Last Friday, to much public outcry, ANZ announced it was raising its variable interest rates.

While this announcement got most of the headlines, what has been missed out was yesterday’s announcement by St George and Citibank that they were reducing their fixed rate loans. 

St George is now offering fixed rate loans of 5.99%  Ironically, they had been offering this fixed rate as little as two weeks ago – and then stopped it, only to reintroduce yesterday!

If the banks are unsure of what they are doing with interest rates, how hard must it be for the man or woman in the street to know where to find the best deals?

And with the media only focussing on the ANZ rate rise, it is hardly suprising that the public has disdain for the banks

The truth is that only someone who follows the mortgage and property market daily can really claim to know what is going on.  A few years ago, it was easy to know – the economy was overflowing with unbridled optimism.  Now, there are significant mixed messages out there

·         Some economists are predicting two Reserve Bank rate cuts this year, some are predicting one.  Occasionally an economist predicts none

·         International observers are pessimistic about Australia’s property market.  But as the articles below show, some think the market is in for a period of consolidation and others even think it will grow

·         Consensus is that Brisbane and Melbourne property will decline while Sydney will experience capital growth

With so much confusion out there, it is hardly surprising that people don’t know how to arrange their finances; I frequently have to fix-up people who have had a loan application declined – not because there was anything wrong with these people, but simply because the banks could not offer what they were looking for.  In short, the client had applied to the wrong bank!

The big challenge is knowing which bank specialises in what.

To answer my question; all the banks are as good as bad as each other.  Right now, Bankwest and AMP are probably the most competitive – but they don’t offer the widest of portfolios.  Of the majors

·         Commonwealth is most open-minded on rural properties

·         ANZ is flexible for people wanting to build their own home

·         Westpac is the most accommodating for people on commission

·         NAB probably offers the best rates

But it is hard for Joe or Josephine Blow to know this unless they are dealing with banks on a daily basis.

I had an odd experience over the Christmas period – I was notified that my credit file had been blacklisted because I had not paid a gas bill.

Thankfully, it was a stuff-up by my old gas company.  But, had this blemish remained on my credit file, it could have had disastrous consequences for me trying to get a loan for a house, a car, a kitchen, even a TV!

My experience reminded me of two clients I had worked with last year and the problems they had with their credit history.  I will call them Hannah and Helen – and both have agreed that I talk about them.

Hannah holds down a pressured corporate job and is a mum to two young kids!  She and her partner were looking to buy their own place together.  But, when the bank did a check on their credit history, it found some claims against Hannah relating to her and her partner’s old business.  It took us months to get this black mark from her file – and until then Hannah had no chance of getting the loan to buy her place.

Helen is a woman who set up her successful business two decades ago.  With the onset of the GFC, she voluntarily placed her company into receivership to give her protection before she sold her business on good terms.  When she first applied for her mortgage, her credit file meant that her own bank immediately turned her down flat.  During a stressful period, it was then up to me to talk to my contacts at the banks to persuade them that Helen was a safe bet.  In the end we persuaded ING that she was worth a loan – but it took a lot of effort from me, Helen, her accountant and her lawyer.

So, what is the moral of this story?  There is the obvious self-interested stuff from me about getting a good broker.

But the most obvious thing is to make sure that your credit file is in order.  You can arrange for a free credit check by contacting Veda Advantage at www.veda.com.au.  On your file, you may find nothing to worry about, you may find that a late-payment of a phone bill will cause you a headache, or you could find something more concerning!

ANZ being the first to announce a 0.25% rate cut this week may well have got the headlines, but it also made a more important announcement about how it determines future interest rates.

Instead of announcing its rates once the Reserve Bank has stated its own cash rate, ANZ announced that, from now on, it will determine its rates on the 2^nd Friday of each month.  This decision should see a bit of honesty from the banks.

I have heard senior bankers say before that, while the Reserve Bank was increasing rates, it was easy for them to ratchet up rates as they were simply following the Reserve’s lead.   The implication being ‘we are sorry customer, we didn’t want to increase rates, but the RBA left us with no choice.’

But the banks have found themselves in strife now that the rates are coming down.  Logically, they should again follow the reserve bank’s lead. 

Of course, they should only decide to follow the RBA in lockstep if the RBA’s cash rate is the major determinant of the cost of money that you and I borrow to buy our house.  Here we have a difference of opinion:

·         The RBA says that its cash rate “has a powerful influence on other interest rates and forms the base on which the structure of interest rates in the economy is built.”  (See the section on the implementation of monetary policy in this link http://www.rba.gov.au/monetary-policy/about.html#the_implementation_of_monetary_policy.)

·         But, ANZ now says that the cash rate is no longer the major determinant of the money it borrows to lend to home owners http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTE3OTY3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

ANZ’s announcement will mean that they can no longer hide behind the reserve bank.  They will have to be honest with us about their rates and how they can justify them.

If the banks don’t cut by as much as home owners believe they should, then we can always shop around.

2011 has felt like a Luna Park ride.We have been bouncing around, twisting and turning everywhere and anticipating a massive drop at any moment.  Yet the drop has not come, maybe it is the anticipation of the drop that gets our hearts racing.

Over the year, we have been fixed to our TV screens as we have seen impending doom from Washington, Athens or Brussels beamed into our living rooms.  Yet, what we have not paid attention to, is the fact that the Australian economy has just kept doing what it should be doing – nothing exciting, just ticking over.

Places like Melbourne are forecast for a price drop in 2012.  But, as NSW first home owners are currently showing, some segments of the property market are rising.

2011 has been a year when NAB said it had broken up from the other Big Four banks and stimulated competition – so that borrowers could get some pretty good loans.  Absent a booming property market, there has been quite a bit of competition - with lenders trying to poach customers from each other.

Most economists are predicting further reductions in interest rates - Westpac's economics team even predicts four rate reductions totalling a 1.00% drop.  Similarly, Citibank and Bankwest this week offered significantly reduced three-year loans - indicating they anticipate more rate cuts.

But, it remains to be seen if borrowers will get all the good deals in 2012.  Many forecasters are predicting the RBA will drop its rates further.  But, there is speculation as to whether the full rate cuts will be passed on.  European jitters mean that the money that banks borrow to lend to you and I is becoming more expensive.    Last time round it was NAB which chose not to pass the rate cut on in full – indicating that it will not be as strong a driver of competition as in 2011.  And, as I said a few months ago, it is difficult to see the very competitive three-year fixed loans retaining their low interest rates.

Where to for property in 2012?  Who really knows; there is a range of opinions out there.  But the fundamentals of the Australian economy remain good; meaning that the recessions experienced in the northern hemisphere are only likely to touch us marginally.

Over the next year, I am planning to offer more knowledge to clients who are interested in buying property.  So, despite being a technophobe, I will increasingly be using Facebook to show clients what is happening, pasting research notes wherever possible.  You may want to ‘Like’ the Origin Finance – Inner West page to get access to lots of relevant research and updates.

http://www.facebook.com/#!/pages/Origin-Finance-Inner-West/165484736855743

The trouble is, most people thinking about buying a property are asking each other the same question - what is going on?  And while they are asking that question they daren’t stick a toe in the market.

As you know, I try to attend opens most weekends and the atmosphere is hardly overwhelming; numbers are subdued and the atmosphere is far from being over-excited.

But, just as Australia has an economy operating at various speeds, so too do we seem to have many varied housing markets.Sydney’s Inner West still performs well and there are quite a few first home buyers who have brought forward their decision to purchase a place (though it is far from a feeding frenzy).

As this article points out, across the country some spots are hot and some are not

http://smh.domain.com.au/real-estate-news/sydney-values-hold-up-despite-fewer-sales-20111022-1mdg5.html

The good news is that, with little new business, the banks are as keen as ever for your custom. And, because they can access funds at cheaper levels than overseas banks, Australian lenders can still offer very competitive rates.

To answer my question, nerves and caution are what is going on. What will happen?It will take a long while for the US and particularly Europe, to fix up their economic problems.Our economy may take a little dip, but chances are we will become used to the stagnant feel from the western economies and accept that the India and China stories are long-term good news for our economy a stories are long-term good news for our economy.

Roll up! Roll up! It's the great mortgage sale!

Wow, what a couple of months it's been so far - share markets going down and up, America's credit rating changes and more talk about the finances of European countries.

Due to these fluctuations in the world markets, some of Australia's major lenders (and minor ones) have announced huge discounts on their home loans. Some lenders are offering over 1 per cent off their standard variable rates and nearly 1.5 per cent below on their fixed rates.

Is it a "Home Loan Clearance Sale"?

 Maybe.   Certainly these discounts haven't been seen in years and as the markets settle down they will disappear.  For, as long as the Australian economy is still good, then there are questions as to how long these discounts will be available.

According to the Sydney Morning Herald, Sydney's prices are surging ahead of the other capital cities.   Meanwhile Bluewealth Property, in their commentary on the national property market update, state that while Sydney is ahead of the others, the property market is close to the bottom. http://www.originfinance.com.au/advice-centre/articles/item/167-propertymarket201108.html

My prediction - as soon as Australian's realise that our economy will keep purring along (despite Athens and Washington) these great deals will disappear.

So, the markets are in meltdown, what does that mean for borrowers?

Last month I correctly forecast that interest rates would not go up.  The recent pessimism from economists confirmed my view.  But, while there is now speculation that interest rates will go down, the fundamentals of the Australian economy are still sound; China still demands our raw materials, our government will soon be back in the black, and Carbon Tax fear will die away.  So, don’t bet your house on interest rates dropping to those of the US, UK or Japan.

One area that on paper might be good for borrowers, is the removal of exit fees since 1 July 2011.  While that may be good for those looking to refinance their property, the benefits are not as great as might initially appear;

First, chances are that it is those of us who stay with the same lender who will have to pay.   The process of moving from one lender to another incurs costs – in most cases it will be legal fees.  So if a lender can’t recoup these costs  from the person refinancing, chances are that it will be those left behind who pay for the lawyers etc.

Second, many small lenders argue they will lose out under these new arrangements – this is bad for competition.  As the article below points out, the large banks have been able to absorb the extra costs of the new arrangement.  But, it is the small lenders who have often had to increase their rates and fees to recoup these costs.

However, I tend to be a ‘Glass Half Full’ guy.  Recently St. George announced that they were now prepared to lend more - even for loans involving Lenders Mortgage Insurance

And as I said previously, because the property market is relatively flat, banks are trying to poach customers off each other.  ANZ will give people $1,000 to switch from another lender.

So, the deals are out there.  You just need to know where to look.

Note - this is not advice.  I am not licenced to advise.  it is just the opinion of a bloke fascinated by economics.

We know that death and taxes are two of life’s unavoidable.  But for many, mortgage repayments are also an unavoidable.  This is why so many of us become glued to the TV screen waiting for announcements on interest rates.

We are continually being told that, at some point in the future, interest rates will go up.  But what we really want to know is ‘when will interest rates go up?’ and ‘by how much?’

Having read recent statements from the Reserve Bank and market economists, I reckon the answer is interest rates won’t be going up in the imminent future and when they do eventually go up, they won’t go up by much.

If you look at the Reserve Bank’s website www.rba.gov.au its recent statements are particularly instructive.  On 7 June it said “Growth in credit to households [on the other hand] has softened, as have housing prices. “  So the RBA Board concluded “that the current mildly restrictive stance of monetary policy remained appropriate.”  That does not tell me that the RBA is in a rush to increase interest rates.

Similarly on 21 June the RBA said “further tightening in monetary policy would be necessary at some point. Members considered, however, that the flow of data over the past month had not added any urgency to the need for an adjustment to policy.”  These are hardly the words of a trigger-happy reserve bank about to spray us with the silver bullets that will slay the inflation dragon.

I regularly talk to real estate agents about what is happening in the market – and the answer seems to be ‘nothing much.’  If a property market is not too hot, not too cold, don’t expect to see huge interest rate rises soon.

Finally, after the jitters for your business, the banks are now competing for business!

We are all aware of NAB’s aggressive billboard adverts.  But there is more to it than that, NAB’s offers available through a broker are even better than through its branches.  But it is not just NAB that is offering favourable deals – one of the Big Four will now pay people $1000 to move their mortgages over!

Is this a return to the pre-GFC days?  I hope not and doubt it.  Responsible lending is now a requirement on the brokers and banks, so while rates may well come down, there will also be a flight to quality.

Customers are still focussed on reducing their debt, which is probably why banks are trying to tempt them to borrow more.  At some point money will be cheap enough so that people will be more likely to borrow.  But where do rates have to be for people to borrow more and how do we avoid interest rates being so low that people borrow way more than they need?

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