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Welcome to our July newsletter
The welcome news is that the RBA decided to leave rates on hold at 4.5 per cent in July following three rate rises earlier in the year. With inflation remaining within the RBA's target range most economists are predicting we won't see a rate rise in August either.
While there’s little doubt that the mining sector is surging, the broader economy is not enjoying such robust growth. Retailers are continuing to struggle, with retail sales increasing by just 0.2 per cent in May.
According to the Australian Bureau of Statistics (ABS), retail turnover grew 0.6 per cent in the 12 months to May 2010, indicating that Australians are still reluctant to spend.
In addition to the challenges of managing a two-speed economy, the RBA will also be challenged by the effects of a slowing property market and declining lending volumes. While keeping the housing market in check is essential, the RBA will want to avoid a housing slump, and so it will closely monitor the impact of interest rates on borrowers.
The latest ABS data shows owner occupier demand for housing remains weak, suggesting investors are now the only source of growth in the housing market.
While the number of new mortgages taken out in May was 0.7 per cent higher than in April, this is still significantly lower than the number of new mortgages recorded last September – a fall of 24.3 per cent.
The end of the first home owner’s increased grant accounted for much of this fall. And while investors are managing to fill some of this gap – lifting their borrowing by 2.6 per cent from April to May – the demand for housing finance remains weak.
On the flipside, housing supply has risen sharply over the last two months. SQM Research shows there were more than 307,500 houses up for sale in June – markedly higher than the 216,000 houses listed in June 2009.
Despite the surge in listed properties, auction clearance rates continue to plummet, heading below 60 per cent in almost all capitals.
If this trend continues over the coming months, it's likely the ABS will record a fall in house prices for the September and December quarters.
And if this happens, the RBA will be forced to review its stance on monetary policy.
If you’d like to chat about the current market or how it may impact your mortgage, please feel free to give me a call.
Sincerely,
Patrick O'Brien |
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Lender News & Specials
- Suncorp are offering a 1.2% p.a. discount off their standard variable rate for the first 12 months to new loans of $250k or more that don't require lenders mortgage insurance. $0 application fee, $0 package fee for the first year, 0.70% p.a. discount after 12 months and $0 switch fee after 12 months.
- Choicelend are waiving their normal $700 application fee as part of a special offer that can end at any time.. With very competitive rates as low as 6.45% p.a. variable (6.51% p.a. comparison rate) this is an attractive offer.
- There are a few smaller non bank lenders on our panel who will pay your mortgage insurance premium if the Loan to Valuation Ratio is no more than 90% and the mortgage insurance premium is no more than $4,380.
- Homeside are still offering a 0.80% p.a. discount off the standard variable rate if the loan is greater than $250k and the Loan to Valuation Ratio (LVR) is 75% or less. The loan comes with a 100% offset account. This is a very attractive offer so if you are purchasing a property and you have a 25% deposit or if you are looking to refinance and your loan balance is less than 75% of your property value this is well worth considering.
Best Interest Rates (includes recent rate rise)
| Loan type |
Interest rate |
Comparison rate |
| Basic Variable |
6.55% p.a. |
6.61% p.a. |
| Basic Variable & <=65% LVR |
6.45% p.a. |
6.51% p.a. |
| 100% offset >$250k & <=75% LVR |
6.47% p.a. |
6.57% p.a. |
| 100% offset >$250k & >75% LVR |
6.57% p.a. |
6.67% p.a. |
| 3 year fixed |
6.95% p.a. |
7.12% p.a. |
| 5 year fixed |
7.49% p.a. |
7.35% p.a. |
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Line of credit mortgages
If you’re looking for a loan that gives you considerable flexibility with your repayments – and the ability to draw down additional funds – you might want to consider a line of credit.
This product is particularly popular with investors and also borrowers who have an aggressive mortgage reduction strategy.
A line of credit is essentially an interest only loan.
Borrowers can pay as little or as much toward the principal each month – as long as they meet their interest repayments.
As a line of credit borrower your loan is usually linked with a credit card with an interest free period which, in theory, allows you to drive down the principal sum by paying your income directly into the loan balance.
You then use the credit card to meet your monthly expenses and then repay the balance from your loan at the end of the month. This effectively reduces the overall loan balance for the whole month, reducing the interest charged on the loan.
A line of credit also allows you to withdraw funds up to the maximum limit at any time – without approval from the lender. This can enable investors to move quickly when an opportunity arises, giving them significant control over their finances.
This product can also be a very powerful mortgage reduction tool for disciplined borrowers with a tight control of their finances. Borrowers who combine tight budgeting with effective use of the credit card facility can repay their mortgage years ahead of schedule.
The interest rate on a line of credit is generally variable and tends to be more costly than the standard rate.
While there are considerable benefits with this product if it is used properly, there are also significant dangers should you lose control of your finances.
The danger is that rather than reducing your mortgage, you may end up adding years to your loan. Without a clear strategy, borrowers can find themselves saddled with a loan that never goes down.
Living off credit can be tricky, and it takes discipline. Budgeting is essential, otherwise you could end up paying the same in interest as you would under a standard loan, or more. |
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Bidding with confidence at auctions
Buying at auction can be a fast and effective means of securing your dream property but beware, it is not without danger.
With significant sums of money at stake and emotions running high, property auctions can be adrenalin-charged affairs. A good auctioneer will create a sense drama to proceedings to ensure that punters are primed and the bidding runs hot.
There’s a lot to be said for buying at auction. For starters, you can see exactly who you’re up against and what sums of cash other bidders are prepared to stump up. Auctions are also fast, which can be a big plus for buyers who are looking to move quickly.
There is also the chance that you could pick up a bargain.
But buying at auction is not without danger and unwitting buyers could find themselves in big trouble if they are not careful. The following pointers should help ensure that you can bid with confidence:
Be approved – Make sure that your finance has been approved before attending an auction. This not only gives you a firm picture of what you have to spend, it also guarantees that you’ll be able to come up with the cash if your bid is accepted.
Know your limit – It is essential that you set a maximum that you are prepared to spend before you start bidding. Actions can become heated and it’s easy to be swept up in a bidding war, resulting in parting with more money than you’ve bargained for. If the price goes above your max, pull the pin.
Cash on the hip – Make sure that you’ve got a 10 per cent deposit that you can access on the day, as this will need to be paid once the deal is done.
Consult a lawyer – Ensure that you understand all the legal implications and requirements of an auction purchase before you bid. Once you’ve agreed to buy at auction, there’s no turning back.
Lie of the land – Never bid on a property that you’ve laid your eyes on only once. Make sure you inspect the property as many times as possible, and at different times of the day, to see how it is affected by sunlight and traffic.
What’s it worth? – Make sure you have a clear picture of the property’s value before you go to an auction. Invest in an independent qualified valuer to get an appraisal of the property’s true worth before you place a bid.
Befriend the agent – It is well worth getting to know the selling agent prior to auction to find out as much as possible about the auction process. While this may not result in getting a better price for the property, it will help show that you are a serious buyer.
Provide the paperwork – Before bidding, you’ll need to register, and that requires producing certain identification. Make sure that you have your driver’s licence, and other appropriate documentation to validate your identity. |
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Ease your debt burden through consolidation
Most working Australians are no stranger to debt. These days, most of us have at least one credit card, a car loan, and in many instances, a personal loan.
Access to credit has made life easier and in many cases a lot better for most people in general. But while there are many positives associated with using credit, there can be a downside.
It is easy to let your credit card balance creep up, and before you know it the bank has kindly increased your limit. Before you know where you are, you’re up to your eyeballs in repayments and your cash flow is getting tighter.
When debt starts to spiral, it’s imperative that you take decisive action if you’re to regain control. The first action must be to address your spending habits to ensure that the debt does not continue to climb at the same pace.
With a tighter grip on your spending, your main focus should be on reducing the debt levels on your credit card, as this is where you are likely to be paying the highest interest.
It can be tempting to take out another credit card with a lower rate, but be warned: if you don’t close down your existing cards, you’ll simply magnify the problem.
It is better to focus on reducing the outstanding amount, and that means saving more than you spend each month.
The most effective way to achieve this goal is to set a budget. This will help establish what your fixed costs are, such as your mortgage, school fees and utility bills. You can then look at what’s left and decide where you can pare back.
With a simple strategy in place, and a goal to strive for, you should see your situation begin to improve. And the lower your debts are, the less interest you’ll pay out each month – and the greater amount you’ll be paying off the debt itself.
There are instances, however, where it may be more effective to look at restructuring your debt in conjunction with implementing a budget.
If you decide to take this approach, make sure that you look for a loan that will offer you a far more competitive rate than a credit card.
One option is a personal loan but that is still likely to attract interest of around 11 to 14 per cent, or more. It may also be possible to consolidate high interest debt into your home loan if there is sufficient equity in your property.
If consolidation is the only answer, using your home loan to pay off a credit card can be an effective solution as the interest rate on a mortgage is significantly lower than a credit card – in some instances it is as little as one third.
Remember, as soon as you’ve tackled your credit card debt reduce the maximum available balance – stick to using just one card and keep spending on track by staying with your budget. |
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Wine review
Printhie Mountain Range Shiraz 2008
Nearly every region in Australia can hang its hat on a Shiraz, but not every region can argue that their drop has a distinctive taste. Medium-bodied with fragrant aromatics, this wine is the perfect accompaniment to any beef dish.
RRP: $17.00
www.printhiewines.com.au
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Book review
Michael McGurk: a biography
Sydney businessman Michael McGurk was killed last September by a single gunshot wound to the head as he was standing on the driveway of his North Shore home. The doting father and devout Catholic was soon after revealed to be a loan shark, standover merchant and extortionist who had spun a web of deceit with politicians, property developers and bankers. This is the true story about the fast life and sudden death of a man who thought he could do anything... and get away with it.
Author: Richard Vereker/Mark Abernethy
Publisher: Allen & Unwin
RRP: $24.99 |
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