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.

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.]

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

The new mortgage lending rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank “Wall Street overhaul bill”.

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.

One of the key aims of the legislation is to reduce risk-taking.

The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with “hurt money”.

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.

Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.

Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

Source: Mr Mortgage

Buying your first home is a big deal. It requires planning and patience and a solid income that will support a mortgage.

These are some typical first home buyers mistakes I see that can be avoided.

No check checks done prior to applying for a loan. First Home buyers need to get their credit checked.

Most first home buyers don’t have the cash to buy a home. The exceptions are the quick rich guys that make money on the Internet, and lottery winners. If you are not one of these, then chance are you need a mortgage, and mortgage loans are dependent on your credit rating.

Credit checks for all parties to the loan.

First home buyers typically assume that if one partner has good credit, then the loan will will a shoe-in. If both people are on the loan agreement application, then both their credit ratings are essential to get the home loan.

Ignoring utility bills.

First home buyers think that credit is only about loans. Its not. Judgements, phone bills, gas bills and electricity bills are all credit information that is shared and accessed on your credit file. If you have neglected to pay any of these, or are constantly late, it will show on your check file.

Free credit checks

The law requires that credit data holders make their credit files available to the persons on those files. You can get your credit check and a free credit report from veda advantage here

Most applications for credit in Australia and New Zealand are checked against the credit files held by Veda Advantage. We report the credit status of the 60,000 individuals and businesses who apply for credit everyday. This information and the access to it plays an important role in supporting the mechanics of finance, banking and business.

Being turned off by credit problems that are easily fixed

Credit is getting harder to get for all applicants and especially for credit impaired. If you are a first home buyer and have credit impairment, you will need a bigger saved deposit and strong present income as a given. You may also be better off using a mortgage broker to get the loans that suits your credit profile. Obviously if the mortgage broker knows this profile it will make their job so much easier.

Overlooking hidden costs

There are a lot of costs associated with buying a home that first home buyers may choose to ignore.
Many are waived in some States for first home buyers within price range limits and you need to get those details.

The big upfront cost is Mortgage Insurance. The bigger the deposit saved the smaller the mortgage insurance premium will be, because you pose a lesser risk to the lenders and insurer.
Some leaders may capitalise these costs onto the loan for you, but don’t expect this from you bank. Again, check with your mortgage broker about this.

Forgetting about the ongoing costs of homeownership

Many first home buyers forget about ongoing costs of property ownership, and some of these may be even added to the final bill.

Ongoing costs include rates and taxes, home and content insurance and ongoing maintenance and landscaping gardening costs. Others might include fixing things once you move it. Rates and taxes and content insurance may be payable before settlement.

By avoiding these mistakes first home buyers will find buying a home and less stressful and may even find themselves actually enjoying the home buying process.
Author: Rick Adlam, Mr Mortgage



Mortgage brokers have long deceived home buyers into paying higher mortgage rates than they had to shall soon become illegal.

This would reduce mortgage interest rates for most home buyers and may encourage more people to become home owners.

Yield Spread Premiums to go

When Mortgage brokers add a “yield-spread premium,” to loans, the bank mortgage lender gets more money through higher interest rates, and the mortgage broker is rewarded for this with an extra commission payment.

How it works

For each 0 .25%  increase in the mortgage interest rate,  the bank would pay added payments to mortgage brokers  by the banks increases

This payment type will become illegal from April 2011. I suspect that the real winners will be home buyers and hones mortgage brokers who did not use this practice.

Whose at fault here the lender or the Mortgage Broker?

Once again the mortgage broker will be seen as the villain here, but is this fair? After all it is the lender that creates the rule and the commission structure in the first place.

So will it impact on the mortgage brokers payments. In the early days yes, but in the long-term, mortgage lenders will entice mortgage brokers to write their loans, and this may mean that commission payments could rise in the face of competition by leaders.

In the end mortgage brokers who did not succumb  to this type of baiting will be best placed to reap the rewards, because lenders will be forced to be transparent of broker commissions and pay all brokers the same for mortgage loans introduced by them.

According to Mr Mortgage,

Its well to remember that the banks and other mortgage lenders profit most from loans and the lender only pays the mortgage broker about a quarter of the profit that the lender stands to gain by the soon to be illegal practice. Also many mortgage brokers did not front load loans to obtain an advantage, when they could. Also, it was the lender that put these practices in place, not the mortgage broker.

From July 2011 bank mortgage loan exit fees will be banned if the Government can pass its legislation to abolish them.

Why ban mortgage exit fees [or deferred establishment fees]?

Mortgage exit fees are the name given to deferred establishment fees. these fees are to offset bank costs for setting up the loan in the first place.

They have a long-standing history of being charged, even though one would reason that this was the original purpose of charging interest rates [to cover the cost of that work.]
By deferring the establishment fees, and letting them disappear after the loan was 5 years old, it had these effects.
1. It made it easier to sell the mortgage [didn't have to explain another fee upfront]
2. It made it cheaper for the borrower to apply for a home loan [they didn't have to pay fees upfront]
3. The deferred mortgage fee was explained as something that evaporated after 5 years. Most people thought that this was not a problem at the time of signing on.

It also in my view pushed up real estate to values above what people can now afford.

How mortgage exit fees became golden Handcuffs

The main benefit of deferring the fees for lenders is that they became golden handcuffs, because the borrower couldn’t wait to have them fitted, and couldn’t find the will to break free as they started to dislike the loan.

So mortgage banks were free to hike interest rates above the RBA official rate rises and get away a pure profit every year for many years to come.

This would be a good reason to have mortgage exit fees abolished one would think, because this would free consumers to switch bank loans, so that the lowest rate lenders would tend to get the most loans and this would hopefully make the big four banks, CBA, NAB, ANZ and Westpac to come into line with lower interest rates for their customers, just as allowing customers to take their phone numbers with them did with mobile phones many years ago.
Will banning home loan exit fees mean Higher mortgage interest rates?
Their is concern that this could raise interest rates. And this would particularly hurt first home buyers. I say this is nonsense.

The deferred establishment fee is a one off fee. The obvious solution is for banks and non bank mortgage lenders to revert to the original idea of charging this upfront. The other outcome would be to pay less to Mortgage Brokers and Mortgage Introducers.

Home Loan Account portability

Part of the changes to make home loans easier to switch is the aspect of making all home loans portable. many would argue that this would be hard.

I believe it would be a mere bagatelle, with databases and computer power that the banks now have. If they could do this with phone number banks can some come up with a uniques number for all bank accounts in Australia.

50 million accounts may seem a lot, but to a modern computer and database, its a tiny number of unique numbers.
A more likely outcome is that banks will simply find new fees and charges to add to the home loan that make up the shortfall. Even if this did happen, it would still be a better outcome for borrowers because they could switch home loans at any time and this would force banks to be more competitive, on fees and interest rates.
If the establishment fees were added as they were years ago, first homebuyers would therefore need more money upfront, but is this bad for the first home buyer or not? I say not and here’s why. The housing market would be slowed, and house prices would fall, so their loans would be smaller, and their monthly mortgage repayments would be smaller.
So I say that this would not conflict with other Government policies to help people get into the housing market for the first time, but help them.
As I alerted the Government last year, that the fly in the ointment of banning exit fees was that that most small lenders and in particular non bank lenders would be hurt more than the Big four banks. The biggest home loan portfolios are held by the CBA and Westpac, and the whole argument for axing exit fees was because these are the banks who have raised their home loan interest rates above the RBA rate increases. So this move could actually damage the very players that create competition in the mortgage space in the first place, and play into the hands of the banks that they want to control.

Summary on the proposed mortgage exit fees.

Making home loans easier and cost free to switch will open up mortgages to more competition.
Locking in customers has allowed Westpac and the CBA to milk their huge home loan portfolios for years to come, by raising rates above the RBA official rate rises.
Small non bank mortgage lenders will have to come up with new ways of financing the initial years of managing their mortgages, and paying their broker introducers because will be hurt most by abolishing deferred exit fees. Their fees are the highest, and this might mean that they will have to reconfigure how they pay their Mortgage Brokers for introducing home loan business in the future.

When you take a swipe at the 800 pound guerilla in your industry, you had better think on your feet as you wait for the counter punch. But the NAB thinks it has the CBA on the ropes here.

The Commonwealth Bank of Australia [CBA or Commbank] says it going to hit NAB where it hurts; it’s customer service ratings, and take business customers away from it.
Whilst NAB has the lowest ranking for customer service out of the big four banks in Australia, is that really a point of difference worth changing over. They will need to bring something extra to the table.
I don’t believe that business  owners will switch banks just because the CBA says they have better service?

So why  won’t the CBA counter campaign work?

I don’t think this attempt to hurt the NAB will have any traction.

1. People love to hate their banks, but they tend stay with them just the same. Show business operators yet another reason to hate their bank, and that may hurt you also. [The law of association]
2. Business owners might crumble about this and that, but they also know that their customers in turn probably crumble about their service too, but stay with them in spite of this.
3. Let’s face it in every market, and in every industry there can be only one ranked highest for customer satisfaction. That does not stop people dealing with the others. In other words, customer service is not a game changer point of difference, like interest rates, bank branch location.
4. The fact is that all banks, including NAB make it hard for consumers to switch, so can you imagine how hard it would be for business owners to switch banks today?
   1. Internet payment gateways,
   2. salary payments,
   3. supplier payments,
   4. staff banking cash receipts,
   5. Customer receipts,
   6. Eftpos machines,
   7. Business credit cards,
   8. Cross-collateralisation of residential mortgages

And that’s if they don’t have special deals for their personal financing. Business customers are more boxed in than consumers when it comes to switching banks.

Big Bank wars will help smaller banks to gain business

1. The other problem I see is that business people are professional buyers, and if they are approached by the CBA with a better deal, it would not be a stay with NAB or move to the CBA decision; they may shop other banks offers, even outside the Big four banks to see what they have to offer.
I expect that this move will grow region banks business banking more than the CBA’s base.
So if you are a business operator and thinking about switching your banking business from the NAB, the CBA, ANZ or Westpac, you might want to consider these regional banks, or may be stronger in your area, better locally placed, or just plain nicer to deal with.
• Adelaide/Bendigo Bank
• Suncorp
• Bank of Queensland
It might be the best thing you ever did.

Politicians from both sides of the House looking to point score in the row over recent interest rate increases by the big four banks, over the recent RBA rate increase.

So Glenn Stevens looks having to navigate the row over banking competition when he sits down for his six-monthly grilling by federal parliamentarians on Friday.

The Reserve Bank Governor views on the major banks raising interest rates are pretty well understood after the statements and speeches Glenn Stevens has made in the past few weeks.

The RBA’s cash rate increase earlier this month, with the CBA “signalling” its intention to raise rates over the RBA rates is the real point of interest, in that it may have been premature, and its sparked huge increases in mortgage rates by the four major banks.

My question would be ‘why raise the rate .25%, when you knew the majors were going to rise their rates. Why not raise it .1% and let the banks have their piece of profit?

As it  was, the  Commonwealth Bank added a further.2% to its variable mortgage rate above the Reserve Bank’s .25% increase, causing all parties to ramp up their rage. ANZ, National Australia Bank and Westpac weren’t far behind the CBA in raising their mortgage rates a similar amount, though all had the good sense to move them differing amounts to avoid the collusion tag.

RBA Deputy Supports the Banks rate hike

Reserve Bank Deputy Governor Ric Battellino was wrong in my view when he said that competition in the banking sector was not as strong as it used to be, because we had more banks 13 years ago, and many of the banks and all of the major non bank lenders have been acquired or part acquired by the big banks.
This should be an interesting grilling for the RBA Governor.

Buying a home has never been easy. However it is harder than ever before due to the high cost of homes, and the mortgage rates increases that seem to be with us for some time to come.

Today most people struggle financially to buy a home because of the:

1. High cost of homes themselves.
2. The high cost of land.
3. The increasing interest rates.

So is there a solution to this dilemma, or must we always pay more share of wallet for a roof over our heads?

The Reserve Bank of Australia uses interest rates to control inflation.

At the end of the day, the RBA uses the interest rate rises as the lever to control inflation and spending. And it works and it is effective.

The problem with this is that homeowners have to carry the greatest burden for the using interest rates as it affects mortgages as the prime method of controlling inflation.

A far easier method of controlling house prices for instance would have been to make it harder to buy a home through larger deposit requirements and restricting credit.

Why making it harder for new home buyers to get mortgages is actually good for them

This would make it harder for new home buyers to buy a home.  And would reduce the buyers overall, so bringing the house sales down, and the house prices down with it, as people will not wait indefinitely to sell their homes. This in turn would benefit the new home buyers as they would be paying less for the home and have a smaller mortgage to pay because of that , and also because they owe a smaller percentage of the home price to the banks, because they gave a bigger deposit.

The reason house prices are so high is that it has been easy for people to get into so much debt, increasing the pool of buyers. To reduce the pool of buyers, either build more housing stock or make credit less available.The other issue is that people are sold the loan that best suits the banks, the variable interest loan, which is priced at “come in sucker” discount rates.

The solution to Mortgage Stress

If everyone had a 30 year fixed rate, as most do in the US, then homeowners would never have to worry about RBA or Bank interest rate hikes again. The GFC was caused by giving ultra low rate adjustable mortgage rates to people who could never repay those mortgages.

Author: Mr Mortgage