First Cash Rate in 2019 Announced

The Reserve Bank of Australia (RBA) has made its first cash rate announcement of 2019, at a time when most of the industry is still concerned with the fallout from the Royal Commission report.

To no surprise, the rate has remained on hold at 1.50%, where it has stayed since August 2016.

While RBA governor Philip Lowe has said the next rate move will be a hike, some experts are beginning to expect a rate cut could be the way forward.

CoreLogic head of research Tim Lawless said of today’s decision, “The hold decision was widely anticipated, considering a subtle uplift in CPI and steady labour market conditions, however financial markets are increasingly leaning towards the next move from the RBA being a cut rather than a hike.

“With CoreLogic’s January hedonic index revealing national dwelling values are falling at the fastest rate since the GFC, while Sydney and Melbourne’s rate of decline is now the most rapid since at least the early 1980’s, there is the potential the RBA may be becoming less comfortable with the performance of the housing sector. Add to this a consistent downtrend in dwelling approvals, weakening consumer sentiment and softer retail trade figures, and it looks like the household sector could start to weigh down economic growth.

“The weeks preceding the RBA meeting saw several smaller lenders pushing mortgage rates higher in response to persistently high funding costs, following an average 14 basis point rise in owner occupier mortgage rates since September last year. If we see mortgage rates rising more broadly, we might see the RBA become more willing to consider a rate cut in an effort to offset higher funding costs and support heavily indebted household balance sheets.”

John Kolenda, managing director of Finsure, said there was a likelihood of a post-election rate cut.

He said, “There is increasing pressure on the RBA to lower rates, particularly when you weigh up all the negative factors which includes the coming federal election, the response to the final report of the Hayne Royal Commission, the falling property market and external matters such as the US-China trade war and Brexit.

“There are just too many headwinds at the moment. You also have banks increasing their rates independently of the RBA due to cost of funding issues. Consumer confidence is the strongest economic indicator and as we can see from downturns in retail spending, consumer confidence is lagging.”

In his commentary around the rate decision, Lowe said, “The housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices. Conditions have weakened further in both markets and rent inflation remains low. Credit conditions for some borrowers are tighter than they have been. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased to an annualised pace of 5½ per cent. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.”

 

How to negotiate on price and knock out the competition

All’s fair in love and war, and the same might be said for negotiating with real estate agents.

Whilst you want to get the best possible deal on your purchase, the agent is responsible for getting the best possible price for their client – the vendor.

Depending on how long you have been looking, you might be tempted to just pay the asking price to free up your Saturday mornings again.

But just think – how much sooner could you pay your loan off if you saved tens of thousands on the purchase price?

If you want to get the best deal on your property purchase, try these 6 tips:

  1. Focus on positives all around. The best way to negotiate is for every party to feel like they won the game in some way.

 

  1. Communicate clearly and develop a rapport with the selling agent. Don’t try to pick holes in the property.

 

  1. Do your homework. If you want to be able to negotiate on price, you need to have a good idea of what similar properties in the area have sold for in the past couple of months. You should walk through plenty of open houses and keep a close eye on the sold results for your area. (If the selling agent offers to give you a list of sold results, accept politely but do your own research because they will probably choose the highest prices to help in their negotiation with you).

 

  1. Don’t try to buy outside of your price range. If a property is advertised at $500k to $550k, and your budget is $450k, don’t waste your time. You will only destroy your credibility if the right property comes up with that selling agent in the future.

 

  1. Try to find out what the vendor’s motivation for selling. If they need a quick sale, or if they require a certain settlement period, this could help you to negotiate a deal that works for everyone. By including something in your offer that sweetens the deal, this could put you ahead of other buyers in the race.

 

  1. Timing is everything. Some would advise that it’s best to make the selling agent chase you as much as possible. But depending on the area, you might have a win by putting your offer in early. In areas with slow property sales, a vendor might be shocked to receive an offer in the first few days on the market. If you make your offer valid for only a day or two, the vendor will need to decide whether they wait and hope that someone else will come along, or whether they accept your offer for a quick sale.

The final cash rate of 2018 has been announced by the Reserve Bank of Australia.

RBA governor Philip Lowe announced the rate would be remaining at 1.5%.

As there is no cash rate meeting in January, this means the rate will have remained the same for at least 29 months in a row.

Experts and analysts were expecting the decision, citing low unemployment and wage growth.

While many over the last few months have begun predicting the rate might stay the same until 2020, the shadow board of the RBA has said there is “an increasing need” for a hike in the next six months.

CoreLogic’s head of research, Tim Lawless, said that “Considering the diversity of economic conditions, the hold decision comes as no surprise”.

Explaining what the RBA would be looking at, particularly in terms of the housing market, he added, “Labour markets are improving, but wages growth remains sluggish and inflation has softened.  It’s a bit harder to gauge the RBA’s view on housing market conditions, with the RBA continuing to call out weakening conditions in Sydney and Melbourne.

“CoreLogic data to the end of November highlighted that the Sydney market has already recorded a 9.5% decline in values since peaking in July last year and will likely surpass the previous record peak to trough decline of 9.6% which was set during the last recession between 1989 and 1991.

“Despite this weakness in the largest cites, dwelling values in Sydney remain 41% higher than they were five years ago, and Melbourne values are still 38% higher both of which show five year growth rates well in excess of most other capital city markets.

“Additionally, five of the eight capital cities have posted a capital gain over year to date however, from a macro view they have much less of an influence on the national figures than Sydney and Melbourne do.

“To date we haven’t seen the housing downturn impacting on household consumption or saving, however this is likely to be a key factor the RBA will be monitoring.”

 

NO rate change for the 27th Consecutive month

The Reserve Bank of Australia has announced its decision on the November cash rate. The rate would be staying the same at 1.50%.

The rate has now been the same for 27 consecutive months and many analysts believe it will remain at this rate into 2019 and possibly to 2020.

This announcement was mostly expected from the industry, with 98% of brokers believing it would remain the same, according to an industry survey.

The RBA shadow board also attached a 53% confidence that the rate would remain the same.

The RBA governor has previously said the next move of the cash rate will be a hike, however some analysts are now suggesting the environment at the moment could call for a decrease.

Michael Yardney, from Metropole Property Strategists, said, “The RBA must be a little worried with the current crisis in consumer confidence. If anything it may want to err on the side of caution and lower rates, but it is likely to take a wait and see approach.”

AMP’s Shane Oliver had said, “The fall in the official unemployment rate to 5% helped by above trend economic growth is good news.

“But the slide in home prices in Sydney and Melbourne risks accelerating as banks tighten lending standards which in turn threatens consumer spending and wider economic growth and inflation and wages growth remain low. Against this backdrop it remains appropriate for the RBA to leave rates on hold.”

 

How to negotiate in a softer housing market

Seller expectations are high but buyers want low prices – what’s to be done? Two real estate agents detail how to negotiate in a declining housing market.

After years of rapidly rising house prices, the recent slowdown took many people by surprise – not least those with a home to sell.

“For a while we had a situation where buyers were aware the market was dropping while sellers still assumed it was strong, so there was a big gap between their expectations,” says Anton Zhouk, Director of the Buxton Real Estate Group at Boroondara in Melbourne’s eastern suburbs.

“Now people have had time to adjust so, when it comes to negotiation, the gap isn’t quite so wide.”

Whatever the state of the market, every negotiation is based on the same premise – vendors want to receive the highest possible price while buyers want to pay as little as possible. Both, however, need to give careful thought to how they approach a negotiation when the market is in decline.

Be realistic

From a vendor’s point of view, it’s crucial that you price your property correctly from the start. The most incredible homes in the world won’t sell if they’re overpriced.

Jane Booty, Principal of Stone Hills District Real Estate in Sydney, agrees that vendors must be realistic.

“Some potential buyers are waiting for prices to fall even further so there are fewer actively looking,” she says. “They have more properties to choose from so it’s harder to convince them to pay a premium price. And the longer a property stays on the market, the less likely it is to sell at a higher price – buyers can look up how long it’s been for sale and will use that against you.”

She suggests that vendors try not to think in terms of losing money.

“Unless you bought in the last two years or so, you’re probably going to get a higher price than you paid,” she says. “And, of course, if you’re selling to buy, you’ll be paying less yourself. It can be more helpful to think in terms of the changeover price, rather than fixate on the price you may have been able to achieve a few months ago.”

Take offers seriously

If a property is on the market now, it’s there for a reason.

“This isn’t a time to be testing the market or selling a property if you’re not in a hurry,” Booty says. “If you do need to sell you should be prepared to take every offer seriously, even if it’s not at the level you were hoping for. At least enter into negotiations to see how far you can get your potential buyer to go.”

When buyers have the upper hand, presentation is particularly important.

“You need to be clear about the attributes of your home – the unique selling points that make it desirable,” Booty says. “It’s also worth spending some time and money on minimising anything that would cause concern. You don’t want potential buyers to go away with the impression that there are another five homes they’d be equally happy with.”

“In a softer market, it’s vital that you start by getting good advice on everything from pricing to presentation,” Zhouk says. “The right agent will also help you market the property effectively. This needs to be considered on a case by case basis – for example, advertising in print media may work well for some but, for others, it would be a waste of money.”

Be ready to act

As a buyer today, you’re well placed – but you shouldn’t be too complacent.

“If you see a property that appeals to you, it’s also likely to appeal to other people so you can’t afford to sit back and wait in the hope that the price will fall,” Booty says. “At least throw your cap into the ring and start the negotiation process.”

Zhouk believes that today’s buyers are in a fortunate position now that the market has settled – though no one knows for how long.

“The only way you can tell when the market’s hit the bottom is when it starts to come back up,” he says. “By then, you could be too late.”

Some tips to help get the best results from your negotiation

If you’re selling

  • Set a realistic price from the outset
  • Find a real estate agent you trust and act on their advice
  • Take extra care with presentation – you want potential buyers to fall in love with your property

If you’re buying

  • Do your research – be clear about a realistic market price
  • Have your finances in place, arrange a loan pre-approval
  • Let the agent know if you’re interested in a property
  • Don’t wait too long for a bargain – the market could turn at any time
LoanHub

Let’s Bust some Money Myths

Making the most of your money often requires common sense more than a commerce degree.

Let’s take a look at five misconceptions about money that could be holding you back from greater financial freedom.

1) I DON’T EARN ENOUGH TO SAVE

A lack of savings generally has less to do with how much you earn and more to do with how much you spend. Cutting out even small discretionary spends can reap big rewards.

Take-away coffee every day at work – around $820 per year.
Buying lunch three days a week – more than $1,000 a year.
Tuckshop once a week for the kids – more than $250 a year
Often we don’t save because we think we need to sock away $50 or $100 at a time – and then give up when we discover we don’t have that much left over.

But you can start smaller – much smaller. If you saved $1 a day from age 18 to 65, with compound interest paid at six per cent, you would eventually haul around $96,000. Five dollars a day would eventually turn into close to $480,000.

Compound interest is where interest is paid on the interest already earned. This powerful concept – and patience – is the key to accumulating savings over time.

2) A SALE IS A CHANCE TO SAVE

A sale is actually a chance to shop, and probably spend either more than you intend or more than you can afford.

Of course you will spend less on an item if you wait for it to go on sale. The problem is many of us discard our shopping list or exceed our budget when faced with a bargain. We focus on how much we could save, not how much we are about to spend.

One way to take advantage of a sale without being distracted by impulse buys is to shop online where it’s easier to look for the best price, make a bee-line for your item and bypass the temptation of other mark-downs.

Or if you are hitting the stores, make sure you keep focused on what it is you are looking for and try not to get distracted.

3) MY HOME WILL FINANCE MY RETIREMENT

If you live in a multi-million dollar home then you might be right.

Many of us, however, could be struggling to even pay off our homes by retirement.

There is a growing concern among financial experts that many baby boomers will be looking to their superannuation to pay off their mortgages, unlike previous generations who aimed to be without debt by the time they tossed in the work towel.

Instead of paying off the family home, many Australians have been dipping into their home equity to fund their lifestyles, with a view to using their super lump sums to clear the debt.

That strategy is likely to push more seniors onto the age pension earlier. At a maximum of about $32,000 per year for a couple, today’s pension falls well short of the estimated $56,000 spend per year for a couple’s comfortable retirement, according to the Association of Superannuation Funds of Australia.

Fast-forward 20 years and that gap is only likely to widen due to the number of retirees outstripping tax-paying workers to fund the social security system.

Even if you do pay off your home ahead of retirement and then downsize, the sale proceeds will probably not be adequate to keep you in the style to which you are accustomed.

Generally, you need about 60 to 70 per cent of your pre-retirement annual income for a comfortable lifestyle.

The best way to prepare for retirement is to sock more into super and establish some long-term investments, such as additional property or blue-chip shares. Speak with a financial advisor about the best strategies for your circumstances.

4) MY BANK WOULD ONLY EVER GIVE ME A CARD LIMIT I CAN AFFORD

When lenders assess how much credit card debt you can handle, they really are stretching things to the limit. They’re not considering your real-life financial responsibilities and discretionary spending.

And they are counting on you covering just the minimum repayment each month, so you take as long as possible to clear the debt and pay as much interest as possible.

Regardless of what a lender says you can afford, you need to do the sums yourself. Take out a smaller limit than what’s on offer and make sure you pay off your card each month.

If unable to clear the balance each month, always make higher payments than the minimum to pay the debt off as quickly as possible.

If you are already at your limit, look to switch the balance to a low-interest card. The key is to cancel your old card once the balance is transferred and to keep making repayments at the same previous rate, so you clear the debt quicker. You can also take advantage of low-interest introductory offers for a short period to really get ahead of the debt curve.

5) I’M BETTER OFF RENTING AND PUTTING MY MONEY INTO SHARES

With house prices climbing beyond the grasp of many first-time buyers, it’s not surprising some are tempted to give up their pursuit of property to invest in shares.

Financially, there may not be anything wrong with that strategy. Property and the share market are both long-term investments averaging similar capital growth over 10 years, with fluctuations along the way.

One advantage of home ownership, however, is that paying down a mortgage becomes a form of forced savings, with your property growing in value over the long term during those years.

If renting, you need to be fairly disciplined to regularly invest a portion of your disposable income. This is where the best intentions can unravel and why, over the long term, home ownership might be the best investment.

If things remain the same as they are today, there is no capital gains tax on your owner-occupied home when you later decide to sell.

Everyone’s circumstances are different so make sure you get expert financial advice before deciding on which investments are best for you.

Tax information: the information contained in this article does not constitute advice. As taxation legislation is complex, we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice in relation to your personal circumstances.

No change in Cash Rates

Following its monthly board meeting, the Reserve Bank of Australia (RBA) announced that it has held the official cash rate at 1.5 per cent. All 31 economists surveyed predicted the RBA’s verdict, citing uncertainty in domestic and foreign markets. Over 90 per cent of brokers surveyed also predicted a rate hold.
Prior to the RBA’s announcement, economist at Corinna Economic Advisory Saul Eslake noted that while economic growth is “above trend”, weaker than expected labour market and inflation indicators would dissuade the central bank from lifting the cash rate.
“[The] RBA has made it increasingly clear that it is in no hurry to start raising rates,” Mr Eslake said.
“Although economic growth is now running ‘above trend’, unemployment and underemployment are still higher than the RBA wants, and inflation is lower than the RBA wants, and it expects progress on both of these fronts to be only ‘gradual’.”
Mr Eslake also claimed that the RBA “seems unconcerned” by out-of-cycle rate increases from lenders, including three of the big four banks.
The US’ new wave of tariffs on Chinese imports, and the effect that rising funding costs may have on Australian mortgage rates, could also have an influence on the RBA’s economic forecasts.
“On an international level, [President Trump’s] trade tariffs on Chinese imports may create a drag on global growth, which may impact on the Australian economy and jobs,” the spokesperson said.
Further, despite also predicting a rate hold, senior economist at AMP Capital Shane Oliver warned: “While economic growth ran above trend over the year to the June quarter and growth should be supported by business investment, infrastructure spending and exports going forward, uncertainty remains around the outlook for consumer spending, house prices are likely to fall further and wages growth and inflation remain low.”
1300HomeLoan managing director John Kolenda also made reference to the continued uncertainty brought about by the financial services royal commission, stating that the RBA should “help navigate” the economy “through these uncertain times”.
He added: “The royal commission is still a factor and we have other elements such as the US-China trade war, downward pressure on the property market and the federal election looming which all influence consumer confidence in a negative way, troubling our economic conditions.
“Lenders have already raised their rates out-of-cycle. If the RBA followed suit that would only be detrimental to consumer confidence in a falling housing market.”

How to escape mortgage stress

Understanding your borrowing capacity

First of all, it’s important to understand how much you can realistically afford to borrow for a home loan. Consider Reviewing your income, expenses, other financial commitments, potential loan details and number of dependents to get an understanding of how much you can afford to borrow.

Remember, what you can save for a deposit will play a huge part in determining the amount you can borrow. For some full -documentation loans, the loan to-value ratio (LVR) is around 80%, which means you need to come up with the remaining 20% in the form of a down payment. Other home loan products allowing greater than 80% LVR tend to come with higher interest rates or fees. On top of this, it’s important to fully understand the costs involved in taking out a mortgage and owning a property. Some major expenses include stamp duty, mortgage insurance (which is generally payable if you need to borrow more than 80% of your property value), establishment fees, ongoing repayments, any loan fees and repairs/maintenance. You can use online calculators to get a feel for how much you can afford to borrow.

Knowing your potential borrowing capacity can help to ensure that you borrow within your means, which means you’ll be in a much better position to service your ongoing mortgage repayments and the other associated expenses.

Factor in 2-3% on top of your current repayments

Once you’ve taken out your home loan, it’s important to draw up a budget and consider a buffer of at least 2-

3% on top of your existing repayments to account for interest rate rises. While the cash rate is at a low of 1.5%, it’s expected to rise as early as next year so it’s important that variable rate mortgage holders incorporate a potential rate rise into their budgeting.

Anticipating interest rate rises and planning ahead may help you avoid mortgage stress as it could help with coping with higher interest rates and the more expensive repayments that come with this.

Re-think your existing debt

Your mortgage is arguably the biggest financial commitment you’ll make in your lifetime and it’s a debt you’ll be managing for up to 30 years. This could mean making some adjustments to your other personal finances to free up your cash flow and to reduce mortgage stress. For instance, if you have multiple credit cards, you may want to consider moving your plastic debt onto a single card via a credit card with a 0% interest balance transfer promotion. If you repay the debt during the interest-free promotional period, you’ll dramatically reduce your interest costs. However, just be mindful of the revert rate that will apply once the promotional period ends.

Consider refinancing your mortgage

If you don’t think you’re getting the best bang for your buck on your mortgage, then think about switching. Refinancing to a lender that offers an interest rate that’s even 0.25% lower than what you’re currently paying could mean thousands of dollars in savings over the life of your mortgage.

However, an interest rate is not everything in a home loan and it’s important to be mindful of the establishment costs and ongoing fees associated with a new home loan.

Ask your bank for assistance

If none of the above options is possible and you’re experiencing mortgage stress, ask your bank for support. You can apply for Hardship Assistance –which may involve a temporary change to your loan obligations to give you a chance to get back on your feet financially. Your bank will assess your circumstances and if it’s appropriate, may be able to help by, for example, providing a temporary reduction or deferral of your repayments.

In Summary

Repaying a mortgage is an enormous financial commitment that can cause some households a world of stress, so to ensure it doesn’t interfere with your livelihood, consider the above tactics to remain in control of your mortgage debt. A little financial discipline can go a long way to ensure that you’re in a sound position to manage your repayments and to eventually achieve full home ownership.

Bessie Hassan/Finder.com.au

 

Investing in Property with a Friend

Have you ever heard the expression, ‘no friends in business’? It’s an oldie but a goodie.

This is the attitude you should bring when considering buying property with a friend.

Many good friendships have gone under the bus, and lots of people have taken a bullet to their credit rating by not giving this decision adequate thought.

So, what are the risks involved with co-ownership, especially when you purchase with a friend?

What if one wants to sell?

One of the biggest problems with co-ownership is when one owner decides they want to sell the property, but the other owners don’t agree.

This often ends up in court, and the process can be costly and upsetting for everyone. And needless to say – the friendship probably won’t survive.

Buying could be harder in the future.

It might seem like the dream scenario to invest now with your best friend.

But if you decide in a few years to purchase a home to live in, the lender will assess your financial commitments based on the whole loan for the first property, not just the portion that you agreed to cover.

This could make it very difficult for you to get another loan.

You could be left holding the baby.

If something happens and your friend is unable to make their repayments, you could be left in the difficult situation of repaying the entire loan by yourself.

Coupled with your other living expenses, you might not be in a position to cover the whole amount yourself.

But there are some ways that you can reduce the risk, if you are keen to purchase property with a friend.

  1. Put a legal will in place. It’s important to make arrangements for what will happen to your assets if you pass away or become incapacitated.
  2. Draw up a co-ownership agreement. If you can think about any issues that might possibly come up in the future, and have an agreement in place to solve them, you’re less likely to wind up in court trying to work things out.
  3. Choose the right structure – tenants in common, or joint tenants. Tenants in common can own a different portion of the property, and they need to specify in their will who will inherit their portion if they die. Joint tenants jointly and equally own the property, and if one person dies, their share automatically goes to the other(s) regardless of the instructions in their will.
  4. Choose the right person. It’s important to discuss your financial goals and values before you enter into this sort of arrangement. You need to feel comfortable knowing that your friend will be financially secure enough to keep up their end of the bargain – otherwise you might be left trying to cover the repayments alone.

It’s important to think about your own relationships as well, if your partner is keen for you to buy a house together next year, you might want to think about how this first investment might impact your borrowing power.

 

Interest rates still on hold at record low of 1.5% as economy looks set to slow

Increases over the last week by the likes of Westpac and Suncorp were a factor in the RBA’s decision to leave official rates on hold for yet another month at 1.5 per cent. It marks the longest ever run of interest rate stability in Australia, with the last movement (a cut) happening back in August 2016.

During its last meeting on 7 August, the RBA board had examined an economy in generally good health, with steady growth in retail sales and employment, housing prices continuing to come off the boil (except in the booming Hobart market) and overall growth expected to sit just above 3 per cent in 2018 and 2019.

Of concern, though, is the ongoing drought gripping NSW and much of Queensland, which is impacting agriculture production and exports.

Inflation — a key driver of interest rate movements remains relatively subdued at 2.1 per cent and is expected to remain subdued for some time to come.

“Strong competitive pressures and low growth in wage costs had been placing downward pressure on retail prices for some time,” the board noted in its minutes.

The decision to keep rates on hold for yet another month had been widely anticipated, particularly since lenders have started hiking rates of their own accord, effectively blocking the RBA from doing so even if it had wanted to.

On Wednesday (29 August), Westpac became the first of the majors to raise rates, increasing all of its standard variable rates by 14 basis points. Suncorp followed suit two days later with a 17 basis point increase on variable home loans, and a 10 basis point rise on small business loans.

“There are plenty of factors keeping interest rates on hold, but top of mind is the fact that mortgage rates are already edging higher as lenders look to balance their profit margins against higher funding costs and a smaller deposit base,” noted Tim Lawless, head of research at property data firm CoreLogic.

“With the first of the big four banks announcing an out-of-cycle rate hike, the prospects for a higher cash rate have likely been pushed back even further; we could even see debate for a lower cash rate becoming more prominent.”

Likewise, it was unanimously expected by all 30 panellists from the finder.com.au RBA survey that official rates would remain on hold.

“The belief that the cash rate won’t budge combined with increased funding pressure from overseas has spurred Westpac, Suncorp and other major banks to hike mortgage rates out of cycle,” the comparison site’s insights manager, Graham Cooke, said.

“We expect this trend to continue, with the remaining of the big four and other lenders likely to follow suit in the coming days.”