Unsure about whether to lock down your interest rate for a period with a fixed rate home loan, or take your chances with a variable rate home loan?
It’s a decision everyone faces – from first-home buyers right through to investors – at various points in a loan’s life.
The Reserve Bank has left interest rates unchanged at the historic low of 1.5 % for the 20th consecutive meeting. The current holding pattern is the longest stretch without a move, with the RBA last changing rates with a 25 basis point cut in August 2016.
The decision was of little surprise, with the market pricing no chance of a move. RBA governor Philip Lowe maintained both the domestic and global economies were gaining strength.
Following a spate of stronger-than-expected data, economists have upgraded the consensus GDP growth forecast, to be released to tomorrow, to about 2.8 % year-on-year for the first quarter.
While increased government spending on infrastructure and a stronger contribution from the export sector had helped boost the RBA’s confidence, household spending remained a worry.
“Household income has been growing slowly and debt levels are high,” Dr Lowe said.
“Wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time.”
The statement was largely unchanged, apart from acknowledging lending conditions were likely to tighten.
Alluding to the impact of the banking royal commission, Dr Lowe noted, “while there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline.”
“We think there’s a real risk that tighter credit conditions could crimp GDP growth and contain price pressures,” Mr Dales said.
“That would mean the ‘progress in reducing unemployment and having inflation return to target’ would be even more ‘gradual’ than the RBA expects.”
Indeed.com economist Callum Pickering said raising rates would be particularly risky right now given house prices are falling steadily in both Sydney and Melbourne, geopolitical risks are ever present, and retail sales growth remains disappointing.
“The banking royal commission also raises the prospect of tighter lending conditions and out-of-cycle rate hikes by the major banks,” he said.
“The RBA may not need to tighten because the banks will do so independently.”
The Reserve Bank has kept interest rates on hold at the historic low of 1.5 per cent for the 19th consecutive meeting.
If you are looking for a sound real estate investment, look beyond the typical two bedroom apartment and consider expanding your portfolio with a commercial property. There are three types of commercial property – office, retail and industrial.
There are some significant differences between investing in commercial and residential real estate, each with a potential positive or negative impact on your investment.
The ACCC’s interim report into residential mortgage pricing reveals the “lack of transparency” around how the ‘inquiry banks’ – ANZ, CBA, Macquarie, NAB and Westpac— make these decisions.
The regulator found a “lack of vigorous price competition” between the big four banks in particular, with negative public reaction being a major concern.
The ACCC examined thousands of internal documents for this report. This is what they reveal:
This marks the 19th consecutive month the RBA has kept the rate steady since it cut the official cash rate by 25 basis points in August 2016.
The move was highly expected by many brokers and economists. More economists and banks are changing their forecasts of interest rate hike this year – from two to one or none.
Last month, ANZ abandoned its previous forecast of two interest rate increases this year, and now expects no rate hike at all.
“We no longer expect a rate hike in 2018, following the greater than expected emphasis on the mid-point of the inflation target band and increased comfort on financial stability risks in the RBA Governor’s speech on Thursday evening,” said ANZ’s head of Australian Economics, David Plank.
RBA Governor Philip Lowe said in a speech on 8 February that interest rates would have to start moving up if the economy makes further progress in reducing unemployment and in having inflation return to the midpoint of the target range.
From its forecast of two rate hikes this year, NAB now expects only one in late 2018, citing weak growth in wages and the slow progress in bringing down unemployment.
“It is not impossible that the RBA stays on hold for all of 2018 and raises rates in early 2019,” said NAB chief economist Alan Oster last week.
Meanwhile, ABC Bullion expects the next move in rates to be a reduction. Its chief economist Jordan Eliseo said that while employment data, business conditions, and growth figures are solid, there seems no obvious catalyst to turn around the record low wage growth. He also expects a slowing property market to weigh on confidence.
The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand. We tell you how.
A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding arrangement, administered by an independent third party. At the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.
If your child doesn’t have enough security for a mortgage, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%. It’s also known as a guarantor loan.
This can be a temporary arrangement until your child has paid down the loan to an acceptable level.
You can help your child secure a loan if you sign on as a co-applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets in its borrower’s assessment.
When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.
If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees, or help with stamp duty.
Make sure you’re well informed about your options when giving or lending money so you can remain in the best position to help your child become a home owner. You can contact your mortgage broker to discuss the right financial arrangement for your family.
– Loan Hub
Do you know when your fixed rate term is coming to an end? Once it finishes, the bank is free to quietly switch you to a higher interest rate – unless you act fast! Think of how costly it could be if you simply let the bank choose your interest rate. If your bank charges you just 0.5% more than the competitive interest rates, this adds up to a significant amount over the term of your loan. You can save yourself a great deal of money and perhaps even cut years of your loan, if you are proactive about monitoring your interest rates and choosing the right option for you.
Switching to a variable rate
A variable rate can be a great option if you want to take advantage of low interest rates, or if you want the flexibility to redraw or make extra payments. When your fixed rate term expires, the bank will automatically switch your loan to the Bank Standard Variable Rate (BSVR). Do some research to find out whether this is a competitive rate; if not, you can talk to your bank and try negotiating a better deal. And if they do not offer you a competitive rate, you can switch lenders.
Lenders generally prefer to negotiate rather than lose a customer, while they don’t generally make their best offers to customers with a proven history of loyalty. So when it comes to your interest rate, stay alert and ask questions – keep your lender busy, trying to keep you happy!
Extend your fixed rate
One option is to ask the bank to re-fix your home loan, extending it for another one, three, five to ten years. The fixed rate is a good option for you, if you are planning to pay off your loan steadily over a long period of time, and you want each mortgage payment to be a regular amount, so you can budget your money precisely. Fixed rate protects you from rate rises and you could be paying less than the variable rate. However, there is also the risk that you could end up paying higher than the market rate if you are locked into an outdated fixed interest term. There may also be a break fee if you change or pay off your loan within the fixed period; this means the fixed rate is not a good option for anyone planning to sell their home.
Call us if you need assistance pinpointing the best and most competitive option for you.
No one likes to spend any more than they have to, but you always get exactly what you pay for. An insurance comparison expert has said that investors looking to cut corners financially could set themselves up for financial ruin in the future.
Abigail Koch, spokesperson at Compare The Market, said that investors need to keep in mind that, while a property is seen as an asset for them, for tenants, it is a home.
“Investors need to provide a rental home that is comfortable, safe and secure — and also complies with state leasing legislation — but at the same time they need to secure a good tenant who pays their rent and looks after the property,” Ms Koch said.
“When property becomes a business, the temptation is to cut corners in order to save on costs, but this could lead to financial losses in years to come.”
Ms Koch outlines her top seven mistakes by landlords that could lead to financial ruin:
While agent fees are a cost that needs to be paid, Ms Koch believes that the cost is outweighed by bringing on board the level of expertise.
She suggests landlords can handle advertising, the lodgment of lease agreements and bond forms, the screening of tenants, inspection of the property, follow-ups on unpaid rents and organising of repairs through tradespeople.
“Landlords that manage their own properties without expertise and experience in these areas could risk paying more in the end, if they fail to do their due diligence and don’t comply with legislation,” Ms Koch said.
Agents who do not thoroughly screen tenants could end up with a bad tenant, costing the landlord their time and money.
“Landlords should know if their property managers are checking that applicants can afford the rent, have a good credit record — including a history of on-time rental payments — are making reference checks and vetting applicants through a tenant database,” Ms Koch said.
Good tenants could break out of a lease early if their landlord ignores or refuses requests for urgent repairs, such as burst pipes, gas leak, or electrical faults, which can result in both a now-vacant rental property as well as the landlord being further out of pocket.
Ms Koch warned: “Landlords may also be required to pay compensation for any losses tenants have suffered as a result of the breach, such as a leaking pipe causing water damage to the tenant’s possessions.”
Landlords can face fines for failing to comply with state safety requirements, as they are responsible for providing a safe environment for tenants.
“Landlords should seek legal advice to make sure they meet all requirements under the law, including the installation of smoke alarms, having secure fencing around pools and spas, and adequate locks on windows and balconies,” Ms Koch said.
Discriminating against someone is never the right thing to do, and landlords are no exemption. Landlords who are found guilty of rejecting potential tenants on the basis of ethnicity or age, while approving of another tenant, could be hit with hefty fines.
Ms Koch recommended assessing applicants based on credit history, how steady their income is, as well as their previous rental history, and warns not to judge an applicant based on criteria not related to the property at hand, such as “their age, gender, race, religion, marital status [or] disability”.
“For houses, building insurance may cover the cost to repair your property if it is damaged by a storm, but if the damage makes your home uninhabitable, only landlord insurance would cover the loss of rent,” Ms Koch said.
“For apartments, landlords should check what is covered under their building insurance, as this may exclude liability within an apartment.
“Landlord insurance policies also cover additional risks, such as when the bond is inadequate to cover the costs of damage to a property by a tenant.”
Ms Koch recommended comparing insurance policies on insurance comparison websites in order to locate the most appropriate policy for a property.
Landlords want to make as much money as they can, but Ms Koch warned that pricing rent significantly higher than comparable properties could result in fewer or shorter-term tenants, who may be less likely to take care of the property than long-term tenants, and cause higher repair costs.
This would also mean that landlords would be losing money during the tenant-less periods and paying for more advertising.
“As a rule of thumb, landlords should avoid increasing the rent more than once a year or by more than 5 per cent per annum, or they may risk losing their tenant,” Ms Koch said.
“Landlords should consult agents to determine the right market price based on similar properties in the area and also keep up to date with changes in the property market.”
– realestatebusiness.com.au , Sasha Karen
The Reserve Bank of Australia has held the cash rate at 1.50% at their December meeting. This is the 15th consecutive month the RBA has held the cash rate, after cutting to the historic low of 1.50% in August 2016.
Once again, the RBA’s result was correctly predicted by the experts polled.
There are plenty of reasons for the RBA to leave the cash rate where it is. Overall house prices were flat in November and Sydney has seen a drop in prices over the last few months. Rates can’t really get much lower than where they are and tightening restrictions on interest only and investment lending currently make it harder to get those types of loans. This effect is similar to a rate rise in some respects.
And with mortgage debt a major cause of stress in Australian households, a rise in the cash rate could have troubling effects on Australian borrowers.
The Reserve Bank doesn’t meet in January, so the bank will make its next cash rate decision on 6 February 2018.