Reserve Bank slashes interest rates to new low of 0.5pc to counter coronavirus hit

The Reserve Bank has slashed interest rates to a record low of just 0.5 per cent as it seeks to contain the economic fallout from the escalating coronavirus crisis.

Key points:

  • The Reserve Bank has slashed interest rates from 0.75 per cent to a fresh record low of 0.5 per cent
  • The RBA has now cut interest rates four times within the past year
  • Coronavirus could wipe anywhere from 0.3 to 7.9 per cent from Australian GDP depending on the outbreak’s severity, analysts warn

Interest rates fell three times last year as the RBA tried to kick-start an already sluggish Australian economy that was in the midst of a housing downturn, with residential construction tumbling after a record building boom.

Following a summer of bushfires, which Treasury expects to knock around 0.2 percentage points from Australia’s economic growth, coronavirus threatens to cause even greater economic fallout.

The Organisation for Economic Cooperation and Development (OECD) has predicted that even a “mild and contained” outbreak of coronavirus would wipe 0.5 percentage points from Australia’s economic growth this year.

However, new research from ANU economics professor and former Reserve Bank board member Warwick McKibbin and PhD student Roshen Fernando warned that GDP loss from the most severe outbreak could be as much as 7.9 per cent, with even a less severe global pandemic possibly taking 2 percentage points off Australian growth in 2020.

Should the serious outbreaks be largely limited to China, the ANU economists estimate a 0.3 to 0.7 per cent loss to GDP — although these scenarios look increasingly optimistic, given the recent global spread of the virus.

Given the potential severity of the economic fallout, the Reserve Bank elected not to wait longer to see how the coronavirus would play out, but to cut interest rates by 25 basis points to 0.5 per cent to boost the economy.

Ahead of the rates decision, Prime Minister Scott Morrison urged Australia’s major banks to pass on any cut in full to support the economy.

“There is no doubt that if the bank were to take a decision today on cash rates that the Government would absolutely expect the four big banks to come to the table and to do their bit in supporting Australians as we go through the impact of the coronavirus,” he said.

The Australian dollar sank around 0.4 per cent after Mr Morrison’s comments, although the Reserve Bank’s move to cut interest rates was already widely anticipated by financial markets, which had already priced in a 100 per cent chance of a rate cut.

How to cure the Christmas Debt Hangover

The festive season might be a distant memory but many of us will still be paying for it well into the future. According to the Australian Securities and Investment Commission (ASIC), more than a third of us put our Christmas gifts on plastic.

The Christmas splurge adds to our mounting household debt, already among the world’s highest, with $30 million owed on credit cards.

Our penchant for plastic even has the banks taking steps to help curb our habit. In 2017 the Australian Bankers Association proposed a new code of conduct to ban unsolicited credit card limit increases, make it easier for consumers to cancel cards, and improve transparency on interest-free periods.

The reality, however, is the buck stops with each of us when it comes to personal debt. Here are some tips to get on top of credit card debt before it gets on top of you.

Take stock

The first step to crunching debt is knowing how much you owe. It can be easy to lose track of credit card debt, especially if you have more than one card. Take note of what you owe, and the interest rate, on each card.

Now take a look at the bottom of your latest statement where it spells out how long it will take to pay off your credit card and how much interest you will fork out in that time if you just pay the minimum due each month. Warning – the figures might alarm you.

If you just make the minimum monthly payment on a $5,000 balance at 15 per cent (starting at $102 per month and decreasing over time, with an absolute minimum payment of $20), it will take you almost 24 years to rid yourself of the debt and you will end up paying more than $12,000 with interest! Notch the repayments up to $246 per month until the balance is cleared, and you knock the debt over in two years and save more than $6,000 in interest.

The key take-out here is always repay more than the minimum due.

Demolish your debt

Make a plan to crunch your card debt. You may consider putting all your spare cash onto the card with the highest interest rate and pay it off first but remember to pay the minimum due on your other cards. You could also investigate consolidating all your plastic debt to one card with a low rate. Just make sure you take full advantage of any introductory low-rate window by repaying more than the minimum due each month.

Cancel cards as you transfer balances from them, or once paid off, so you are not tempted to rack up debt on them again.

If your cards are getting the better of you, consider speaking with a financial adviser or visit ASIC’s MoneySmart website www.moneysmart.gov.au for further information.

Track your spending

Run through at least six months of card statements to get a handle on your plastic purchases and look for ways to cut discretionary spending, such as entertainment, clothes and holidays. Create a budget and sink leftover funds into your credit card balance to pay it off sooner.

Purge the plastic

Exchange your credit card for a debit card so you can only spend what you have in your savings account. You will avoid deepening your debt and hopefully develop better shopping habits.

Choose the right card

Think about avoiding cards offering rewards such as frequent flyer points as they usually attract a higher rate and require years of high use to accrue decent rewards. It may make more sense to opt instead for a low-rate card with an interest-free period, and make the most of it by paying off any new debt before you accrue interest charges.

Set aside the Christmas savings

Start saving now for next Christmas. If you put aside $10 a week from April 1 until December 1, you will squirrel away $340, enough to cover a few Secret Santas. Add to your stash by dropping your gold coins into a jar at the end of each work week. You won’t miss them, and your little pot of gold will lighten your wallet.

Any small steps you take to save consistently throughout the year can make a big difference come spending season.

Australian Finance Group

RBA announces first cash rate of 2020

The Reserve Bank of Australia has announced its first cash rate decision of the new year.

The rate has been kept on hold at its current record low of 0.75%, where it has sat since October 2019. 

Following the release of the most recent data which showed a lowered unemployment rate and an uptick in the inflation rate, the outcome of today’s meeting was generally expected.

Non-conforming loans: What they are and how to get one

All the major banks have a standard set of rules they use to decide if a loan application is acceptable, or not. A ‘non-conforming’ home loan is simply a term used for home loans designed for people that don’t fit those rules.

Loans like these can also be called ‘specialist’ or ‘alternative’ loans (alt doc). Non-conforming may not be a common term, but you might be surprised how many Australians have been declined for a home loan because they fall into this category, and why. For example, people who are:

•    Self-employed

•    Have recently started a business or a new job

•    Don’t have a perfect credit history

•    Been previously bankrupt

•    Have an ATO debt to pay-out

•    Have a solid income, but not much of a deposit

•    Have a deposit but it’s an inheritance or a gift

•    Work means they regularly change jobs, it looks like instability but it’s just the nature of the industry

•    Need to consolidate debts such as personal loans, credit cards or business debt

•    A new Australian resident, and therefore the previous credit history can’t be established.

That’s a lot of Aussies. The good news is that in today’s world there are lots of options. Well-established non-bank lenders have designed home loan products specifically to help all these people. They take a much more flexible and holistic approach to traditional lenders and can provide a range of good alternatives.

If you’d like more information talk to us today about how we may be able to put you in touch with a lender that can help if the major banks have said ‘no’ to your loan application.

Call or text us at 0425 281 835.

Refinancing: Should you or should you not?

Banks are currently offering attractive rates to entice new customers. Is it time to change lenders?

Refinancing is the process of replacing an existing mortgage with a new loan. Typically, people refinance their mortgage in order to reduce their monthly payments, lower their interest rate, or change their loan program from an adjustable rate mortgage to a fixed-rate mortgage. Additionally, some people need access to cash in order to fund home renovation projects or paying off various debts and will leverage the equity in their house to obtain a cash-out refinance.

Regardless of your goal, the actual process of refinancing works much in the same way as when you applied for your first mortgage: you’ll need to take the time to research your loan options, collect the right financial documents and submit a mortgage refinancing application before you can be approved.

Benefits of a Home Refinance

There are several reasons to refinance your mortgage. Some of the potential advantages include:

Lowering your monthly payment. With a lower monthly payment, you are free to put the savings toward other debts and other expenditures or apply that savings towards your monthly mortgage payment and pay off your loan sooner.

Reducing the length of your loan. For homeowners who took out a mortgage in the early stages of their career, a 30-year mortgage may have made the most financial sense. But for those who want to pay off their mortgage sooner, reducing the loan term can be an attractive option.

Switching from a variable rate mortgage to a fixed-rate loan. When you have a variable-rate mortgage, your payment can move up or down as interest rates change. Switching to a fixed-rate loan with reliable and stable monthly payments can give homeowners the security of knowing that their payment will never change for the term selected.

Using the equity in your home to take out cash. Depending upon the value of your house you may have enough equity to take out cash. This money can be used to finance home improvements, pay off debts or to fund large purchases.

Risks of Loan Refinancing

Depending on your goals and financial situation, refinancing may not always be your best option. While refinancing offers a lot of benefits, you’ll also have to weigh the risks.

For example, refinancing your mortgage usually restarts the amortisation process. So, if you are five years into paying on a 30-year loan and you decide to take out a new 30-year mortgage, you’ll be making mortgage payments for 35 years. For some homeowners this is a good plan, but if you’re already, say, 10 or 20 years into your mortgage then the lifetime interest may not be worth the extra costs. In these instances, homeowners may re-finance into a shorter-term loan that won’t extend the time they will make mortgage payments, such as a 20- or 15-year mortgage.

Generally, refinancing is a good option if the new interest rate is lower than the interest rate on your current mortgage, and the total savings amount outweighs the cost to refinance.

PennymacUSA

Are auction clearance rates likely to fall if more properties come onto the market?

There’s been a lot of conjecture recently about whether auction clearance rates are an accurate indicator of near-term upward momentum in dwelling prices. Some market watchers are hesitant to call a trend, citing “low” auction volumes. The theory goes that as auction volumes increase, clearance rates might dip lower (as supply outstrips demand).

“We think this view is completely misplaced” says Fabo.

“Auction volumes are typically “low” in the winter months but it’s also a factor that volumes only seem low when compared with a period of very strong established housing turn over between 2013 and 2017”.

History shows auction volumes lag clearance rates, suggesting that we will see a pick-up in auction volumes in the coming months.

History also shows that it’s rarely the case that an increase in auction volumes is commensurate with a dip in house prices.

“Rising dwelling prices are likely to encourage more buyers into the market, as they become more confident that they cannot benefit from waiting for prices to fall further. It’s our sense that will be the case this time around”.

  • Source Macquarie Bank

Official Rates reduced by 0.25% to 0.75%. A new record

The Reserve Bank of Australia has cut rates to a record low 0.75 per cent following persistent weakness in the labour market. 

RBA governor Philip Lowe has repeatedly flagged concerns over excess slack in Australia’s labour force, which has worsened in recent months despite employment generally ticking upwards.

Growing numbers of women and older Australians looking to join the labour force meant unemployment rose to 5.3 per cent in August, even though 34,700 new jobs were added to the economy.

The Reserve Bank hopes cutting interest rates will bring down unemployment and lift inflation.

“It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” Dr Lowe said.

“The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time,” he added.

But BIS Oxford Economics chief economist Sarah Hunter said the effectiveness of the cut could be hamstrung by the banks. Dr Hunter said banks had already been struggling to match RBA cuts, and will be increasingly unlikely to pass on reductions to borrowers the closer the official cash rate gets to zero.

Banks passing on these cuts is pretty crucial to the actual impact they have on the economy. So if we don’t see the banks matching it, or they limit how much they pass on to their customers through their mortgage borrowing rates, then that will certainly limit the effectiveness of the cut in stimulating the economy.

Banks are likely to pass on some of the cut, but likely to pass on the full 25 basis point cut.

Savers, on the other hand, will be squeezed by the cut, and may need to “jump through some hoops” to qualify for higher interest rates on savings accounts and term deposits.

Buy Now Pay Later – the hidden danger potentially stopping you from owning your own home

The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but leading mortgage brokers are warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.

This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.

Utilising this payment method may potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.

RBA keeps interest rates on hold at 1pc

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash
rate at the historic low of 1 per cent.
Having cut rates at its June and July meetings, the market had largely anticipated the
decision.
However, it may just be a pause with expectations of a cut next month hovering around 50
per cent, and full 25 basis point move priced in by November.
RBA governor Philip Lowe again conceded he was disappointed with sluggish economic
growth and rising unemployment, which in turn was feeding into low income growth.
Dr Lowe said the unemployment rate is expected to decline over the next couple of years to
around 5 per cent, marginally down from its current rate of 5.2 per cent but well short the
RBA’s ambitious target of 4.5 per cent for full employment.
The RBA also has cut its GDP growth forecast to 2.5 per cent for this year, but still expects
the economy pick up a bit in 2020.
There was no direct reference to the recent deterioration of relations between the US and
China, apart from repeating the previous observation that the increased uncertainty generated
by the trade and technology disputes is affecting investment.

5 Myths (and 5 Truths) About Selling Your Home

1. I need to redo my kitchen and bathroom before selling

Truth: While kitchens and bathrooms can increase the value of a home, you won’t get a large return on investment if you do a major renovation just before selling.

Minor renovations, on the other hand, may help you sell your home for a higher price. New countertops or new appliances may be just the kind of bait you need to reel in a buyer. Check out comparable listings in your neighbourhood and see what work you need to do to compete in the market.

2. My home’s exterior isn’t as important as the interior

Truth: Home buyers often make snap judgments based simply on a home’s exterior, so curb appeal is very important.

“A lot of buyers search online or drive by properties before they even enlist my services,” says Bic De Caro, a real estate agent at Westgate Realty Group in Falls Church, Virginia. “If the yard is cluttered or the driveway is all broken up, there’s a chance they won’t ever enter the house — they’ll just keep driving.”

The good news is that it doesn’t cost a bundle to improve your home’s exterior. Start by cutting the grass, trimming the hedges and clearing away any clutter. Then, for less than $50, you could put up new house numbers, paint the front door, plant some flowers or install a new, more stylish porch light.

3. If my house is clean, I don’t need to stage it

Truth: Tidy is a good first step, but professional home stagers have raised the bar. Tossing dirty laundry in the closet and sweeping the front steps just aren’t enough anymore.

Stagers make homes appeal to a broad range of tastes. They can skilfully identify ways to highlight your home’s best features and compensate for its shortcomings. For example, they might recommend removing blinds from a window with a great view or replacing a double bed with a twin to make a bedroom look bigger.

Of course, you don’t have to hire a professional stager. But if you don’t, be ready to use some of their tactics to get your home ready for sale — especially if staging is a trend where you live. An un-staged house will pale when compared to others on the market.

4. Granite and stainless-steel appliances are old news

Truth: The majority of home shoppers still want granite counters and stainless-steel appliances. Quartz, marble and concrete counters also have wide appeal.

“Most shoppers just want to steer away from anything that looks dated,” says Dru Bloomfield, a real estate agent with Platinum Living Realty in Scottsdale, Arizona. “When you a design a space, you need to decide if you’re doing it for yourself or for resale potential.”

She suggests that if you’re not planning to move anytime soon, decorate how you’d like. But if you’re planning to put your home on the market within the next couple of years, stick to elements with mass appeal.

“I recently sold a house where the kitchen had been remodelled 12 years ago, and everybody thought it had just been done because the owners had chosen timeless elements: dark maple cabinets, granite counters and stainless-steel appliances.”

5. Home shoppers can ignore paint colours they don’t like

Truth: Moving is a lot of work, and while many home buyers realize they could take on the task of painting walls, they simply don’t want to.

That’s why one of the most important things you can do to update your home is apply a fresh coat of neutral paint. Neutral colours also help a property stand out in online photographs, which is where most potential buyers will get their first impression of your property.

Hiring a professional to paint the interior of a 2,000-square-foot house will cost about $3,000 to $6,000, depending on labour costs in your region. You could buy the paint and do the job yourself for $300 to $500. Either way, if a fresh coat of paint helps your home stand out in a crowded market, it’s probably a worthwhile investment.

  • Mary Boone (Zillow)