RBA Leaves Rates on Hold – For Now!

RBA Leaves Rates on Hold – For Now!

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.

Growth in the global economy is continuing at a moderate pace, helped by firmer conditions in the advanced countries. China’s growth appears to have slowed a little in early 2014 but remains generally in line with policymakers’ objectives. Commodity prices in historical terms remain high, but some of those important to Australia have continued to decline of late.

Financial conditions overall remain very accommodative. Long-term interest rates have fallen further and risk spreads remain low. Emerging market economies are once again receiving capital inflows. Volatility in many financial prices is currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest rates over the period ahead.

In Australia, the economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year. This has resulted partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters. Moderate growth has been occurring in consumer demand and a strong expansion in housing construction is now under way. At the same time, resources sector investment spending is set to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative, as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued.

RBA Leaves Rates on Hold – For Now

There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently. Recent data confirm that growth in wages has declined noticeably. If these and other domestic costs remain contained, inflation should remain consistent with the target over the next one to two years, even with lower levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and for some borrowers have edged lower over recent months. Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little. Dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently. The earlier decline in the exchange rate is assisting in achieving balanced growth in the economy, but less so than previously as a result of the higher levels over the past few months. The exchange rate remains high by historical standards, particularly given the further decline in commodity prices.

Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

Reverse mortgages need a rethink if they’re the new age pension

Reverse mortgages need a rethink if they’re the new age pension

The Commission of Audit has recommended including homes above a certain value in the means test that determines who gets the age pension and how much. Under the proposal, homes valued in excess of A$500,000 would be assessable for singles, while for couples the trigger would be A$750,000.

The family home is currently exempt from the assets test but the commission argues this is inequitable because it means high levels of wealth are sheltered. It suggests a more comprehensive means testing regime be put in place by 2027-28.

If this proposal is picked up by the federal government, it would see a sizable group of retirees required to call on the equity in their homes to help fund their retirement.

It would be a brave government that “forced” pensioners to sell their homes to release that equity, which makes reverse mortgages a likely tool for retirees who need to convert their home into cash flow.

Even now, a reverse mortgage can be an alternative to “downsizing” into a smaller and cheaper home to release funds for retirement.

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Financial institutions increase type of home loan sweeteners

Financial institutions increase type of home loan sweeteners

Financial institutions have boosted the number of attractive home loan sweeteners on offer to lure new customers through the door.

A platter of incentives including cash back offers up to $2000, fee wavering, frequent flyer points and limited rate discounts are among the latest tactics used by banks to draw in new home loan consumers.

New analysis by comparison website Mozo found in the last six months the number of bonuses available with new home loans has doubled — there are now 20 deals available on the market.

Mozo spokeswoman Kirsty Lamont said the influx of sweeteners onto the market signifies the intense home loan competition.

“Rates are at a standstill and already at record lows so lenders are really being forced to come to the table with lucrative offers for new customers to stimulate switching interest,’’ she said.

“Many lenders aren’t really willing to cut their rates further and so they are trying to create interest with other upfront offers and sweeteners.’’

Financial institutions increase type of home loan sweeteners

Ms Lamont said home loan switching was often spiked through cash rate movements but the Reserve Bank of Australia hasn’t budged in six months leaving lenders to generate market interest using other tactics.

The cash rate has sat at 2.5 per cent since August.

Interest rates remain at historical lows — the average standard variable rate is 5.5 per cent compared to 5.45 per cent 12 months ago.

The average three-year fixed rate is 5.5 per cent compared to 6.03 per cent in February last year.

Ms Lamont said all of the big four banks had home loan sweeteners on offer which was “unusual for them to offer such lucrative deals for new customers.”

Loan Market director Mark De Martino said banks have had to adopt different approaches to getting new customers through the door other than just focusing on offering low rate deals.

“Lenders and banks who regularly compete with one another on rates have had to look outside their normal battle grounds in order to attract new customers because of the rate stability over the past year,’’ he said.

“For refinances the biggest sweeteners for switching lenders has been in the form of cash rebates or gifts.

“With banking exit fee’s abolished some customers can get some quick cash in their pockets by switching from one lender to another.’’

Australian Finance Group’s general manager of sales Mark Hewitt said the mortgage market had never been as competitive as now.

“There’s only so many leavers lenders can pull when you think about it,’’ he said.

“You’ve got interest rates, fees, product features and the service they provide to the customer, lenders are all keen to compete for market share.”


SMSF property investors exposed to rule changes

SMSF property investors exposed to rule changes

THE $530 billion squirrelled away by mums and dads in self-managed super fund has never had much exposure to real estate, nothing they need to lose sleep over … until the government changes the rules.

Australian governments of all persuasions have long had a frustrating habit of changing the rules on superannuation as frequently as most of us change our clothes.

Well, they’re at it again, but at least this time it’s something that is positive for property investors.

The Coalition government’s decision this month to axe Labour’s plan to slap a tax on superannuation pension earnings above $100,000 appears on the surface to benefit rich retirees, but in reality is a nice boost for the growing army of self-managed super fund members who are buying real estate in their funds.

Financial advisers say the axed tax would have been extremely difficult to collect, and any high-earner with a decent financial planner would have been able to use advanced strategies avoid paying it, leaving the average Aussie who buys a property in their SMSF with the biggest financial hit.

That’s because property is a large asset that can’t be sold in pieces like shares can. So under Labor’s system, someone who bought a $500,000 investment property in their SMSF and sold it for, say, $2 million 20 or 30 years from now would have been hit with a tax bill of around $200,000.

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Investing and saving

Investing and saving

There is a huge difference between investing and saving and getting clear on this is vital to building long-term wealth.

‘Investing’ means putting money away to generate wealth for the long-term. It is invested in growth assets and never cashed in and spent. If you do sell an investment asset, the money should be put back into other investment assets.

‘Saving’ means putting money away to pay for specific items in the future. Saving is just deferred spending. Once you buy the item you’re saved up for, the money’s gone and you have to start saving all over again for the next item.

Both investing and saving are very important parts of your financial plan, but realising you are never going to build wealth if you spend first, save next and invest last is key. Investing for the future should be your first priority, not your last.

Investing and saving

It’s easy to change the order of your actions so they happen like clockwork each time:

  1. Invest first – have part of your salary paid directly into your investments
  2. Save next – have the balance of your salary paid into a high interest rate account
  3. Spend last – when you need cash to pay expenses, transfer it into your transaction account

By getting clear on what your expenses are, you can set up a regular automatic transfer from your high interest rate account to your transaction account to cover your expenses.

The great benefit of this set up is that you can’t be tempted to spend the money allocated for ‘investment’ it because it’s not readily available.

Make a list of the specific items you want to save for over the next couple of years – such as a home deposit, or overseas holiday – and establish accounts specifically for these items.

Remember, small amounts spent here and there can really add up over time and the same principle applies to investing money to build wealth. Small amounts put away regularly and invested wisely can turn into big amounts.

Do you have a system for prioritising your investment goals?

Fixed interest rates hit new lows

Fixed interest rates hit new lows

FIXED-rate mortgages have fallen faster than variable home loan rates over the past six months, and close to half are at record lows below 5 per cent.

However, most Aussies still prefer to ride the variable-rate roller-coaster, say mortgage experts, who warn that you should not fix unless you understand the potential traps.
An analysis of rate moves since January, compiled for Your Money by comparison website, has found the average three-year fixed rate has dropped 0.39 percentage points to 5.12 per cent while the average variable rate is down 0.33 percentage points to 5.55 per cent.
The Reserve Bank kept the official interest rate on hold last week but left the door open for more cuts, and governor Glenn Stevens’s comments suggested upward pressure on rates is unlikely for the next 1-2 years.
Many economists expect another RBA rate cut this year, which would affect variable rates, while Mozo director Kirsty Lamont says lenders are pricing in more fixed-rate cuts.

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Be prepared to walk that line

Be prepared to walk that line

With more than 100,000 property investors receiving letters from the Australian Tax Office for possible incorrect property deductions this year, it’s crucial you have a plan for effectively managing your tax situation.

Although it may seem tempting to exaggerate a claim, it isn’t worth the risk. Heavy penalties apply to those caught claiming excessive deductions or failing to declare rent.

Astute property investors can adopt a range of strategies to legitimately minimise tax liabilities, while maximising their tax breaks. And the first step should be to arm yourself with trusted experts.

While it may cost upfront, paying for expert advice and services, will pay dividends for years to come. Because, getting your system right – for effectively managing your tax situation –can help clarify and manage the following areas, which can often trip investors:

Be prepared to walk that line

Be aware of what you can claim. Sounds simple, but, are you sure you’ve got it all covered.

Research your tax obligations and claimable expenses. Remember too, that expenses are only claimable when the property has been available for rent. When performing repairs or maintenance, anything completed prior to the property being available for rent will not be tax deductible.

Is it a repair or an improvement? Not all work performed on your property is deductible. If the work involves fixing damage caused by wear and tear, it is likely to be a repair and therefore tax deductible. But when you are replacing old materials with new and enhancing your property, the work is more likely to be considered an improvement and will instead be added to the cost of your property, representing a depreciable asset.

So, if you’re ever in doubt when it comes to walking that fine line of optimising your tax position, seek professional advice early, or even contact the ATO directly for a ruling.

If it ain't broke, put off fixing it

If it ain’t broke, put off fixing it

Is it wise to lock into a fixed-rate home loan or should you continue to keep a keen eye on the market?

Up to 30 per cent of new home loan customers are fixing the interest rate on all or part of their borrowings, a record market share for fixed-rate loans in Australia.

If you’re considering a fixed-rate deal, you need to research all your borrowing options and be aware of the risks.

You shouldn’t blindly accept that the interest rate cycle is at the bottom, either. Many economists and commentators believe the Reserve Bank is engaging in a ”tactical pause” on rate cuts.

”I think it’s too soon to lock in,” says adviser Richard Wakelin, of Wakelin Property Advisory. ”It may not happen next month or the month after, but there is room for another rate cut.”

The RBA held its cash rate at 3 per cent at its March and April meetings. On both occasions the bank said slightly sub-par economic growth gave it the room to cut rates again if necessary.

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'Middle Australia' driving home price growth

‘Middle Australia’ driving home price growth

“Middle Australia” is driving capital city price rises this year, analysts say.

RP Data researcher Cameron Kusher says that suburbs with middle-priced homes across the country are attracting the greatest increases in home values.

“Sixty per cent of these have recorded growth of 1.6 per cent over the year to February 2013,” Mr Kusher said.

By contrast, “values have fallen by as much as -0.9 per cent and -0.6 per cent across affordable suburbs and the most expensive suburbs, respectively”.

The RP Data-Rismark Home Value Index results for March indicated that capital city home values increased by 1.3 per cent over the month and 2.8 per cent over the quarter.

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Important Things Need To Be Asked While Applying For a Home Loan

Important Things Need To Be Asked While Applying For a Home Loan

We all wish to have a home we can call ours. But with the given real estate costs, it is impractically to buy a house without applying for a loan to cover the cost. There are banks out there that offer loans to prospective customers (considering the credit worthiness) as home loans.

If you have an excellent credit rating i.e. a large down payment to make, no debt to income ratio and you have a steady significant income coming in from a source, you will have no real problem in clearing your home loan from the bank.

What happens if you’re a person with bad credit to your name? Yes, there is a likely chance that considering your credit unworthiness banks will not show interest in lending money to you, but you don’t have to rule out the dream of your future home ownership just because of your bad credit.

There are many types of non-confirming and/or specialist lenders out there who offer a type of mortgage – a bad credit home loan, particularly to those with black mark on their credit documents. These are basically designed for client applications which are beyond the regular and do not meet the bank’s credit guidelines.

How to qualify for bad credit home loan

Bad credit home loans are meant for people who have had a black mark on their credit file because of some bad happening in the process of credit repayment. It is obviously known fact that lenders and banker shy from people who have bad credit and have a history of non repayment of loan in the past. But it should be remembered that home loans do exist for people with poor credit.

A person with a poor credit can increase his chances of getting a loan by:

· The person should make sure that he saves as much money as possible to pay as down payment. Higher the down payment amount, more chance for getting the loan

Employment Worries Keep Mortgage Stress High

· A good way could be to improve the credit score, the person should try and pay off the current payments on time in order to reduce the number of credit inquiries

· Check all the sources that can come in handy in case of picking a bad credit home loans. There are lenders and financers beyond the banks that don’t entertain you

So, whether you have a bad credit or you are clean there are certain questions that you should ask before applying for home loan:

· What is the interest rate on mortgage: In order to make sure what you will end up paying over the term of the loan, you should confirm the interest rate on mortgage. This will also help you compare rates with other bankers and financers

· Confirm about any prepayment penalty: There are institutions which will charge you interest on paying the amount of loan before the due period of the loan. These rates differ from institution to institution. So, you should be aware of what the penalties are and how they would be calculated.

· The person applying for the loan should confirm about the minimum down payment

· And the person should thoroughly confirm and know that documents etc that he has to present for the clearance of the loan.

Story by Andrew Cowan, Andrew is a specialist mortgage finance consultant specialising in home loans with bad credit & property finance solutions for investors & borrowers with specialized lending needs.