The government’s announcement of the reforms to be done on lender switching processes was greatly appreciated by Abacus – Australian Mutuals who recently employed Roy Morgan research to find out what it is that would help make borrowers switch lenders.

Research revealed that “one in five Australians are likely to change financial institutions in the next year, rising to almost 50% of people if the paperwork and administrative effort was substantially reduced.”

Abacuschief executive Louise Petschler stated, “Abacus welcomes this important consumer research from Roy Morgan which illustrates the opportunities and challenges facing our industry in the coming months. The report shows Australians are itching to ditch and switch to banking providers that offer competitive interest rates, fairer fees and charges and the convenience of branches and ATM networks.We offer this in spades and our members look forward to Australians switching to us in 2012, particularly when significant account switching reform begins on July 1.”

The survey conducted on 18-64 year old respondents found that, “21% of people are likely to change their main financial institution in the next 12 months, with interest rates not being competitive (35%), and high or unfair fees (30%) listed as the main reasons for the change and 49% of people would be likely to change their main financial institution in the next 12 months if the administration process of moving finances, direct debits and scheduled payments could be handled automatically by their new financial institution.”

Further, the press release stated that, “from July 1, instead of requesting a list of regular debits and credits from their ‘old’ bank, Australians can let their ‘new’ bank do the work for them by signing authorisation forms to allow the establishment of regular debits and credits to the new transaction account.”

Abacus is encouraging Australians to look around and find a better dealand consider the choice, value and competition offered by other sources like building societies, credit unions, and mutual banks.

“Switching is easier than you think, and we recognise the next 12 months will be an exciting time for Australian consumers and our industry,” added Petschler.

Contrary to common opinion, none of this is good news for mortgage brokers as lenders already claw back substantial commission where a loan is refinanced within 18 months.   If borrowers are encouraged to refinance on a whim with no exit fees and easy account switching , the result is that mortgage brokers are  faced with performing work for which they may not be paid.  Alternatively mortgage brokers may  have to impose fees on clients whose refinance results in commission claw backs.   After all no fair minded person should expect a mortgage broker to work for nothing however it undermines some of the government’s strategy.  A good solution would be for the government to ban broker commission claw backs ….. but that isn’t going to happen

Latest report by the KPMG reveals that despite the continued good performance of Australia’s major banks on the global banking stage, they are still affected by the interconnection of new regulatory environment demands’ structural changes and the global funding markets. This could mean that there will be more out of cycle rate hikes happening in the future.

The Major Australian Banks Half Year 2012 report by the KPMG shows a healthy profit acquired by the major for the 2011-2012 half year although the acquired healthy profit lacked growth.

Andrew Dickinson, KPMG’s head of banking, stated, “The major banks’ profit clearly shows we have a strong banking system, however it must be viewed in light of the increased capital that the banks now need to hold. Return on equity (ROE) remains around 16 percent for most banks and shareholders will need to accept that this level of return is all they can expect for the foreseeable future.”

A total of $16.8 billion statutory profit before tax was recorded for 2011-2012 half year where as a total of $16.3 billion was recorded in 2011’s second half. “The banks’ biggest challenge is adapting their business model to cope with the competing strains of constrained lending growth, ongoing funding pressure, ever higher regulatory hurdles, and a transition to new mobile delivery channels and competitors,” shared Dickinson.

The major banks are still facing the challenge brought by the high cost of funding’s impacton margins. KPMG’s Head of Financial Services, Michelle Hinchliffe, stated, “Sustainable cost reduction remains a challenge for the major banks. While they are implementing a number of cost reduction measures, the full impacts are yet to flow through to the results. They need to make structural, long term changes that will sustain a lower cost base.”

KPMG believes that the condition of Australia’s major banks is still very much affected by the global markets’ economic uncertainty and by the funding costs.

Dickinson mentioned, “The global crisis in access to funding has forced the majors ‘back to the past’ where they are wooing domestic deposits to boost their funding. This means deposit competition is intense, and depositors are now being paid 2 percent more (relative to RBA rates) than before the GFC. It is these increased deposit rates which are now having the strongest impact on bank funding costs.”

Hinchliffe however stated that, “Australian banks are well capitalised, continue to maintain strong liquidity positions and are well placed to respond to new global capital and liquidity rules.”

Property representatives have expressed their dismay on how the government came up with their budget decision. It looks as if the property, aside from the help given to families for the rising costs of living and the continued support to the Housing Affordability Fund and the National Rental Assistance Scheme, has been completely left out from the budget.

The supposed legislation to give tax breaks for green buildings program or the energy-efficiency upgrades for commercial buildings was one of those that didn’t make it to the budget despite of the commitment being part of the 2010 government election.

The Housing Industry Association believes that the budget contains nothing on how to deal with the weakness in residential building, housing shortage and housing affordability. Andrew Harvey, HIA’s Senior Economist shared, “At a time when new home building is in decline in virtually every state and territory, the Budget has failed to deliver any new measure to reinvigorate the home building sector, despite the sector’s health being absolutely crucial to a healthy domestic economy.”

Harvey believed that, “the Budget was an opportunity to introduce measures to progress housing supply-side reforms with the states and territories, reduce the excessive tax burden on new housing, and expand and extend existing measures aimed at boosting housing supply.”

“Without dedicated housing policy measures and housing supply-side reforms  the residential building sector will continue to act as a drag on the macro-economy and the nation’s growing housing shortage will continue to place undue pressure on  the household budgets of home buyers and renters,” added Harvey.

Amanda Lynch, the CEO of the Real Estate Institute of Australia (REIA), also expressed her disappointment over the budget and at how the government is just passing the responsibility of addressing housing affordability to the RBA. Lynch stated, “The good news is the Budget retains conditions where further rate cuts are possible. But as we have seen last week, there is no guarantee cuts will find their way to borrowers.”

Lynch went on saying, “We had hoped the Government would recognise the need to directly intervene  and not leave  housing affordability dependent solely on the whim of the banks. One of the most effective housing policy instruments in assisting first home buyers is the First Home Owners Grant, but it has been allowed to lose more than half its value relative to purchase prices since itwas introduced in 2000. The Budget might fund new cost of living relief for Australian families but it fails to address what most Australians see as a priority – housing affordability.”

Another property related misstep found by the Property Council of Australia on the 2012 federal budget is the increased tax on foreign investment in property trusts. An article at theProperty Observerhas PCA chief executive Peter Verwer saying, “This desperate and cack-handed doubling of the tax sends an appalling signal to international investors.

The research was done on 450 respondents where 14 per cent answering they already had their spare room rented; with 11 per cent more saying they’d do the same if only they had the extra space.

The research director for PRDnationwide, Aaron Maskrey, was not surprised with the results especially due to the tough economic times.

Maskrey shared, “Renting out a spare room to generate extra cash could reduce the likelihood of suffering mortgage stress. Getting onto the property ladder is increasingly difficult for thousands of first-time buyers in Australia, and increasingly, homeowners are making unused space earn its keep.”

The result of the poll now was greater than a similar poll done on August 2009. “That was when the global recession had just begun to bite and people were perhaps under less pressure,” added Maskrey.

Renting a spare room could just be one of the ways a person can do to help get out of mortgage faster. Rather than have a room used for storage, it would be more practical to use the extra room and have the rent help pay for the mortgage. Although many persons have never really done renting a spare room, the research found that most of the properties bought were with a spare bedroom or a granny flat as buyers thought of the renting out option.

Maskrey is telling people how it is now easy to do the rent out option, saying, “Finding a lodger has become easier, with a range of websites advertising for rooms to rent and flatmates.”

Planning Minister Matthew Guy spoke of the promise brought by the new projections on Victorian population to the demand in the property market as a report, VICTORIA IN FUTURE  POPULATION AND HOUSEHOLD PROJECTIONS  2011-2031  showed a possibility of the population rising to 7.3 million by the year 2031.

The report stated that, “At 30 June 2011, the population of Victoria was 5.6 million; Melbourne is home to nearly three-quarters of the state’s population (4.1 million), while almost 1.5 million people live in regional Victoria;over the 40 years to 2051, Victoria’s population is projected to increase by 3.2 million to 8.7 million. Over the same period, Melbourne’s population is expected to grow to 6.5 million, while regional Victoria is projected to grow to 2.3 million.”

Guy shared, “A major component of the government’s long-term plan to manage growth and change is the delivery of new affordable homes, infrastructure and conditions that encourage jobs, businesses and attract investment.”

The State Government will be formulating new metropolitan planning reforms so as to handle the growth predicted by the newly updated statistics

“The strategy will consider all aspects of planning – from where new housing and jobs should be located as well as transport connections, health services, schools, community facilities and parks. I look forward to reviewing the capital city zone and the potential to redefine the CBD by expanding its concept to Docklands, St Kilda Road and Fishermans Bend to optimise the advantages of a larger core for decades to come,” Guy added.

The Regional Growth Plans and the Growth Corridor Plans is still a reliable source for investors as the article stated that the strategy which will be formulated will be based on the approaches mentioned in the plans.

Investors are told to focus on areas which were suggested to have the most growth like those in Melbourne’s North and West. The strongest growth is anticipated to happen in Cardinia, Hume, Casey, Melton, Wyndham and Whittlesea.

Growth areas in the inner city is said to happen in Melbourne, Yarra, Port Phillip and Maribyrnong, while those in regional cities like Ballarat, Geelong, Bendigo, Shepparton, Latrobe Valley, Mildura, Warrnambool and Wodonga are also expected to have a strong growth in population.

Once the group has 500 formal members, it will register in the Australian Electoral Commission. The proposed political group aims to, “reform the banks and the legal system to protect Australians from greedy and unfair banks.”

The political party is made up of dissatisfied bank clients and former staff and is headed by Former BankWest head of media, Mr. Adrian Bradley. Bradley shared that consistent survey results revealed that most Australians want banks to be more accountable.

In a statement Bradley said, “We saw the banks’ arrogance again last week when they thumbed their nose at the RBA’s 50 basis point cut. The ALP and Coalition are out of step with the Australian community’s expectations on the need to reform our banks.”

In their website the group stated, ”We want a fair and just society where we are all accountable, and this must extend to our banks and other institutions.”

The group declare that they are  NOT bank bashers! The statement in their website states, “We know Australian banks are the lifeblood of the Australian economy.  Australia and all Australians urgently need STRONG banks. But we also urgently need banks to be FAIR! Yet the banks seem to think it’s impossible for them to be strong while also being fair and accountable. We believe our banks urgently need better and possibly more regulation to be fairer, and more accountable to ALL Australians. We do not want to over-regulate anyone, as a principal we support less regulation, but not at the cost of fairness to the wider Australian community. At the very least, we believe most Australians agree banks need to be regulated to stop gouging on interest rates!”

The group also shared how they are sick of the banks saying, “what’s good for the banks is good for Australia,” and with “how banks keep telling us all to keep out of banking, yet as soon as they get into trouble they are the first ones demanding assistance.”

A fundamental of their plans is regulating banks and have them follow RBA’s cash rate moves, enforce new and tougher anti-predatory lending practices, enforce greater transparency on fees and charges, examine greater competition, give more support for non-bank lenders and legislating a cap on excessive bank bonuses and executive salaries.

I have a feeling that mortgage brokers may become major supporters of the new party

The question will now be, how much will the lenders pass on to borrowers.

There can be no doubt that the home market throughout most of the country is very flat with both home buyers and investors very hesitant to commit.  Let’s hope this rate reduction will bring back some confidence and stimulate some home loan activity.

It may be an ambitious forecast but the 0.1 per cent increase in the March quarter of 2012’s consumer price index (CPI) has led many to think of the 50 basis point cut having a 62 per cent possibility.

The release from ABS stated that overall the CPI, “rose 0.1% in the March quarter 2012, compared with no change in the December quarter 2011” and, “rose 1.6% through the year to the March quarter 2012, compared with a rise of 3.1% through the year to the December quarter 2011.”

The result was way below the Reserve Bank of Australia’s (RBA) 2 and 3 per cent target level. Since late 2009, the result is also the lowest recorded annual inflation rate.

Pamela Bennett, president of the Real Estate Institute of Australia (REIA) believes that the RBA now has now no excuse for not doing the much-needed interest rate cut, “The latest figures are well within the RBA’s target zone of 2-3 per cent and should provide a clear message to the RBA to reduce official interest rates at its meeting next week.”

“With inflation well within the RBA’s target zone and a clear message from the Government that there will be a focus on reducing expenditure in the 2012/2013 Budget, it is appropriate to have a cut in interest rates, “ added Bennett.

A Commsec economist, Savanth Sebastian, stated, “Inflation is well and truly contained and the Reserve Bank is all but certain to cut interest rates on May 1st. Not only was the headline inflation rate virtually flat, but the closely-watched underlying measures also recorded decidedly subdued readings”

Shane Oliver, AMP’s chief economist shared in an article in The Adviser, “A 0.6 per cent rise would give you an annual rate of 2.1 so that would be at the low end of the target [of 2.5 per cent]. So numbers around there will be considered benign. Alternatively 0.7 would probably still be okay. If you get to around 0.8 it becomes a bit more debatable. If we do get a 0.8 per cent number then you can’t rule out a rate cut, but the chance of it occurring would be substantially less.”

With the certainty of the rate cut shining brighter, the question in everyone’s head moved to the possibility of a rate cut more than 25 basis points on the RBA’s Board meeting on May 1.

A currency trader at Arab Bank, David Scutt, mentioned, “The question now is, is there room for the RBA to cut interest rates by 50 basis points.”

The CEO of the Real Estate Institute of Queensland (REIQ), Anton Kardash, believes that Australia’s economy badly needs stimulation, “The producer price index yesterday fell 0.3 per cent when most economists had predicted a rise of 0.5 per cent and the Reserve itself is starting to question the reasoning behind recent rate hikes by lenders. All of these signs point to an economy that is certainly not firing on all cylinders, a fact the Reserve noted in its April meeting when it lowered its expectation for growth. The Reserve must act next week and must act decisively.”

Since lenders have been moving rates independently, many are calling out for a 50 basis points cut.

Harley Dale, HIA’s chief economist shared, “The housing industry and wider Australian economy needs a further 75bps of interest rate cuts and there is nothing standing in the way of a 50bp move to get the ball rolling next Tuesday. That would, admittedly, be a bold move for the RBA, but it would be entirely appropriate given the pulse of the Australian economy is not beating as fast as the Bank earlier expected. The banks need to follow suit and pass any rate cuts on in full rather than hide behind the fallicious argument that higher funding costs somehow justify them holding some interest rate relief back.”

An article from The Australian revealed that Citigroup is one of those forecasting a 50 bps cut. Citigroup’s chief economist, Paul Brennan, said, “The case for a 50 basis point in May is reinforced by higher lending rates.”

In the same article Annette Beacher, the senior analyst of TD Securities, shared that the independent moves by retail banks on interest rates would be a major consideration by the RBA. “It’s become a game of chicken between the banks as to who is going to blink first.”

Kardash also believed that the RBA must do something on the lenders’ unjustified moves and help support the recovering Queensland property market stating, “It’s unfortunate that the major lenders insist on achieving profit margins more in tune with the good times rather the current economy reality. In this game of cat and mouse that lenders seem to play with the Reserve and their own customers when the central bank reduces the cash rate, the Reserve must now take back some control and reduce rates by at least 50 basis points on Tuesday.”

The 50 bps cut however seems too unlikely to happen for some as Beacher shared in The Australian, “I don’t think the RBA will cut by 50 basis points because that would be too much of a surprise and the RBA doesn’t have a history of doing that unless there is an emergency. If the RBA order two cuts of 25 basis points they’re also forcing the banks to make two decisions rather than just one.”

Su-Lin Ong, the chief economist of RBC Capital markets declared that the banks independent move is not helping the RBA’s aim which is to stimulate the Australian economy, and that the banks’ moves could force the Reserve Bank to cut 50 basis points. Ong shared, “It’s not out of the question given the policy dilution by the major lenders. But we think that a move like that would look a little panicky and be an admission of policy error.”

Prime Minister, Julia Gillard announced that the new age care reform would add more Home Care Packages amounting to almost 100,000 so as to lessen waiting time. There will also be new funding for dementia care and there will be a cap on costs.

Gillard shared,    “For the first time, we will also introduce fairness into the payment system. Right now, pensioners often pay more than people with hundreds of thousands of dollars in assets and a private income. From now on the system will be fairer, based on capacity to pay.”

Over five years, about $3.7 billion has been promised to the package and a budget of $955.4 million will be given as Home Care packages so that the elderly can just stay at home, enjoy the fruit of their labors and not worry about leaving behind or selling properties or move to aged care residences.

The prime minister added that the, “Implementation of the reforms will be overseen by a new Aged Care Reform Implementation Council. The new reform package will be implemented in stages to enable providers and consumers to gain early benefits of key changes and have time to adapt and plan for further reform over the 10 years.”

The result has led many property analysts believing that Australia’s property market is stabilizing. Wilson went on saying that, “All capitals recorded rise in median house prices with the exception of Brisbane and Adelaide that each recorded marginal falls of -0.3% over the quarter. The leading performer was the volatile Darwin housing market where median house prices rose by +6.0% over the quarter. Importantly the next best performers were the major markets of Melbourne and Sydney where median house prices rose strongly by +1.4% and +1.6% respectively over the first three months of 2012. Hobart houses prices increased by +1.0% with Canberra rising by +0.9%.”

Of the mainland capitals, Brisbane is said to be the most affordable having a median house price of $433,244, as Sydney still remained as the nation’s most expensive capital having a $641,037 median house price.

The median unit prices for Brisbane, Melbourne and Adelaide all recorded significant falls over the March quarter while Sydney remained solid with median unit prices going up by 2.5 per cent to $462,145. Increases in median unit prices also happened in Hobart, Canberra and Darwin.

Wilson added, “Increased buyer activity as indicated by rises in both owner-occupied and investor home loans (according to ABS data), together with rising auction clearance rates has translated into improvements in median price outcomes in most centres.”

“The future path of house price growth will be dependent on the performances of the national and local economies.”

“The Perth, Brisbane and Sydney markets remain the best prospects for growth over 2012, and although the Melbourne market has been encouraging so far this year, this may prove to be short- lived if the Victorian economic performance continues to deteriorate.”

“However early signs are certainly positive for most Australian housing markets in 2012 with the likelihood that buyer and seller confidence will continue to rise in 2012 after a subdued 2011.”