Finance

RBA to investigate funding costs

Wed, 14 Mar 2012 23:00:00 GMT

In a bid to determine whether or not Australia’s lenders were appropriate to move their rates independently of the cash rate, the Reserve Bank of Australia has launched an investigation into the true cost of funds.

Earlier this month, all four of Australia’s majors moved their rates independently of the Reserve Bank, blaming “higher funding costs”.

ANZ chief executive Phil Chronican said the bank could no longer “absorb the additional funding costs in the hope that funding pressures would ease”.

“Margins in retail and business banking have now been squeezed for a number of months and we’ve taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times,” he said.

As such, the Reserve Bank is now set to interview banking executives and release a report on the true cost of funds next month.

The investigation comes one week after French Bank Société Générale labelled Australia’s funding cost problems “dubious”.

According to research by Société Générale using publicly available data from the Reserve Bank and the Australian Prudential Regulation Authority, nearly all funding costs are falling.

“What we have seen over the last six months is that overall funding costs for Australian banks have absolutely come down. Research suggests that effectively pretty much every source of funding that they use - in terms of domestic deposits, short-term funding onshore, long-term funding onshore - has actually gone down,” Société Générale's head of strategy in Asia Christian Carrillo told the ABC.

Cup Day & Cut Day - The RBA Cuts Rates by 0.25%

Wed, 02 Nov 2011 23:56:00 GMT

For the second consecutive year the Reserve Bank of Australia has upstages the Melbourne Cup.

Last year the RBA stunned punters with a 0.25% rate rise however today, it was a relieving rate cut. Economist widely tipped a November rate cut to 4.50% following last week’s benign inflation result. The weak global growth outlook and the continued confidence sapping European Debt Crisis were the catalyst for a very welcomed rate cut.

The improved debt servicing position of all borrowers will be a welcomed improvement to anyone with a mortgage. Today’s rate cut is expected to be provide an improvement to consumer confidence which should lead to improvement in consumer spending and an uplift in housing transactions.

Will the RBA make us all winners on Cup Day?

Wed, 26 Oct 2011 10:05:00 GMT

Annual headline inflation is now 3.5%yr but at 2.5%yr, the average annual underlying inflation rate is at the mid-point of the RBA's 2 to 3% target band.

The ABS have made, revisions relating to changes in seasonal adjustment and the result has seen the Q3 inflation report clearly change the inflation story. The ABS past estimates had been overstating Australia's inflation position. The Reserve Bank will welcome this outcome. The RBA Board Minutes for August forecast annual core inflation to print 3.25% for both 2011 and 2012. The ABS’s reversions have handed the RBA with actual core inflation of 2.47% for the year to September 2011 with a benign fourth quarter estimate of around 0.5%qtr reasonable given the slowdown in the economy. That will allow the Bank to lower its inflation forecast for 2011 to 2.25% with a similar outcome likely in 2012.

Given the Governor's recent statement that “an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary”; it now seems a good bet that we will see a rate cut by the end of 2011. In fact, given the RBA's previous record of moving rates every November for the last five years, and given the mounting case for a rate cut, we would say that the best each way bet on Cup Day will be that the RBA will make all Aussie’s winners with a 0.25% rate cut. It may just be the RBA that stops the nation just before the horses bolt at Flemington.

11 – 0: The RBA Keeps Rates on Hold for the Eleventh Straight Month.

Wed, 26 Oct 2011 10:04:00 GMT

The RBA kept rates on hold, again, as expected in October, but is progressively becoming more dovish in tone. The RBA has now hinted at the possibility of cutting rates if needed.

The extreme volatility in financial markets driven by the sovereign debt crisis in Europe and the heightened downside risks to global growth remained at the RBA’s primary concern. However, The RBA has maintained its upbeat assessment on Asia, noting that growth in emerging Asia “remained solid, although slower than in 2010”. It was noted that investment and consumption in China had softened a little with the availability of finance to certain industries being quite tight, but that the broader economy was still growing at a robust pace and that exports were still growing to advanced economies.

Domestically, the RBA continues to expect the terms of trade to have risen further in the September quarter to another record high. It is widely expected that underlying inflation in Q3 (released 26 October) to come in at 0.6%, which would take the annual rate to 2.6% and likely to remain within the RBA’s comfort zone.

However, financial market sentiment should improve throughout October amid hopes that European leaders can unveil a comprehensive strategy to address their crisis. In addition, recent domestic demand partial indicators have improved – including retail sales, building approvals and employment data all suggest that domestic economic activity is holding up relatively well. Further, consumer and business confidence have partially recovered after sustaining heavy falls in August.

Although there are hopes for a rate cut in November, the consensus is for rates to remain on hold.

The Claytons Rate Hike

Tue, 04 Oct 2011 01:29:00 GMT

The interest rate ‘hold’ decision today marks ten straight months of flat rates; the most stable interest rate environment for five years. Anyone would be forgiven to raise an eyebrow at that; the spectre of an interest rate rise has been lurking since at least March when inflation once again moved above 3%.

Even though the RBA hasn't increased rates since November last year, the minutes the RBA releases following its meetings have mostly pointed to what the RBA has terms "tightening bias" - which means that the Board is mostly considering increasing interest rates.

These minutes allows the RBA to be transparent, but more importantly it allows us to get our financial affairs in the right kind of order for a potential rate rise.

In many ways, speculation about rising interest rates has virtually the same effect as the cash rate actually rising. By telling us that rates might rise they change our behaviour. Consumers remain cautious about taking on higher levels of debt and are less willing to make high commitment purchases such as housing, investment or big ticket retail items, which is exactly what we've done since November.

On average, Australians continue to pay down debt and increase their savings rate - just the sort of behaviour you'd expect if you thought that rates were going to rise

But regardless of that argument, it's a reasonable assumption that the RBA will increase interest rates in the next 12 months, and when they do, the banks will follow. So your first move should be if you've got a variable rate mortgage is to have you loans reviewed and seek out a better cheaper alternative. Banks are strongly competing for new business so now is the best time to switch and save.

Your second move should be to increase your repayments as much as you possibly. Every dollar you pay ahead of time will both reduce the length of your loan, and make you less vulnerable to the next rate rise. In fact, paying down debt (especially non tax-deductible debt) is the best way to get ready for any rate rise.

Guarantor Loans – a helping Hand to Enter the Property Market

Tue, 04 Oct 2011 08:38:00 GMT

Guarantor Loans – a helping Hand to Enter the Property Market

First home buyers are thinning out across Australia with a drop of 35% for the 12 months to June 2011 from a year earlier. First home buyers have shrunk from 21% in 2010 financial year to 15.6% in 2011. This reflects growing concerns over housing affordability with the average first home buyer loan increasing over this period and is forcing many first home buyers to look at home loan products commonly known as guarantor loans (sometimes referred to as Family Equity Loans).

While some first home borrowers are choosing to wait and save a deposit, others are looking to take advantage of no deposit products like guarantor loans to fast-track their housing dreams. The advantages include:

Borrow 100% of purchase price (105% home loans can be available)
Buy with without having a saved deposit
Parents can use their equity to help their kids buy a property
Save on the cost of Lenders Mortgage Insurance premiums
Ability for fast loan approval (no need to wait to save deposit)
Take advantage of the current lull in the property market

Call one of our mortgage advisors today to discuss how a Guarantor Loan can help you get your home sooner.

SWITCH BANK ACCOUNTS IN JUST A TICK

Wed, 26 Oct 2011 23:26:00 GMT

SWITCHING to a new bank will be made easier from next July under new rules to make banks - and not their customers - transfer all automatic debits and credits into a new account.

The policy shift, recommended by former Reserve Bank governor Bernie Fraser, is designed to take more of the hassle out of switching financial institutions.

Under new arrangements, customers will be required to sign just one form that authorises the previous bank, credit union or building society to transfer the details of all automatic transactions linked to the customer’s savings account to the new institution.

The new bank would then have the power to contact creditors and debtors to give them account details. This would include informing an employer of the new account number to deposit salary.

The move follows early signs that the governments ban on mortgage exit fees has sparked a slight increase in refinancing of home loans, although most customers were still choosing to switch between the big banks than move to a small lender.

From July 1 2012, all you'll have to do is sign one form and the new financial institution you want to move to will do all the heavy lifting for you.

Bargain Stocks and Cheap Mortgages...... Every Cloud has a Silver Lining

Tue, 04 Oct 2011 01:28:00 GMT

The Dow Jones fell over 600 points, the worst single day fall since December 2008. At the close the index had lost just over 5.5%. The collapse came on the back of Standard & Poor’s downgrade of U.S. debt and government backed mortgage debt.

Investors fled to gold pushing up an ounce of gold to a record $1,720 and oil has fallen to just over $81 an almost 20% fall in a fortnight on fears of a pending U.S. recession.

What's changed for BHP or the banks in the past week? On the surface, nothing. But underneath there's the fear of a second global recession pushed the ASX into free fall shedding more than 200 points a 5.60% fall, however as the fear subsided and the panic stricken investors’ heads cooled on the release of new Chinese data and the market rallied over 250 points to produce a 1% gain for the day.

The banking sector led the way with 2.3% gains followed by energy stocks up 1.6% and our miners up 1%. The market however is still down 19% from its April highs and there are many bargains to be had for the strong willed.

“You make your money during bear markets; you just don’t know it at the time.” – Shelby Davis

3 Year fixed rates have been cut by Westpac, CBA, St George, Citibank, ING and other non bank lenders to 6.69% p.a. - 6.79% p.a. providing a significant savings from current average variable rate mortgages. For the first time since 2008 there is now almost 30 basis point advantage to fix your mortgage and ease some of those budgetary pressures all family are facing.

RBA Leave Rates on Hold.....for Now

Tue, 04 Oct 2011 08:31:00 GMT

The Reserve Bank Board Meeting for August 2011

RBA left the cash rate at 4.75%
The Board is concerned about the pickup in underlying inflation
A Rate rise was considered
The Board is looking for an easing in financial market nerves and improvement in domestic non-mining economic data

What a difference a few weeks make. Views on the direction of interest rates have shifted between rate cuts to rate increases in the end the RBA stood still reluctantly but issued a warning of further increases if inflation can’t be contained in the shorter term.

The June quarter delivered an annualised underlying inflation rate of 3.5%; this in itself would have produced a rate rise. However the difficulty in getting a clear read on the economy has seen the RBA prudently adopt a wait and see approach.

As we indicated last month, the case for further interest rate cuts or increases can be equally supported with the release of new economic data.

Global growth continues but slowed in Q2
Domestically resource related parts of the economy are strong but other areas are suffering from high Aussie dollar and cautious consumer
Underlying inflation is trending up
Productivity growth is weak with inflation is putting pressure on wages growth in a tightening labour market.

It is this conflicting data that provided a reprieve from a further rate rise today; however it clearer now that the only direction the RBA can move in the future is up, the only question is when?

CHOICE’s One Big Switch or One Big Business

Tue, 04 Oct 2011 08:31:00 GMT

On Sunday ‘One Big Bank Switch’ was launch by Consumer advocate group CHOICE and Lachlan Harris, who was Kevin Rudd's chief media adviser when he was prime minister. One Big Switch plans to use the buying power of 1000 borrowers to lever a better mortgage deal from the banks.

“We want to get millionaires’ rates for ordinary mums and dads,” Lachlan Harris, told The Sunday Telegraph.

This has little to do with Choice advocating for consumers and more about One Big Switch making commission from people switching their loans and Choice receiving part of that commission via a referral fee.

Choice spokesman Christopher Zinn has been a vocal critic of “dollar draining commissions” being paid on mortgages, superannuation accounts and insurance policies. CHOICE has sold its soul to a slick marketing outfit that are spinning their multi million dollar new business venture into ‘Consumer Advocacy’.

Harris has proved effective with majority of the press basically re-writing the CHOICE press release and heralding this as ‘a world first’ consumer movement fighting cost of living pressures.

This campaign is all a load of rubbish.

The idea that you can “group buy” a home loan for thousands of people is ridiculous. Anyone that has applied for a loan knows that banks need to individually assess and verify each application and your interest rate is determined by taking into account your personal income, equity and credit history along with the feature you need in a loan.

The chief executive of the Bankers' Association, Stephen Munchenberg, says the campaign is a gimmick and “At the moment, demand for home loans is down so banks are very, very keen to keep customers and to attract new customers so just the weight of that competition means that all customers have got more bargaining power today than perhaps they have in the past.”

Consumers are always sceptical of Banks and Insurance companies, and that’s why they look CHOICE and others to give them independent information. However with the stunt, CHOICE ceased to be part of the solution and became part of the problem, and looking to profit from it.

Is Now The Best Time to Fix Your Home Loan?

Tue, 11 Oct 2011 06:27:00 GMT

Picking the right time to fix is always hard, especially when Westpac's Chief Economist, Bill Evans, has predicted a 1.00% rate cut by December 2012. As the looming RBA rate hikes seemed to subside, fixed interest rates on home loans have begun to fall. The gap between Standard Variable Home Loan Rates and Fixed Home Loan Rate has substantially narrowed over the past 6 months.

*Date*	*Average Variable Home Loan Rate*	*Average 3-Year Fixed Home Loan Rate*	*Difference*	*Official Cash Rate*
March 2010	6.36%	7.65%	1.29%	4.00%
July 2010	6.86%	7.70%	0.84%	4.50%
January 2011	7.34%	7.55%	0.31%	4.75%
July 2011	7.24%	7.35%	0.09%	4.75%

Lenders have slashed their fixed rate offering to within 9 bps of their variable rates. The aggressive move on fixed rate pricing can be viewed as a measure by lenders to lock in clients in the advent of exit fee bansintroduced by the Gillard Government from July 1, 2011.

However the stronger than expected June quarter inflation will leave the Reserve Bank with an interest rate dilemma: will the RBA's inflation fighters be forced to put up interest rates against a backdrop of global upheaval over debt?

When rates are expected to rise, how likely are borrowers likely to switch to fixed rate mortgages? If history is anything to go by, most Aussies will stick with a variable rate with all its associated flexibility. On average only 11.3% of all loans are fixed. Fixed rate home loans last peaking at 24.9% in March 2008 when the official cash rate was 7.25% and standard variable rate home loans were at 9.32%.

Late last year fixed rate popularity began to rise but soon waned as the fear of interest rate hikes evaporation.

Should I Fix My Loan?

It’s important to consider that fixed rate loans won't suit everyone. When locking in your loan, you’re betting on the variable rate averaging more than your fixed rate over the fixed term. Therefore when fixed rates are on par with variable rate it makes pretty good sense to fix.

With a fixed interest loan, there are usually restrictions on how quickly you can repay the mortgage. For instance, you may only be able to pay an extra $5,000 to $25,000 in repayments each year without penalty. And if you were to terminate your contract for whatever reason — even if you were just moving house — then you might find yourself faced with hefty break costs.

Fixed rates should be viewed more like an insurance policy against the effect of rising interest rates stretching your repayments beyond your finances and not an opportunity to beat the bank when rates rise.

*Interest Rate Increase*	*Home Loan Balance*
*Interest Rate Increase*	*$250,000*	*$300,000*	*$350,000*	*$400,000*
*0.25%*	$38.42	$46.10	$53.79	$61.47
*0.50%*	$77.26	$92.72	$108.17	$123.62
*0.75%*	$116.53	$139.83	$163.14	$186.44
*1.00%*	$156.19	$187.43	$218.67	$249.91
	*Increased Monthly Repayments*
The effect of an increase in interest rates on your 25 year home loan

Fixed rates would suit those who benefit from the certainty of knowing just what their repayments are going to be over the next couple of years or first home buyers not in a position to make extra repayments during the fixed term and enable property investors to better budget rent against interest and property outgoings.>

For many, hedging your bets may be the best option. Have some of your home loan at a variable rate and the balance at a fixed rate. That way, if rates rise, only half your borrowings will be hit.>

Mortgage Exit Fees Officially Banned

Tue, 04 Oct 2011 08:35:00 GMT

Mortgage exit fees are now banned as of July 1^st under a Government regulation approved on 23 March 2011.

Wayne Swan produced the regulation as part of a package to boost competition among home loan lenders.

The intention is to make it easier for home borrowers to shop around for cheaper loans - even if they already have a loan.

The Government believes mortgage exit fees have been "one of the biggest roadblocks stopping Australians getting a better deal for their families''.

The ban is part of a package to boost competition among lenders, particularly the major banks. Swan believes it will allow borrowers to "walk down the road if their bank isn't doing the right thing by them''.

The regulation is aimed at combating exit fees so big they wipe out any savings which might come from taking out a loan on lower interest or better conditions.

The exit fee ban covers variable interest home loans, and applies only to loans taken up after July 1.

The Government will also give ASIC the power to pursue banks over unfair exit fees on both new and existing mortgages and prevent banks from hitting customers elsewhere by re-badging unfair exit fee as another type of charge.