Expect to be whacked by more mortgage rate rises

Higher petrol prices, another mortgage interest rate rise and global credit market volatility have dented consumer sentiment, with more rate pain predicted, a survey shows.
The Westpac-Melbourne Institute consumer sentiment index, based on a survey of 1200 people, fell 0.3 per cent in October to 115.3 points.
Westpac chief economist Bill Evans said index reading was still 4.5 per cent below where it was before the Reserve Bank of Australia (RBA) raised interest rates by half a percentage point to 6.5 per cent in August.
Survey: Have you been stung by bank fees?
Mr Evans said a December interest rate rise was likely, in the event of high September quarter inflation data, to be released on October 24.
"We are expecting a read that will establish a strong case for another rate hike," he said.
"A December rate hike seems the most likely prospect although a delay to February next year cannot be ruled out."
Mr Evans said higher petrol prices, up by 2.4 per cent since the September survey, had also dented consumer confidence.
"Households will also have been affected by the persistent reports of turmoil in the global credit markets," Mr Evans said.
"Some non bank lenders have actually passed on some of their higher funding costs to borrowers."
The index is still similar to the average level of 2007 despite an 8.1 per cent fall after the August rate increase.

Source: AAP

Keven Rudd needs to apply the blow torch to banks to prevent a mortgage meltdown

The big four Australian banks have been in the sweetspot, surrounded by a strong economy and a resilient business sector and a strong real estate and under-supplied housing market, but have been copping a serve from Prime Minister Kevin Rudd in recent weeks, as struggling mortgagor homeowners haven’t been getting all the interest rate cuts from the RBA passed on to them. And rightly so says Mr Mortgage who is constantly hereing from mortgage stressed homeowners.

Basically Australian mortgage borrowers and homeowners are paying about 0.4%
more than they should be, and that's going to the Banks' record profit margins.

The Prime Minister has to step up the pressure up a notch and bring some legislation to Parliament to prevent the banks profiteering at the expense of the mortgage belt and small business.
Obviously the banks are used to having their names dragged through the dirt and bank bashing its becoming an Australian pastime. So its not having any effect.
The big four Australian banks [CBA, NAB, Westpac and ANZ] are, obscenely profitable. For example and raked in $9.5 billion in profit in just six months. And this is while there is a global recession? Australia's banks are among the world's most stable and profitable and have been for some time.
The Finance Sector Union (FSU) has urged that banks make their lending practises more responsible by suggesting that Australians' ever-increasing credit card debt is unsustainable; and that linking salaries to peddling high-debt products like mortgages does not serve customers well, especially when it’s to buy shonky and highly geared investment products such as the two tier real estate market in Queensland in the 1990’s and the recent Storm Financial collapse.
Its time for action Mr Rudd, not another verbal bashing. A viable mortgage alternative to the banks is required by all homeowners and home buyers. The current system means that second tier lenders get the customers that the big four don’t want, and this will only increase the gap in profitability between Australia’s big and small mortgage lenders.
Rick Adlam is Mr Mortgage

RBA keeps interest rates at 3.0 percent as Australia Economy looks solid for recovery.

Australian home owners, home buyers, new home builders and retailers and mortgage lenders appears to have escaped the recession that has swept the World, with the Reserve Bank of Australia deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June Meeting.
The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders and was widely tipped by economists.
Economists believe that the Reserve Bank is right in keeping its powder dry, in case further interest rates cuts are necessary who towards the end of the year, if in fact they are needed.
In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.
Australia's economy looking good.
"The turnaround is clearest in China and some other emerging countries," he said.
"Recovery in the major countries is likely to take longer to begin and be slower when it does occur."
Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.
"The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed."
The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.
The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government's stimulus packages.
The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.

One in five mortgage applicants is now a first home buyer in the UK

UK first home buyers had vanished from the property market when the credit crisis began, but have come out of the woodwork and now account for 20 percent of mortgage applications at one of Britain's biggest brokers.
In Australia the figures went from one in six and is now one in four home buyers that are first time home buyers. The difference is largely due to the First Home Owners Grant Boost that exists in Australia.
According to John Charcol, 21percent of purchasers using the broker in April were first-time buyers. The figure dropped as low as 4.1 percent in October last year.
The John Charcol Index, the broker's monthly mortgage activity monitor, revealed a sharp increase in the proportion of purchases made by first-time buyers in the first four months of this year, with that proportion being three and a half times higher than in the previous four months.

The return of significantly more first-time buyers in to the market this
year, despite the lack of low-deposit mortgages, is one of the best indicators
of confidence we've got at the moment

"A surprising number of first-time buyers have managed to find deposits of at least 25 percent in order to access a wider choice of mortgages and get a cheaper deal." Many were borrowing money from their parents to raise the deposits required by lenders, he added.
The broker also reported that fixed-rate mortgages now accounted for 82 percent of its customers' applications.
It said: "The proportion of applications for fixed-rate mortgages continued to climb in the last month, from 81percent in March to 82 percent of all business written by John Charcol in April. "This number is over 70 percent higher than the proportion of fixed-rate applications in January, when it stood at 48 percent."

Australian Real Estate: The first "green shoots" of a property comeback?

The economic news in Australia has been better than most other countries, but the recession here may be only just beginning, but no has told that to cashed up first home buyers.
However the home buyers in Australia have shown that they believe that they can weather the downturn and have been buying homes and keeping Mortgage Brokers and the Major Banks alike busy writing home loans.
The upturn in the mortgage business has been due mostly to the impending first home owners grant deadline, and of course low interest rates, neither of which can last forever.
Interestingly, the top of the market homes that were the easiest to sell in the boom can't find buyers right now, whilst the mortgage belt homes are being googled up.
This is due to investors moving back into the market [the ones that sold up last year to put there money into super and the stock market must be really hurting] and the first home buyers which as a market segment has doubled in the last 12 months.
And when you add to this the landslide of first home buyers entering the market the two together have had the effect of supporting home prices in this soft market, so we will not be seeing [hopefully] the downturns in property values that our cousin in the US have had to suffer. The third and suprising factor is that Australians are bullish about Australia being able to weather the storm.
Lets hope that this optimism is well founded and we see a slow down in the number of business failures and unemployment that we have endure over the past few months. But whether you have a job or not, you still have to live somewhere, right?
One thing that I have always wondered about is the mercy factor in small business.
If you have to sack someone is it easier to sack the guy who does not have a mortgage over the one that does? I know that employers used to favour married employees with their own home, and maybe its becasue of the "I need to keep this job" concern, or maybe it because people that are prepared to make long term commitments, make for long term employees?

Is now the time to start investing in real estate property?

Property as an investment has always had it followers, but in recent years residential real estate fell out of favour with diminishing returns, falling capital values and high interest rates the major reasons.
Now investing is again becoming more popular as interest rates fall to there lowest rates ever, so making a safe bet using other people;s money might seem the safe way to go. Also, the share market remains in the doldrums and returns from cash deposits head towards zero.
One of the first questions any real estate investors must ask themselves is whether they plan to buy an established home or build a new one. Property experts say there are positives and negatives with both approaches. But most our selling new homes, so any advised is biased.
It is important for investors to do research and understand exactly what they want.
Is it peace of mind? Is it instant income? Is it bigger tax deductions? Is it long-term growth?
To me negative gearing has always seemed a losing proposition, and more so now as taxes our lower than when these schemes become popular.
The type of investment property - residential or commercial - also is a factor.
According to real estate author, investor and university lecturer Peter Koulizos says there is no right or wrong answer in the debate over whether it is better to build or buy an established investment property."If you are looking for hassle-free investment in property, you are probably better off building or buying new because you have very low maintenance on the property and you tend to get a better-quality tenant," he said."However, buying established gives you the opportunity to value-add whether through renovations or subdividing."Investors, however, should expect to be paying more for repairs to an older house."Because interest rates are so low and builders are very keen to get work, I think it's a fantastic time to be buying new," Mr Koulizos said."
There are not many times in the property cycle where there is a situation such as we have now where it's worth building from scratch and keeping it to rent."A big potential downside with building an investment property is that investors do not receive any income while it is under construction. Including planning approvals, that can take more than a year."One of the issues you have to address with your bank or lender is are you paying interest while it is being built, or are you going to let that accumulate?" Mr Koulizos said.
Another downside is limited choices on where to build.Vacant blocks are scarce in most established suburbs.Brock Harcourts chief executive Greg Moulton said that was a factor investors must weigh up against the benefits of building, such as tax and stamp duty savings. "The opportunities to build in some of the high-growth areas just aren't there," he said."If you want a better return and bang for your buck in the short term, maybe look at building, but if you are looking at a long-term investment opportunity you will be going where the capital gains are - and nine out of 10 times that is in established areas. "High capital growth areas traditionally were close to the city, near the beach or in the eastern suburbs, Mr Moulton said. "One of the advantages with buying in established areas is convenience with schools. A lot of people want to invest close to decent shopping centres and decent schools," he said."In developments out further, some of the schools haven't been established long and they don't have a reputation."Real Estate Institute of SA president Robin Turner said while most property investors bought established homes, there was a good argument for building."As with everything, they need to do their paperwork thoroughly and be very clear about what's included in the price, so there's no nasty surprises," he said."It can be exciting and rewarding for most people to see a new home rise out of the ground, plus there's a significant saving in stamp duty as it is only charged on the land component.
The Positives and negatives of buying used or building new for investment are:

• Most tenants prefer newer properties, so rental returns may be higher.
• New homes are usually more energy-efficient.• Repair bills are generally lower for new homes.
• Modern floorplans and designs can be popular.
• There a limited choices where you can build an investment property.
• Building a home can have construction delays and hidden costs.
• Established homes deliver investment income from the day of settlement.
• The best capital growth traditionally comes from established areas where vacant land is rare and expensive.
• When buying established, you know what the surrounding facilities and other homes are like.
• Value can be added to established homes by renovating or subdividing.
• When you buy established you get quicker returns because you have a finished product.
• When building there are so many decisions to make.
• Interest costs and holding costs will hurt you till the home is completed. This could take 12 months.
• What happens if the builder developer goes broke?

As you can see when investing in real estate, either commercial or residential, both have their pluses and minuses.

Mirvac shares jump in value on new loan deal

Mirvac Group, the residential property developer, said today it agreed terms for a new unsecured loan facility of $805 million, replacing an existing $1.1 billion syndicated facility that had been due to expire in June.
Nine of the 13 lenders in the syndicate participated in Mirvac's new facility.
The property developer’s shares were up 14 per cent at $1 by mid-afternoon, after falling 31 per cent in the three previous days. The benchmark S&P/ASX 200 Index was 1.2 per cent higher.
Investors earlier this week sold stocks in property developers and trusts - which had previously been depressed because of refinancing, debt and earnings concerns - to boost their holdings in Westfield and Lend Lease after they announced large share placements.
Under the new Mirvac facility, $755 million was refinanced from the previous facility, with $50 million of utilised capacity from other facilities renegotiated as part of the new unsecured bank syndicate, Mirvac said.
The new facility’s term expires on January 31, 2012 and has an interest cover covenant of 2.25 and the total liabilities to total tangible assets covenant ration of 55 per cent remains unchanged, the company said.
Mirvac also said it revalued all of its trust's 58 assets in the six months ended December 31, resulting in a total revaluation decline of $236.3 million.
The company said its share of net losses from joint ventures and associates in the first half was $88.1 million, including net losses from fair value of investment properties and derivatives of $96.3 million.

Why you should never fix your mortgage rates

A massive interest rate cut this week has made more than 43,000 home borrowers Australia's biggest losers.
The Cost of breaking out of fixed rate home loans
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments.
A borrower who took out an average $250,000 loan, fixed at 9 per cent for three years back in June, faces an $18,000 exit fee if they want to move into a standard variable loan.
Leaving an equivalent $400,000 loan would incur a $29,000 charge, according to Canstar Cannex data of exit fees charged by the major banks.
Canstar Cannex senior financial analyst Harry Senlitonga said lenders typically charged higher "break fees" to exit fixed-rate loans when official interest rates were falling.
"The more the interest rate cut, the more the break cost," he said.
"For a borrower, the question they need to ask themself is how long you have left on a fixed-rate and whether it's worth paying the fee or not."
Borrowers who took out a fixed-rate loan in August would face higher exit fees than those who took out a mortgage in March, when the RBA was still talking up inflation as its biggest worry.
Two of Australia's big four banks matched the RBA's one percentage point rate cut, which took the overnight cash rate to 4.25 per cent.
Monthly repayments on a $250,000 standard variable home loan with the Commonwealth Bank and NAB fell to $1,678 as mortgage rates dropped to 6.74 per cent.
By comparison, borrowers on an equivalent 9 per cent fixed rate loan are still paying $2,058 a month.
Switching from a $250,000 fixed-rate to a lower standard variable loan would reduce mortgage repayments by $13,680 over three years at current interest rates.
Borrowers would only recoup the $18,000 cost of exiting an average, three-year fixed-rate loan if official interest rates fell by another 75 basis points to a 44-year low of 3.5 per cent - and took standard variable mortgage rates to under 6 per cent.
After this week's rate cut, a one-year term deposit account with a rural bank was offering 6 per cent interest on $1,000, updated figures from termdeposit.com.au say.
That would be good news for pensioners, who will get a $1,400 cheque on Tuesday if they're single or $2,100 if they're attached as part of the Federal Government's $10.4 billion economic stimulus package.
FIIG Securities head of research, Justin McCarthy, said the prospect of more rate cuts from the RBA in early 2009 would make a term deposit account a good investment.
"The RBA will cut rates further in the new year so it makes sense to lock in deposit rates before that occurs," he said.
Combined Pensioners and Superannuants Association policy coordinator Charmaine Crowe said only about 10 per cent of pensioners would be in a position to invest rather than spend their lump sum.

Mortgage rates are low and home prices are going lower: the perfect time to buy a home?

Anytime in 2009 might be a Mortgage Shopper's perfect time to buy your first home or your first investment property, as long as you are ready to hold the property for several years before selling.
Recent low interest rates and falling property prices combined with Government initiatives have made entering the property market much easier now, particularly for first home buyers. Yet there is no stampede to buy and this is great when you are a buyer. You will get a better choice and buy a better home for less money. And some pundits say that house prises in Brisbane are set to fall and this market has held prices over a long period of low sales, and long sales cycles.
Both Federal and State Governments are making it easy to buy, and they need to if we are to see a recovery from the recession.
Since September 2008 the Reserve Bank of Australia has cut the cash rate by 3 percentage points to a seven-year-low of 4.25 per cent. That is massive in four months and another big cut is looming in February 2009.
In October, the Federal Government doubled the first home owners grant to $14,000 for used homes, and increased it to $21,000 for buying or building a new home to aid the building industry.
Some are predicting the official cash rate to be as low as 2.5 per cent in June, while many market economists predict at least another one percentage point cut in total by the central bank.
"Mortgage holders in the coming year are likely to benefit from the lowest variable interest rates ever offered in Australia as the cash rate could fall to 2.5 per cent.''
The Housing Industry Association (HIA) has forecast a recovery in the property market in the second half of 2009.
Happy hunting Mortgage Shoppers!