The Reserve Bank has cut the official cash rate for the second month in a row, with focus now shifting to the response from the mortgage market.
The Reserve Bank of Australia (RBA) has cut the official cash rate to a new record low of 1 per cent, in line with the expectations of most industry pundits.
In minutes released from last month’s board meeting — in which the RBA dropped the cash rate for the first time in almost two years — the central bank acknowledged that further cuts to the cash rate were “more likely than not”, with governor Philip Lowe also conceding that the market was not “making any inroads into the economy's spare capacity”.
The RBA’s unusually strong signal to the market prompted observers to predict back-to-back rate cuts in July and August, as part of an aggressive strategy to stimulate the labour market and boost GDP growth.
ANZ Research’s head of economics, David Plank, had said: “[Clearly] there is a very real chance the cash rate is cut in both July and August given the RBA’s assessment that “we are not making any inroads into the economy’s spare capacity.”
AMP Capital’s chief economist, Shane Oliver, who also predicted cuts in both July and August, stated that the RBA could lower rates by a cumulative 2 per cent.
“We remain of the view the RBA will [cut] in July/August, November and February, taking the cash rate to 0.5 per cent,” he predicted.
However, governor Lowe has noted the RBA’s reluctance to exhaust its monetary policy tool by dropping the cash rate to a “dangerous low”.
Expected rate cuts from the Federal Reserve in the United States and from the European Central Bank (ECB) have been flagged as a potential catalyst for a revision to the Reserve Bank of Australia’s (RBA) monetary policy strategy.
Analysts have observed that rate reductions from foreign central banks may undermine the RBA’s hopes for a lower Australian dollar to improve the domestic labour market’s competitiveness in the global arena, prompting it to ease further .
In a panel discussion hosted by the ANU Crawford Australia Leadership Forum, governor Lowe acknowledged the challenges but said the central bank would not look to out-cut its foreign counterparts.
“If everyone’s easing, the effect that we get from exchange rate depreciation [isn’t there], so we don’t get the same stimulus that you would normally expect from monetary easing,” he said.
“It may be possible if you ease more than others, but that’s quite a dangerous path to go down.”
He added: “There are limits on what further monetary policy can achieve.”
Mr Lowe renewed his call for alternative policy measures to stimulate the domestic economy.
“In my mind, that means we need to focus on fiscal policy and structural reforms,” he said.
Attention shifts to mortgage market
The RBA’s June cash rate announcement prompted an immediate response from the market, with several lenders, including the big four banks, passing on the reduction to their mortgage customers.
However, despite warnings from both RBA governor Philip Lowe and Commonwealth Treasurer Josh Frydenberg, some lenders opted not to pass on the cut in full, citing margin pressures and considerations for deposit customers.
Ahead of the RBAS’s July board meeting, Mr Frydenberg renewed his call for full 25bps mortgage rate reductions.
“[We] do expect the banks to pass on in full to the Australian people the benefits of sustained reduction in their funding costs,” Mr Frydenberg told the media.
However, CoreLogic’s research analyst, Cameron Kusher, has said that lenders would look to protect their savings customers and ease margin pressures.
“Our expectation is that banks will be holding back on passing on the full cut as they seek to balance out mortgage rates with deposit rates and protect net interest margins,” he said.
The Australian Prudential Regulation Authority’s (APRA) latest quarterly ADI institution performance statistics, revealed that the collective net profit after tax of Australia’s banks fell by 12.6 per cent ($1 billion), from $8.31 billion in the March quarter of 2018 to $7.26 billion in the March quarter of 2019.
When assessed on an annual basis, the collective net profit after tax of Australia’s ADIs dropped by 4.1 per cent ($1.6 billion), from $36.1 billion in the 12 months ending 31 March 2018 to $34.5 billion in the 12 months ending 31 March 2019.
he number of home loans is down on the previous year in all but two of the states and territories, according to the latest State of the States report from CommSec.
The Northern Territory and New South Wales came in the weakest, both showing loan commitments 14.8% down as compared to last year.
The only two regions to show an increase were Tasmania, up 3.9%, and South Australia, up by 0.1%.
The survey also measured the quantity of home loans against the decade average in each state and territory.
With this parameter, the ACT topped the list with the number of commitments up 17% on the long-term average. Tasmania was not far behind, its home loans up by 16.4%.
Victoria and South Australia were both also up on the average, 5.0% and 1.1% respectively.
The Northern Territory yielded the weakest result, home loan commitments 32.1% lower than the long-term average.
Western Australia was down 24.5%, Queensland down 7.4%, and New South Wales down 4.9%.
According to the report, “Housing finance is not just a leading indicator for real estate activity and housing construction, but it is also a useful indicator of activity in the financial sector.”
While values have changed, the ranking remains the same from the previous quarter.
Myth 1: Trail commissions are a fee for no service
Reality: The remuneration model is a deferred payment to the broker and a sharing of the loan’s risk and revenues. Historically, the upfront commission mortgage brokers receive from lenders were much higher than they are today, with no subsequent trail payments. To reduce their upfront costs, lenders adopted a lower upfront commission model with ongoing trail during the entire loan’s life
Trail commissions provide recognition and incentive for brokers so they can offer additional support and services to customers. This ensures customers of receiving the most appropriate product for their specific need. Removing trail will only further diminish competition in the home lending industry and increase the banks’ profit.
“If I have a million-dollar loan and a broker takes my interest rate down from 5% to 4%, he or she saves me $10,000 a year on an interest only loan, and if the broker gets $1,500 or 0.15% trail, I don’t care,” Peter Switzer articulated in the Switzer Report released last 5. February.
Myth 2: Mortgage brokers act on behalf of lenders, not borrowers
Reality: Majority of mortgage brokers are small businesses who generally rely on references and word-of-mouth to survive. Quality of service and integrity are critical to brokers.
Since upfront and trail commission rates are largely similar across the home loan industry, brokers won’t benefit from acting on behalf of a lender instead of their customers. Volume-based payments, soft dollar benefits and other lender-provided incentives which can potentially influence brokers were prohibited in 31 December 2017.
More choice for consumers means greater pressure on interest rates. This results in positive outcome for all consumers, regardless whether they use a broker or go directly to a lender. According to Connective, 96% of Australians were satisfied with their brokers compared to only 67% who deal directly with lenders.
Myth 3: Mortgage brokers are excessively remunerated for relatively simple work
Reality: Most people don’t see the time brokers dedicate in helping customers file a successful application on time, or in educating customers to make good decisions.
Apart from dealing rates, flexibility and convenience, brokers solve and manage the ever-increasing complexity of Australia’s home lending market. Their ongoing service is helping customers move through the complexity.
Brokers also assist customers with post-settlement matters, much of which don’t draw in additional revenue for the broker and, in certain circumstances, even result in a revenue deduction.
Myth 4: Shrinking – or killing – the mortgage broking industry won’t kill competition in the home lending market
Reality: Choice, convenience and healthy competition top the benefits brokers provide borrowers based on commentaries that came out since the Royal Commission released its final recommendation. There were also predictions that the recommendation, if implemented, could significantly shrink and even diminish the mortgage broking industry; thus, adversely affecting competition.
The report shows that first home buyers have been strongly returning to the market, with lending to that segment reaching the highest level since 2010. The surge is expected to continue for another 12 months at least.
In 2017, lending to first home buyers increased by 74% in Sydney, and nearly 30% across the rest of the country.
“We haven’t seen the first home buyer market this strong since the government’s 2008 stimulus plan following the Global Financial Crisis, which saw $1.5bn allocated to first home buyers,”. Affordability and first home buyer incentives from some state governments have contributed to the volume increase of first home buyers. “A mortgage is, undoubtedly for most people, the largest financial commitment that they’re ever going to make in their life. That’s particularly pertinent for the first home buyer segment of the market,”. “Our business as brokers is all about helping people get into a home. But we’re also conscious that it’s just as important that once they’re in there, they can actually stay there.” Need to secure a great low interest Home Loan? Call Cairns Mortgage Brokers on 07 40579746
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Short-term rental properties like Airbnb have flourished in recent years, yet lenders still struggle to accept them as a valid income stream for borrowers.
Cairns Mortgage Brokers director Roger Ward feels that lenders think such properties are merely “a casual-type income, when in reality they’re used in different ways in the short-term rental community”.
Ward told MPA there’s a large portion of the Airbnb income stream that comes from full-time short-term rental opportunities, with years of figures to look back at.
“This group has a minimum of two years of fully documented rental income, which in my books should be considered because the property looks more like a commercial property,” Ward said. “Banks just don’t seem to recognise this as a serious business. I have a client who generates over $300,000 per annum from four properties.”
Ward recognises the great returns brokers can get from Airbnb properties. But he reminds them that, as in any sales environment, the client’s needs should be considered first. Brokers can suggest their clients invest in tourism areas, where Airbnb properties seem to particularly thrive — especially areas located near transport systems with a high standard of accommodation. Many online forums can help clients market the property, Ward added.
From a lending point of view, brokers need “to make the lending stack up on a permanent rental basis”. Ward tells brokers to brief borrowers who are looking to leverage their fantastic returns that banks will not assess all their income; at best, the assessment will be restricted to a 6% return on the asset value.
He also advises brokers to source banks that will best utilise a client’s income to achieve his or her goals. For him, banks that disregard such income do so at their own peril, and those with policies that recognise the billion-dollar industry will benefit from it. However, if a borrower has a two-year income history, the bank should take either the full net income or the discounted net income, which can be 80% of its value.
Ward has been educating lenders via their BDMs about the strong income that comes from clients with Airbnb properties. He said that while everybody knows how slow credit policy moves, “banks are missing out on high quality borrowers with investment propertiesconsistently returning 10-15% per annum”.
“History is full of missed opportunities, and simply put, the Airbnb genie is out of the bottle and isn’t going anywhere,” Ward said. “The first lender that treats this income seriously will have the entire broking network at its door.”
Roger Ward at Cairns Mortgage Brokers is very excited to let you know that we have been nominated as a finalist in the MFAA Awards For Excellence, Regional Mortgage Broker Of The Year QLD 2018, Residential Mortgage Broker Of The Year and the 2018 Queensland Community Champion Of The Year.
We could not have done it without you so THANK YOU.
We are very honoured to be a finalist in 3 categories in this prestigious award which we won in 2016 and 2017.The winner for 2018 will be announced in June.
We are a small Brokerage in Cairns so to be a finalist is already a great accomplishment. Again, Thank you to you, our valued client.
A recent spike in funding costs is happening at the worst time for Australia’s big banks, as intense public scrutiny crimps their ability to pass on increases to customers.
The banks are fighting to defend their reputations in the face of an inquiry into misconduct and mistreatment of customers. Two weeks into hearings in front of a Royal Commission, allegations have included claims some bank staff took cash bribes to facilitate mortgages based on fake documentation, while others sold unnecessary insurance policies.
At the same time, the big four lenders – Commonwealth Bank of Australia, Westpac, Australia & New Zealand Banking Group, and National Australia Bank – face a jump in their short-term financing costs both at home and offshore. The Libor-OIS differential, a key indicator of US dollar borrowing costs, has more than doubled since the end of January, and domestic three-month bank bill rates have also surged.
Cairns has been chosen as regional Australia’s hottest property investment destination for 2018.
Simon Pressley of Propertyology said investing in the Tropical North was a “no brainer”, citing our affordable housing market, tropical attractions and lifestyle as key factors in the city’s top ranking.
While the “affordability driver” is the top reason for the number one ranking, Pressley told Sky News Real Estate that our clean environment, food experiences, beautiful beaches, agriculture and major projects were also important drawcards.
Mr Pressley has already personally endorsed the regional city with his own investment property in Cairns, pointing out that you would be “flat-out getting a pantry in Sydney or a carport in Melbourne” for the median purchase price of a three-bedroom house in Cairns.
He also said you can expect a “big bang for your buck” in Cairns with 600-800 sq. m blocks, low maintenance homes with pools, and, with tight vacancy rates – a 5% yield on your investment.
Pressley says the trend of more people leaving capital cities is expected to continue, with 20,000-plus currently leaving Sydney each year for tree and sea changes.
He says the outlook for Cairns is strong, citing the city’s proximity on the map as the ideal gateway to Asia, the fifth largest international airport in Australia, and major tourism and business infrastructure.
An over-reliance on tourism is in the past Pressley points out, with the estimated $700 million worth of investment by Crystalbrook Collection, the expansion of two major universities, the port and naval hub and the Cairns Convention Centre upgrade, together with regional agriculture.
An added attraction is Cairns’ employment rates, growing at 11.2%, more than three times the national average of 3.7%.
Reflecting on the current state of the market, Rick Carr of Herron Todd White Cairns notes in CairnsWatch November 2017 that price movements for individual properties have been mixed and prices overall are relatively static.
But Mr Carr’s research found the median vendor discount – the difference between the asking price first advertised on a property and its ultimate selling price – has reduced for units and houses alike.
“The latest trend median prices, for properties sold in the month of October 2017, came in at $405,000 for a house, $205,000 for a unit, and $212,000 for a block of land,” Mr Carr wrote in the latest Cairns Watch report.
“Despite relatively flat market conditions in terms of volumes and prices, other market metrics have shown some improvement in the latest quarter.
“The median time taken for listed properties to reach a sale has decreased from 59 days for houses sold in the 12 months to May 2017, to 56 days for houses sold in the 12 months to August 2017.
“The median time taken to sell a unit remained unchanged at 74 days over the same period. Article from Tropic Now
The Government is going to make it easier for authorised deposit-taking institutions to call themselves banks, in the hope it will reduce the cost of loans.
Currently only ADIs with more than $50m in capital can call themselves a bank but Treasurer Scott Morrison says this prohibition will soon be removed.
“There are approximately 58 ADIs in Australia that will then be entitled to call themselves a bank, boosting their market appeal and their ability to secure cheaper funds,” Morrison noted. “The benefits to the customer are simple - cheaper loans.”
Morrison pointed to the UK, where easing usage of the word bank in 2013 encouraged the growth of new ‘digital banks’ such as Monzo and Starling. According to Morrison “it led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.”.
With over 20 years experience in Home Loan Lending and Financial Planning, You can feel confident Cairns Mortgage Brokers will get you the best deal on the market. Call us today: 4057 9746