Mortgage Rates: Why you looking at non bank home loans is a good idea

As Mr Mortgage predicted last month, the RBA did not raise interest rates in October. Australia’s big banks did not listen and have paid a heavy price, losing millions of dollars.

Don’t you get caught paying higher mortgage rates for their error in judgement!

Is it time to move your home loan to avoid a mortgage rate sting?

I believe its time to move away from the big four banks, and to a non bank securitised mortgage lender if you want to have lower mortgage rates over the next twelve months, and here’s why.

1. The big banks were all set to jack rates up on you under the cover a Reserve Banks of Australia official rate rise. So this would mean that you would get two rises at the same time. Can you afford that? I don’t think so.
2. They also lost big time on betting on a rate increase on the financial markets.
3. The banks will be looking to offload these losses in higher mortgage rates on their customers.

RBA interest rates “talk up” outsmarts the financial markets and banks

Talk is Cheap. The Reserve Bank likes to outsmart the financial markets every so often, and it did in October. The RBA made noises that sounded like a rate rise was coming, and the Aussie dollar went up, and the reasons for the rate rise were then out weighed by the reasons to hold on any interest rates rise for another day, maybe even another year.
In effect the RBA board figures if by “talking about a rate rise” can do the job of an actual rate rise, its done it’s job of controlling inflation and keeping unemployment low, so no actual rate rise is necessary.  Is Mr Mortgage the only one that figured this out? No, but the vast majority of economic experts believe their own spin.

RBA Interest rate talk is gain without the pain of increased mortgage repayments.

The other benefit that the RBA has in employing the talk rates up ploy is, that it still has the interest rate card to play if home buyers and consumers stop listening to the messenger of doom. So the Reserve Bank has stretched the value of a rate rise and reduced the pain of the real thing that would lift mortgage rates. I like it.

Why you should move your home loan away from the big banks if you are worried about increasing mortgage rates

Based on their own assumptions, the major banks made deep losses betting the wrong way. So besides the major banks tipping that the RBA would raise the official cash rate by 25 basis points to 4.75 per cent, each of them had been raising hundreds of millions of dollars in short-term funds based on pricing that factored in a higher cash rate.

In fact these banks believed to be sitting on these big losses and are now looking for someone to milk it from. Don’t let that be you on your mortgage rates.

Mortgage rates summary

The major banks will have to raise mortgage interest rates, without the Reserve Bank moving rates sooner or later, and the RBA knows this.
The RBA can now sit back and watch the major banks squirm, knowing they’re under pressure to raise rates. This tension will create more uncertainty of a rate rise in November and by then the banks will have to move on mortgage rates even if the RBA sits on its hands. Result? The RBA can leave interest rates as is because the major banks will do its job for them.That is, if cooling the housing marking further is one of its aims.
If you are worried about mortgage interest rates I suggest that you start shopping for a non bank mortgage lender.

Author: Mr Mortgage

Mega Japanese Banks are preparing to launch a surprise attack on the mortgage profit margins of Australia’s big four banks. Why this sneaky raid will succeed.

The big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world. Meanwhile Japanese banks have been in operating successfully in a recession economy for twenty years. In fact the interest rates they operate on are puny compared to Australian Home loan interest rates and bank margins. So its natural that they want a piece of the action.

Some say that Japanese banks could get a $100 billion of the Australian home loan market in double-quick time. I agree.

At the coming February RBA board meeting most financial analysts are punting on a further rate cut to the official cash rate. That normally translates to a similar reduction in mortgage interest rates. However some of the big four banks are hinting at not passing on all of the rate difference, citing rising fundings costs as the reason.

A cynic might suggest that the real reason is maintaining profit levels in a shrinking home loan & credit card finance by Australians.

Japanese banks are all cashed up with nowhere to lend

Japanese lenders are brimming with low-cost cash because of the recession, and the Japanese savings ethic.

Australian banks on the other hand also pay puny interest rates, but lend that money out at fat profit margins.

Australia’s trillion-dollar mortgage pie. How big a slice can the Japanese hope to get?

Australia’s trillion-dollar home loan market looks ripe for the picking.

Snaring just a 10% slice of Australia’s Mortgage pie would give the Japanese Banks a $100 billion dollar windfall.

A Japanese Bank raid a cakewalk for four good reasons.

1. Australians have no loyalty to their banks. Aussies love to hate banks. But they don’t love them that much.
2. Australian home owners and home buyers will change lenders, and they do so often.
3. Money talks. Australian home buyers and homeowners are hurting financially, mainly because they paid too much for property on the basis of low-interest rates, high loan to value ratios on loans and other lax lending practices.
4. ready-made sales channels. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
5. Japanese banks could also operate an online Australian mortgage channel, as this is how a lot of Australians looking to refinance do their research these days.

2012 may prove to be a tough year for mortgage lenders in Australia, and that means a better deal for Aussie home loan borrowers.

That has to be good news for the real estate industry and the home building sector, who have both had a rough 2011.

Summary

The impending Japanese Bank home loan invasion may be the tonic Australia needs to reinvigorate real competition in home loans, the mortgage broker sector, the new home building industry and the housing market, and put a creator in Australia’s big four profits at the same time. So are Australian home loans turning Japanese? Yes I think so.

Will a Credit Crunch Crush Australia’s Property Investors

As housing values thaw across Australia, so goes the dreams of a nest egg built on a housing bubble.

Australian real estate has avoided the mass loss of property values seen in the US and the UK, partly because Australia’s economy was sheltered from the problems of the US led GFC. Did our better banking regulations and less credit to sub prime lenders save Australia four years ago? I think so. As did the stimulus package save retailing and jobs.

When will the Music stop for Australia’s 1.7 million Landlords?

In Australia we did not see the corrupt lending practices that allowed people to buy homes they could not afford, only to refinance that home on the ballooning growth of their asset to make the repayments and buy cars and such till the music stopped. So the music didn’t stop suddenly like it did in the US. [Its a little known fact that prior to the housing crash in the US, some people refinanced nine times in a single year.]

Right now property values in most Australian capital cities are heading south, and could to be lower for many years to come. [In the US they say that is a whole generation, which is 30 years. Why?  Because nobody in the US will believe that property is a good investment in the US after what was allowed to happen over there.]

The Reserve Bank of Australia now sees the train coming.

18 months ago my mortgage was due to be reset, and my personal banker of eight years offered very attractive rates to fix the loan. I chose variable at a higher rate. Why she asked? I told her that the Euro was in trouble and that the RBA would have to pay attention sooner or later. And I felt that a three year fixed rate would bring me out in the middle of the storm for refinance. I am not an expert, but I had a sense that something was not right with the Euro. Now I here experts warning it is weeks from collapse. That means massive reductions the interest rates. So I felt better sitting on a variable rate. Most “experts” had been saying to fix the rate.

Two recent RBA interest rate drops in a month have not encouraged home buyers to invest in a home. They have seen values shrink and now sense there may be carnage ahead. The mum and dad property investor and landlord is in trouble. Here’s why, and its simple.

Trouble ahead for Australian Property Investors.

It is estimated that there are 1.7 million landlords in Australia, and most have wagered their own homes on property values rising. They have around a third of all homes in Australia. [That's a guess, but that's about 4 million homes give or take.]

Formula for success Property Investment, or a quick way to lose your own home?

Here’s the irresistible formula, and here’s the problem with it. Leverage works both ways. It can accelerate your gains, and your loses. In a futures contract investors can stop their loses. That can’t happen with real estate. You sink with the rest of the market. Back to the sales formula.

1. The idea was that you have equity in your home, and you use that as the deposit on the next property.
2. You then get a five-year interest only, fixed interest loan [to minimise repayments and maximise the tax offset of those repayments, and have a knowable repayment.] Works a charm when homes prices rise, inflation rises and wages rise.
3. But like all leveraged investments, there s a fly in the ointment. Something that could upset the apple-cart.
4. They can spell doom if values go against you longer than you can hold out. If property values fall continuously it will all go pear-shaped for property investors.
5. For the mum and dad property investor that means as long as you both have jobs, [so you can meet the repayments], and
6. As long as the loan can be refinanced.
7. This is where its going to hit the fan in my view. Here’s the thing. As long as these landlords can refinance, they are safe. But their home value falls, as well as the investment property, they will not be able to refinance.
8. Also, if it turns nasty in Europe, than we could see a credit squeeze. This could include, devaluing property , property valuers playing safe with low ball valuations, and re-jigging loan to value ratios to cover a falling valued market.

All these things could mean mum and dad property investors could be wiped out. It is that serious.

The Euro could be the last straw that breaks the back of the Australian property market

This is what you need to pay attention to. The Euro does not make sense. It never did, that’s why Britain did not buy in. All experts seem to be saying that the collapse of the Euro is inevitable. If that is true, then buying and owning your home makes more sense than ever. But buying property buying leveraging it on the value of the equity of your home, and tying your home collateral to your investment portfolio, regardless of the investment, does not make any sense at all.

If the Euro crisis does not end well, we should expect the worst, because we would be in for a credit squeeze as the economist in the sky would ordain. The banks will then refuse border line loans, and that will send properties falling further. As these values were the basis on which the loans were first made, if these values don’t stack up, then these Landlords will be forced to sell or find or funding from non bank lenders.

So where will all these home buyers go? We all need a home right? Back home to good old Mum and Dad! The average home has seen the number of people dwelling in them to fall to less then two, so there is a huge slack of empty rooms across Australia to house the “potential home buyers” that are commitment shy.

The bottom line for “Mum and Dad” Property Investors

If we in the non bank mortgage industry can’t find the finance, then property will flood the market.
So this is the thin edge for property investors in Australia’s housing market.

And here’s the real reason that this property values are likely to tank

Australia’s home values have risen far beyond what’s affordable for Australian homeowners and home buyers since the 1980′s.
What has happened is that as the wife went to work her wages were snaffled to be part of the affordability of home buyers.
This in my view is what has caused the housing inflation. The winners were real estate agents who got to drive “mercs” and “bemmers” and Range Rovers, and the banks who got to serve up those mega loans. The losers were all those who got a 30 year mortgage based on two incomes, because that meant you could pay more than you could have before, and pay longer.

House prices and salaries: The yawning gap

Housing affordability and credit guidelines have gone from 30% of the average Joe’s gross wages on a twenty year mortgage, to 40% of Joe and Joe’s partners wages on a 30 year mortgage! Some people are paying 50% of their gross wages before tax. The solution? Get more credit in the shape of a credit card! So you can feel OK while you sink deeper into debt.
So in real terms homes cost double what they used to. And we have the credit to pay for all this! Thanks for that!
That’s why the US experts keep saying that Australian home values will fall 40%. If economists were running the housing market, this what the price drops would look like.
But they don’t. However we must factor in their savvy, and the fact that the Australian Government may be paying attention, as well as the RBA.
So I feel that the values may have 20% still to fall, and that is if it does not get real ugly in Europe.
If it does then banks will shut the lending gates and the amount of loans that they will be able to approve will shrink. That mean less buyers and more property.

And if what happened with the GFC repeats itself, the non banking sector will be unable to get finance, and that means another credit source drying up.
Can you here the sound of a distant Property Crash getting closer?

What you can do now to protect yourself from the credit crunch

2012 should be the year that Australians get their credit cards paid out to zero balance, their car loans paid off, and get a 100% mortgage offset account home loan that allows them to stash their savings against their mortgage, helping to pay it off sooner, and also having the cash their for a rainy day.

The bottom line here is stuff the retail industry. They have been ripping us off for years. Your own home is more important than saving them. The retail industry may be just another Ponzi scheme that was built on lose credit. Its time to save, save, save.

Source: Rick Adlam, Mr Mortgage

[This Article may be reprinted as long as the credit link left in tact.]

Mortgages In Australia: What happened in 2011?

Australian Mortgages in 2011 from the rear view mirror

The fact that Australian mortgage delinquencies have declined in the third quarter in Australia points to the fact that the worst of mortgage stress may be over.

The return of the saver, and the virtue of saving

This year has seen more Australian households reining in their expenditures, and the biggest fatality of all this is the credit card. Australians seem to be shunning credit card debt like the plague as well as mortgage debt. This year has been credit card debt reduction as the biggest shift to saving has occurred.

That has to be a good thing for everyone, except retailers who have been milking Australians with over priced goods for generations.

The rise and rise of online sales

This year we have seen online sales surge to the point of critical mass, as Australians are starting to buy online in a big way, and that has to mean better retail pricing and services in 2012. Even grumpy old Gerry Harvey has capitulated, and has online offers. [Not convinced Gerry, Sorry] If you want to buy super-ceded stock at new retail prices, shop Harvey Norman is may motto. His ads can shout at me all they like. I have only ever bought duds from Gerry. That’s why I never shop there anymore. But there is a sucker born every minute, right Gerry? You seem to have been living off of those all your career.

The 2011 Christmas shopping season

This is one reason I feel that Christmas is going to be challenging for retail. Spending money you are yet to earn is becoming very unwise to savvy Australian shoppers, and those waiting for the Christmas sales to spend their holiday wages are being tempted with ever more attractive pre-Christmas sales. And our high dollar means overseas spenders are less likely to come, and have less money to spend if they get here. At the same time cashed up Aussies are flying out and spending on holidays and spending their money overseas. But Australians know that the family home is more important than tinsel and glitter, and so only people with cash in hand seem to be shopping these days.

The banks are a multi-channel money machine

The banks however are doing OK, despite the loss of credit card revenues, and that is due to business loans growing to replace the shrinkage in credit card debt and home mortgage loans applications, which continue to fall away.

So mortgage delinquencies may have fallen, which is good for the banks, but that does not mean that new people want to be roped into 30 years of debt, so we are seeing a fall in housing prices in all capital cities, as interest rates fall and wages rise.

Did Real Estate become a Ponzi Scheme? I think so.

The combination of rising wages, full employment, lowering mortgage rates and falling house prices tells me that Australians have learned the lesson from the US finance collapse. That Real estate prices can and do get ahead of themselves and must eventually collapse when they grow out of kilter with the wages and supply.

In this respect I feel that real estate price growth has been a massive Ponzi scheme, and that has deflated slowly in Australia, unlike what has occurred in the US, the UK and Europe where house prices are down for possibly a generation.

Suddenly a house is not an investment anymore, it is a way of securing a roof over your head for the long haul. Isn’t that what a home should be about?

So what will happen to Australia’s 1.7 million residential home investors who lose more on their investment every year in the hope of seeing capital gains? Well they are the victims of their own folly. As tax rates have fallen, the attractiveness of these negative gearing schemes was only shored up by one-off growth spurt on the early 2000′s, and that was on the back of sales pitches historical housing figures that will not be repeated. So all this fluff and puff is behind us.Like all Ponzi schemes, the ones holding the baby when the music stops carries the lose, as those out early get to spend their money. What a beautiful swindle! It’s not legislated as a crime! So the perpetrators get out scott-free, and get to keep the loot!

What’s ahead for Mortgages in 2012?

Whats ahead? A flat house market and steady house prices. Maybe a little more price easing. Hopefully a big fall in land prices that is the real problem in home prices.[Ever wonder why the biggest donations to political parties were from Property Developers? Hmmmm.]

Expect to see house price inflation in country areas where the mining boom is happening. Other areas will see falls of housing prices I predict. It’s already happening in residential land prices in the towns across Australia. If I were buying a home in a country town, I would want a 10 year mortgage with comfortable repayments. Otherwise renting would be my option. A thirty year mortgage only makes sense in the capital cities of Australia today, because are economy and our society is so dynamic, and mobile. You can’t shift real estate.

Australia: Experts in Digging Holes and turning dirt into Gold

The great thing about Australia is that most of it is lousy for growing things, but the soil is rich in minerals. So we have become more into digging holes and shipping the dirt off in return for Gold. Not a bad earner. And not a swindle either. They’re turning that dirt into even more gold and shipping a lot of it back!

What we have also become is the beacon for climate change and hopefully we can transform this into an energy creation earner. More renewal energy means less imports of oil, and less pollution. Can we export energy so produced, or at least the kit to make it happen. I hope so. My Crystal ball is telling me is that energy, clean air, clean water and food will all be at a premium in the years ahead. We should position the Nation for this inevitable future World.

The cost of money will rise in 2012

The banks are trying to warn people, even using second tier bloggers, but the Australian Government is pretending not to listen. The Euro crisis, and in particular, the fact that the UK does not want to touch their baby [smart & brave move Mr Cameron,] will mean that France’s banks is caught holding that particular baby, so expect to hear the music stop anytime soon. Once that happens we will have a credit crunch, lower RBA cash rates, not all passed on by the banks because the cost of their borrowing will zoom up.

2012? A good time to be a Saver. A good time to be in Australia. Have a good one!

Source and credits: Rick Adlam, Mr Mortgage