Peach Financial and Mortgage News

The consumer credit agency, Veda, has released its latest Consumer Credit Demand Index. For this year’s first quarter, it was revealed that mortgage enquiries had a 1.5% increase of, the first increase that happened in eight quarters and this is great news for mortgage brokers in Australia.

It was found out that there is a possibility for mortgage enquiries to stabilize as year on year there was solid increase.  Queensland had a 10.2% increase, Northern Territory went up by 9.7% and Western Australia rose by 6.6%. The termination of stamp duty exemptions affected mortgage enquiries for New South Wales as this year’s first quarter had a sharp -7.6% drop when compared to last year’s last quarter.

The Head of Veda’s Consumer Risk, Angus Luffman, stated, “Turning points in mortgage enquiries usually occur one to three quarters ahead of turning points in house prices, an early warning sign which could indicate that after a continued decline, mortgage enquiries may have bottomed out.  Veda mortgage enquiries are closely related to the number of housing finance approvals so this is a trend to watch, particularly if you are hoping for a future pick-up in house prices.”

“In terms of state by state mortgage activity we are seeing different trends play out with NSW mortgage enquiries being affected by the expiration of stamp duty and Queenslanders starting to bounce back after a challenging year,” added Luffman.

An article from smh.com.au has Luffman speaking of a close relation of mortgage inquiries to the number of approved home loans.

The article also mentioned that the RP Data stating that the Australian property market is being affected by uncertainties in the interest rate and worries about the conditions of the global economy. The lack of affordable properties also affected the values of lower capital city homes, giving them a 4.4 per cent increase.

The increase in mortgage enquiries still doesn’t mean that the property market is out of danger. Data from the ABS revealed that loans have been going them as many people have stopped borrowing, something which greatly affected housing construction bringing in less supply.

In the article Matthew Circosta, an analyst for Moody’s Economy.com stated that “Household savings are growing and credit growth is weakening. This could run for several more years.”

Circosta believes that a rate cut imposed by both RBA and lenders could bring back confidence stating, “The key to a sustained upturn in Australian house prices is a recovery in confidence. That may not occur while the news from Europe remains downbeat and local media bash the domestic economy’s weak spots.”

An article from The Adviser talks about how beach towns are again becoming an investor hotspot as the prices of beach properties in some coastal areas are picking up.

PRDnationwide has recorded a strong growth in certain locations with several units’ values increasing faster than houses.

Aaron Maskrey, the property research group’s head of research shared that Victoria’s Bells Beach has become the best performing coastal town in the past year, saying, “Unit prices performed well, increasing by 24.5 per cent during the year ending December 2011. Similarly, house prices in Bells Beach increased by 5.2 per cent for the period.”

According to Maskrey, Gold Coast had the strongest activity selling 2722 unit and 2216 houses in the 2011’s second half. Furthermore, Port Douglas showed a boost in median prices– with units reaching $310,000, a 14.8 per cent increase. “Looking at the main coastal markets across Australia, many of them are set to reach the bottom of their property cycle over the year, making it a good time to invest in coastal property, given the past three years’ price falls,” added Maskrey.

Maskrey stated that now is the good time to buy even when the market will not get a double digit increase in the near future. Maskrey shared, “For investors looking to buy for capital gains there are good opportunities out there. It is very location specific, with some markets faring better at the moment than others but coastal property can be a good investment if you buy in the right location. Prices have become very competitive over the years, with vendors selling at a discount to meet the market.”

Another article from coffscoastadvocate.com.au has PRDnationwide stating that property values in Coffs Harbour are improving.

Oded Reuveni-Etzioni, a research analyst of PRDnationwide predicted an increase of sales on 2012’s first half, saying, “The residential projects pipeline reveals limited supply of approved developments, with most projects remaining in early planning stage. With limited supply of new residential buildings and a firm population growth, the market is expected to tighten over the next two years.”

Rents for residential buildings along Coffs Coast have increased due to the limited supply, as recorded in the year to December 2011, where rents for a one-bedroom unit rising 17.6 per cent. First home buyers were seen returning to the market due to the rental squeeze, as they look for properties below $500,000.

According to the research, some of Coffs Coast’s areas posted a significant growth in prices, with Woolgoolga and Emerald Beach becoming the region’s top performers as prices went up by 8.07% and 7.16% respectively.

Damien Campbell, the Coffs Harbour principal of PRDnationwide, shared that Coffs Coast real estate is becoming a top buy, saying, “This report sheds a very positive light on the future property trends in the Coffs Harbour area. Relatively speaking, Coffs Harbour is still very good value when it comes to purchasing or investing in property.”

Campbell is advising people to buy before the market turns. “Those of us who follow the ‘Property Clock’ believe that property values won’t remain at these levels for very much longer.  Smart buyers and investors buy when everyone else is selling and sell when everyone else is buying. Now is a very good time to consider increasing or commencing your property portfolio, while prices are still at affordable levels,” stated Campbell.

In a surprise move St George has announced 1,2 & 3 year fixed rates are again below the 6 per cent mark at 5.99%.  This goes against the recent trend on fixed rates and is even more surprising given the additional load this will place on what appears to be an already struggling loan processing facility.

General Manager Mortgage Broking, Clive Kirkpatrick formally recognised the issue in an email on 29th of March where he wrote  ” experiencing additional pressure on resources.  A strategy for overtime has been implemented and the teams are working hard to return service levels to agreed standards.”    In today’s announcement he states “these great offers, which will in turn add pressure to our Operations areas.  I want to set the expectation up front, that service levels will be impacted as a result of the increased volume we expect to be seeing over the coming weeks.”

We admit the fixed interest rates are attractive however as professional mortgage brokers we will be ensuring that our clients expectations are well prepared and we will be encouraging them to use the rate lock option as our recent experience has given us cause to virtually overlook  St George  until we can be confident the processing is back to acceptable levels.    After all  we heavily rely on referral and repeat business,  we know that frustrated clients don’t come back for more.

The McKell Institute’s release of their report “Homes for All – The 40 things we can do to improve supply and affordability,” written by Dr. Tim Williams and Sean Macken, has shed some light as to why the Australian dream remained a dream, even a nightmare to some people.

Houses have become very expensive, nine times the median salary,costing more than those in New York and London. While the ages of people owning properties in Sydney are getting older.

Australia’s typical family structure has also changed because of the high prices with people being forced to live with their parents to save on rent, or while they come up with a loan deposit, or worse, not being able to afford rent.

Renting has been the most practical solution for some but even the cost or renting  has driven a lot of people out of the city and into places where jobs are meager. The list of those availing public housing has grown longer as those who have no choice have nowhere to turn to.

The unaffordability of housing is primarily due to the lack of supply. The report also stated that because of the scarcity of supply houses have become, “even more of a commodity, an asset class, an investment, to be leveraged to fund retirement, transfer wealth to children, support consumption and buy second homes.”

It is not that housing has become universally unaffordable, some people with existing properties are said to have no problems staying in the property market and acquiring more properties as they have a secret weapon, negative gearing.

An article in brisbanetimes.com.au reports  Tim Williams saying, “Home ownership is becoming something that older people do. I remember my head reeling when I discovered how generous negative gearing was. There’s nothing like it in the known world in terms of its generosity and in terms of its middle-class welfare. I just think it’s an astonishing gift to the wealthy and it has perverse effects on the housing market. You are squeezing young people out of home ownership while some people have two, three or four units – the incentives are just wrong.”

Williams is suggesting that negative gearing be phased out or just be used as a targeted incentive.

The report has also been used as a contribution to the debates happening currently in the government. Other aspects like stamp duty and land taxes are also being looked into. The development of new properties is also being hampered by other forces like the NIMBY (Not In My Back Yard).

NAB’s forecast, taken from its latest quarterly residential property market survey, revealed that by later this year, Australia’s house prices will bottom out but will make a modest rise in 2013.

The article showed that In last year’s December quarter, a fall of 2% was recorded for national house prices, as it followed September 2011 quarter’s 2.4% decline. This year’s first three months had a 1.3% decrease.

NAB’s quarterly residential property market survey asked about 300 participants in the property market, including property developers and real estate agents. The respondents forecasted an additional 0.2% decrease happening in next 12 months followed by a 1.6% growth next year and in 2014.

It was predicted that the rise will be mostly due to Western Australia as it is considered to be, in the next 12 months; the “standout for price growth,” as a growth of 1.3% is expected. Victoria is expected to not perform well as NAB predicts a fall of 1.5% to Victoria’s house prices happening over the same 12 month period. The rise in Western Australia is attributed mostly to the effects brought by the mining boom.

In an ABC report Dr. Tim Williams, a UK housing expert, the great Australian dream of owning a home is now already a nightmare for most people. Policy research house McKell Institute recently released the Homes for All report – The 40 things we can do to improve supply and affordability, written by Dr. Tim Williams and Sean Macken.

The great Australian dream is now a nightmare as the report’s executive summary shared, “Twenty years ago it took three times the median salary to buy a house in Sydney.  Now it takes nine times, a higher ratio than London or New York at the peak of the market. It puts Sydney at the top of the wrong league table.”

Houses in Sydney are so expensive that many people are forced to rent or live with their parents even when they reach the age of thirty only because they can’t afford paying for mortgage or are saving up on rent so as to someday have money for a deposit.

The report mentioned of, “a generational gap has opened up over home ownership in Australia and particularly cities like Sydney where 67% ownership overall conceals a significant fall of ownership over the last few decades amongst 30-35 year olds. The age at which first time buyers are getting onto the first rung of property ownership has now risen to the mid-30s – as of 2008, only 38% of Australians under 35 own their own home, compared to 44% in 2001. In Sydney the proportion is less than a third. Ownership is becoming something older people do and is clearly increasingly excluding younger generations without wealth from home ownership.”

House prices are also reshaping the traditional ‘standard’ family structure making people in the future to only have fewer children. “The bottom line is this: whether or not such age groups as the key under-35 cohort wish to buy their own house or unit, they are increasingly unable to do so. But they still need a home. So this cohort are increasingly renting or even, quite unlike previous generations, now exhibit a trend towards living at home with their parents, for longer. When this cohort does form households, they do so later than has been the case and – by the way – then proceed to have fewer children because of it. Housing affordability pressure is thus changing family structure and culture in Sydney: it’s that important.”

Latest figures from Australian Bureau of Statistics (ABS) supported the finding as the number of families with children is expected to increase to 2.6 million in 2026, whereas couples without children is becoming the largest and most increasing family type in Australia. “Couple families without children are projected to increase to 3.1 million families in 2026 (44.3 per cent of all families),” stated ABS.

According to theadvisor.com it appears that Western Australia has again attracted the attention of property investors as prices of WA’s property stabilize and rental yields starts to improve.

The resource sector has helped improve WA property market with RP Data’s latest figures recorded a 4.6 per cent in Perth’s median price or $446,000 in the year ending February 2012 and a 0.8 per cent improvement over past quarter.

It could be a good time to buy properties in Western Australia as many investors believe the market has bottomed in the west.  The spike in prices in 2007 caused a fall in yields that has now been rectified.

The Real Estate Institute of Western Australia (REIWA) has recorded in the Perth metropolitan area, an 8.1 per cent increase, or $400, in last year’s median weekly rents. There is also a strong demand for properties available for rent, due to an undersupply of properties, as vacancy rate within the metropolitan area dwindled to 2.3 per cent caused an increase in rental prices.

Due to the ever changing interest rate environment, a lot of borrowers are considering locking on their mortgage with fixed interest rates so as to be protected especially now that lenders are decoupling from the RBA cash rate.

A survey by AFG shows an increase in fixed rates with 25.4 per cent choosing it for their home loans. Mark Hewitt, the general manager of sales and operations for AFG  is reported in The Advisor, “This nervousness probably also accounts for the weighting of investors in the property market – there’s a lot of them proportionally because first home buyers and upgraders are sitting on their hands. There is a disconnect between what’s happening in the non-mining economy – which is most of us – and out of cycle rate rises. The best thing the RBA could do to stimulate confidence among buyers and upgraders would be to cut interest rates.”

Although borrowers flock to the safety of fixed rates, lenders on the other hand took advantage of the opportunity to jack up fixed mortgage rates. Several banks in Australia saw the move as an opportunity to get back on some lost earnings from exit fees which the government imposed some time ago.

The Australian reported a  ratecity  analysis revealing an increase in fixed rates for the first time in almost a year, making them almost the same as variable rates.

ANZ general manager of mortgages and deposits, Glenn Haslam, shared, “The market has shifted its view on interest rates, pushing up the cost of funding term mortgages, and fixed-rate home loans have increased accordingly. There has been an uptick of customers choosing to fix.”

Just after a month, ANZ’s two-year fixed rate increased from 5.95 per cent to 6.34 per cent and its three-year rate moved from 6.14 per cent to 6.48 per cent.

Westpac also had a 14 basis points increase on its fixed rate, NAB went up by nine basis points while CBA remained the same at 6.48 per cent. NAB’s standard variable rate is at 7.31 per cent while Westpac at 7.41 per cent.

The move to increase fixed rates were blamed by the banks on the unstable yield curve and the possibility of the RBA keeping interest rates the same on the next few months. Last year, fixed rates dropped when the financial markets believed that the RBA would continue slashing interest rates to help the Australian economy from the possibility of being affected by the debt crisis in Europe.

Damian Smith, Ratecity’s chief executive believes that lenders favor fixed rates because there are break fees involved which could help offset the government banned mortgage exit fees.  Smith shared, “In the last few months, after variable rates fell in November and December, we have started to see fixed rates creep higher. It’s highly unusual for fixed rates to be below variable rates, but there is an unusual yield curve and longer-term money is cheaper at the moment.”

The demand for fixed rates happened in 2011 when borrowers got affected by a string of rate increases. Smith added, “A lot of people jumped into fixed rates last year. There had been a lull because in 2007 a lot of people got burnt by fixing rates then. If you did, and the the RBA cut rates so aggressively, you were locked in to paying nearly 300 basis points above the variable rate.”

As your mortgage broker we will work with you to analyse the options and to try to assess the risk and benefits that fixed rates can offer you.

The RBA’s decision to keep the rates on hold has earned the ire of many, not only for people paying home loans.  The Housing Institute of Australia is one who is against the RBA’s move labeling it as an ‘entirely the wrong call’.  Andrew Harvey, HIA’s senior economist is reported in news.com.au, “Given the current global and domestic economic conditions a rate cut today would have been the appropriate call, but regrettably the Reserve Bank Board did not take that decision. There is still a high degree of uncertainty with regards to the global economy and, outside of mining and mining-related investment, there is very little driving the Australian economy. The expectation for a rate cut today had grown substantially over past weeks and with inflation well-contained there was ample room for the RBA to provide interest rate relief.”

John Kolenda, the managing director of 1300HomeLoan, described the decision as “diabolical” saying, “The situation out there is diabolical, but it seems like the RBA has lost touch with the parts of the economy which most Australians depend on for their livelihoods and is just making monetary policy for the miners.”

Pamela Bennett, the president of Real Estate Institute of Australia (REIA) also criticized the move stating, “Current inflation figures are well within the Reserve Bank of Australia’s (RBA) target zone of 2-3 per cent with expectations that this will fall further.  This together with low levels of demand in many sectors of the economy should have provided a clear indicator to cut rates. A cut would have assisted those who are currently paying off a mortgage and would provide the encouragement needed for first home buyers.”

The Mortgage & Finance Association of Australia is also calling on the RBA to slash rates to help stimulate the economy. Phil Naylor, MFAA’s chief executive tells how the hospitality and tourism industry is severely affected as people hold back on spending so as to save a deposit or pay for mortgages.

MFAA recently made a survey asking people what they are missing out on and many of those saving for mortgage deposits answered that they missed out on fun activities like eating out or going out on holidays.  The first home buyers also shared that they were missing out on family activities, shopping for shoes and even coffee or going out for movies. Four per cent claimed to even miss out on haircuts.

“This is clearly a problem which needs to be addressed by the Reserve Bank,” says Naylor.

Naylor added, “Our members are telling us that established borrowers and first home buyers are doing it tough out there and a rate cut is necessary to restore confidence in the property market, one of the economy’s key economic drivers.”

True to the predictions of leading economists, the Reserve Bank has kept the interest rates the same at 4.25 per cent. This is the third consecutive month the RBA decided to keep rates on hold which economists have forecasted to stay the same until the middle of the year.

Despite the growing figures of unemployment and job losses, and the slowing of the non-mining sector of the Australian economy, the RBA board ignored the data and went on with their decision mostly due to the improving global economic conditions and the possible effects brought by the economy of Europe.

In a media statement, RBA Governor Glenn Stevens shared, “Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring. Several countries in Europe will record very weak outcomes, but the US economy is continuing a moderate expansion. Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future. Conditions around other parts of Asia softened in 2011, partly due to natural disasters, but are not showing signs of further deterioration. Some moderation in inflation has allowed policymakers in the region to ease monetary policies somewhat. Commodity prices declined for a few months last year and are noticeably off their peaks, but have been relatively stable for a while now, at quite high levels. Australia’s terms of trade have peaked, though they remain high.”

“Financial market sentiment has generally continued to improve in recent weeks and capital markets are supplying funding to corporations and well-rated banks. At the margin, wholesale funding costs are tending to decline, though they remain higher, relative to benchmark rates, than in mid 2011. But the task of putting European banks and sovereigns onto a sound footing for the longer term remains large and Europe will remain a potential source of adverse shocks for some time yet.”

The RBA however gave hints of a possible rate cut by as early as May next month as economic growth seemed to go slower than expected. The central bank could be basing their move on inflation as they are waiting for the release of March quarter’s inflation data which is due to be published by April 24.

“At its next meeting, the Board will have the opportunity to reassess the outlook for inflation, taking into account not only data on demand and output but also forthcoming information on prices.”

“The Board eased monetary policy late in 2011. Since then, its judgement has been that, with growth expected to be close to trend, inflation close to target and lending rates close to average, the setting of monetary policy was appropriate. The Board’s view was also that, were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At today’s meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy.”