Robyn Roberts

Negotiating The Boulders

 

Applying for a home loan can be like being let loose on a free flowing river with a small paddle and not much skill.  Some of the boulders that come up may include issues with your Credit Report.  If you have not paid your bills and you have not been in contact with the lender or credit provider to work out a payment plan, the credit provider is likely to put your file into the hands of a debt collector and a default is lodged.  Even worse, they could take you to Court and issue a Judgement against you.  A listed default will stay on your credit record for 5 years.  Bankruptcy will stay for 7 years.

Lenders assessing any home loan application will also look at the number of times you have applied for credit such as credit cards, store cards, consumer or home loan applications.  If there are multiple applications over a period of time, this can impact on how the lender "scores" you.

Your credit file is your most important asset, treat it with the respect it deserves.

(Photo is of me and my family during our visit to Bali in January.  Nothing like a great deal of excitment and free flowing adrenalin.  Thankfully we had a strong, wily and good looking Balinese guide to get us down safely)

The Year In Review

What a big year 2009 was for us all.  A few points worth considering are:

• The current RBA cash rate is sitting on 3.75% up from the April 29 year low of 3%.   Most home loan variable rates are sitting at approximately 6.05%.
• The early to mid 1990's was the last time a 2.2% gap existed between the client variable rate and the RBA cash rate.  This changed when competition was introduced in the form of non bank lenders.
• In March this year bankruptcies hit a 20 year peak, up 261% on 2008
• The major five lenders fixed rates have been shooting up all year, however, these rates appeared to have stabilised over the last two months.  There is still a big gap between the fixed and variable rates.

What's next?

• The major banks are forecasting the cash rate to rise by approximately 1% over the next 12 months.
• If the banks align their variable rates to the RBA rate movements over the next 12 months, the client variable rate would be approximately 7.05%.

 

The Week That Was

Where do we start this week as it has been interesting, to say the least, on many levels.  Some may have no impact on you, but here are a few reminders:

• Federal spill within the Liberal Party
• Tony Abbott now the leader of the Opposition
• First woman premier of NSW Kristina Keneally said her priorities would be jobs, public transport, health, education and vulnerable people!
• Reserve Bank increased the cash rate
• 3 out of the 4 major lenders increased interest rates UP & OVER the Reserve Bank Increase
• We hit summer and 20 sleeps till Santa comes to town.

The Point - enjoy your family and forget the rest!

Last Days Remaining!

As we lead up to Christmas and the last days of the extra government FHB boost, industry analysts believe the property market will be particularly busy as first home buyers rush to take advantage of the extra incentive of $7,000 for a new home and $3,500 for an existing property.   My personal opinion is that those who were going to purchase have already done so.

In addition, some buyers are confusing the boost, which will end on 31 December with the First Home Owners Grant that is set to continue in 2010.   January 1 does not represent the end of Federal Government subsidies for first time buyers as the $7000 FHOG will still be available to eligible applicants.

So First Home Buyers who aren’t ready to buy yet, even with the additional boost, will not miss out completely as the original FHOG remains.

 

Is Time Right For Investment?

Did you know that more than 70 per cent of Australians over the age of 25 believe the time is ripe for property investment?  This is according to a recent Citibank wealth survey.   Australia's property prices have held relatively firm during the Global Financial Crises while overseas markets, particularly in the US and Britain, plunged.
So Australians see property as relatively risk free.  However, while a lot of people are saying "now is a good time to buy and invest", it is another thing to actually do it. 

I really love the quote: "To get what we've never had, we must do what we've never done".  (Anonymous)

Costs To Rent Or Buy Near Parity

According to data from the Australia Bureau of Statistics (ABS),the costs associated with renting or owning a home are now on a par. Interesting statistics include:

1. Current mortgage holders pay 18% of the gross income towards their mortgage while renters pay 17%
2. Over past 13 years housing costs for mortgage holders has increased by $112 per week (annual growth rate of 2.7%)
3. For the same period rents have increased from $169 - $237 - annual growth rate of 2.6%
4. Medium house prices have increased 5.6%
5. Household incomes have increased 3.1% annually
6. Renters enjoy much more money in their pocket than a home owner. Flip side is that renters have missed out on $202,000 increase in property values (if you bought a property in 1994-1995)  and the resulting increase in equity of those with a home loan.

Source: Mortgage Business 12 Nov 2009

Westpac Goes Green

Westpac Bank is going green!! 

Westpac will introduce a new interest free ‘green loan’ that will help families install solar, water saving and energy efficient products that will reduce greenhouse gas emissions.

The interest free ‘green loan’ is worth up to $10,000 and will be available from November 16.

According to a statement released by the bank, the loans will support the Australian Government Green Loans Program and will give homeowners an opportunity to improve their energy and water use efficiency.

"The loans have the potential to help around 360,000 Australian households save on energy and water bills,” a statement from Westpac said.

The loan, which includes no monthly service fees, establishment fee or prepayment fee, are interest free but have to be repaid over a maximum of four years

Interest Rate Comparison

Fixed rates can provide repayment certainty when you suspect that variable rates will continue to climb. However, you can see from the chart below that the fixed rates have been climbing steadily since July.

 
 
 
10 year history of RBA rate movements.

10 year history of average basic variable interest rate.

 

First Homebuyers' Borrowing Power

The gradual winding back of the First Home Owner Boost will adversely affect many first home buyers and may lock them out of the property market.  Why?  Lets look at a couple who have $14,500 in savings.  The scalled down Boost is now $10,500 until 31st December.  Combining savings plus the Boost, we have an amount of $25,000 which means that they could borrow on a house worth $250,000 due to the banks requiring a 10% deposit (standard policy).    However, if they miss out on the scaled back Boost, then they could only borrow on a house worth $215,000 because their deposit would only be $21,500.

I find this fascinating as some first home buyers are waiting for the Boost to end hoping house prices will drop by then but they aren't aware of the lending requirements as well as the potential of housing stock decreasing.  So the best time to buy is still now, regardless of the competition.

Fixed Rates Can Easily Cost Too Much

Home loan interest rates were increased by major lenders last week in line with the Reserve Bank raising the cash rate by the Reserve Bank to 3.25%.  This increase has led to a flurry of enquiry by my clients wondering if it’s time to consider fixing all or part of their mortgages.  In my September Ezine I showed how it is the time and speed factor of rate increases which truly impact on a decision to fix your home loan. 

Yesterday’s Sun Herald Article by Matthew Bell, Economist gave a great example.  The average discounted variable rate currently is about 5.4%. The average 3 year fixed rate is currently at between 7.09 and 7.29%.

“The fundamental reason for switching to a fixed rate is to protect against rising variable rates and reduce total repayments during the fixed period. For borrowers to switch to a fixed rate now, the implicit assumption would be that the current variable rate 5.4% will eventually exceed the current fixed rate of 7.2%.

Although payments would be higher until that happens, the expectation is that the money saved during the latter part of the fixed period (when the variable payments would exceed the fixed payments) more than makes up for the earlier overpayments.

So for a $400K mortgage assume that the option is to lock in your fixed rate of 7.2% for three years or to remain on the variable rate over the same period.  How fast does the variable rate have to get to 7.2% and how long does it have to exceed it, for borrowers to be better of fixing?

Assume the mortgage rates rise at the same rate as the RBA’s cash rate. Let’s also assume that the cash rate rises .25% ever three months for the first 18 months and .5% every three months for the final 18 months.  Under these assumptions the variable rate will reach the fixed rate of 7.2% about halfway through the 3 year period and will be at 9.65% by the end of it.

Under that scenario both the variable and fixed rate options will mean that at the end of 3 years, we will have paid off nearly exactly the same amount of principal and interest.  If rates rise quicker and go higher than our original assumption – fixed was the right option.

Given that in the past 13 years the standard variable mortgage rate has exceeded 9% only once and we’re still only in the early stages of economic recovery, chances are variable rates won’t exceed current fixed rates by enough over a three year period to make fixing worthwhile. “