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.