases to its customers since the official rate rise.
On May 15, it raised its rates on gold rewards cards by 0.85 percentage points - more than three times the 0.25 percentage point rate rise on May 3.
Rates on other NAB cards, including standard Visa and Mastercards, were increased by 0.34 percentage points.
The country's big credit unions managed to get their rate rises in place in April before the RBA move, raising the rate on the national MyCard Mastercard by 1 percentage point.
St George, Westpac, ANZ and Commonwealth Bank have only introduced rate increases of 25 basis points in line with the official rate rise.
The news is better for Queensland consumers after Suncorp slashed 1.95 percentage points from the rate of its Suncorp Clear Options Standard Visa card on May 15. Bank of Queensland was in line with the RBA rise, but raised two of its products by only 20 basis points.
Australian Consumers' Association senior policy officer Nick Coates says those institutions raising rates above the official ones are "price gouging".
"We believe that when there is an official increase of one quarter per cent the banks and other card issuers should not be allowed to make higher increases," he says.
"This behaviour suggests that some banks are using credit card customers to claw back revenue they lost as a result of the RBA's recent clampdown on bank interchange fees."
NAB head of cards Andrew Maitland defended the rate rises on gold cardholders, asserting in a statement emailed to The Courier-Mail that rival products marketed by ANZ and Commonwealth Bank carried higher rates.
NAB spokeswoman Kerrina Lawrence says different percentage increases were passed on to cardholders depending on the competitive position of each product in the market.
"It takes into account the RBA's rate rise and NAB's competitive position," she says.
CUSCAL, which represents 85 per cent of Australian credit unions, yesterday distanced itself from the decision to raise rates on credit cards marketed by its members.
The head of public affairs at CUSCAL, Julie Sheather, says the move to increase rates was made by Citibank which is the official issuer of the MyCard product marketed by credit unions.
Since acquiring the CUSCAL credit card business in May 2004, Citibank has assumed control over interest rate decisions.
The ACA's Mr Coates queries the size of the rate hikes on credit union Mastercards.
"We would like to think that alternative financial institutions bring greater competition to the marketplace because they need to be able to break down some of the pricing structures existing between the banks."
The higher-than-expected rate increases come as banks' reputations are again under pressure.
Nielsen Media researches rolling survey says the average satisfaction reading for the four major banks slumped by 3 percentage points in the March quarter alone -- and higher fees and charges were to blame.
The average satisfaction reading for the four major banks has now fallen to its lowest in three years.
According to the Neilsen reputation survey, ANZ was the worst performer in the March quarter, falling 5.1 percentage points to a reading of 82.3 per cent.
In terms of poor performance for the quarter, it was followed by Westpac (which fell 3 percentage points to 77.8 per cent), Commonwealth Bank (down 2.8 percentage points to 72 per cent) and National Australia Bank (down 1.3 percentage points to 77.8 per cent).
Tuesday, June 06, 2006
Y Generation buy into the Australian Dream
The Y generation buy into the Australian dream of home ownership Mortgage Shoppers in the Y generation [18 to 28] want to own their own home. And they want a house with a backyard more than they want a low maintenance apartment or townhouse. The notion that this generation are a surly bunch of lazy, free-loading spongers may be true for some, but a growing number want to leave the family home, where many enjoy rent free and even board free accommodation with Mum and Dad, for the independence and wealth creation of home ownership.In fact many are having to do what there parents had to do. Get a steady, well paying job, spend less, and buy in the less desirable end of town to get a foothold in the property market, and then move up as their incomes and equity in their home move upward.Property is certainly not as affordable as it was in times gone by, but with a savings plan, good money management and a solid work ethic, home ownership is still an achievable dream for the Y generation.
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