Australia ranked number 2 financial centre in the World

Australia’s financial system has been praised by the World Economic Forum, jumping in economic ranking from 11th to 2nd, with the UK in first place, and nudging the US into third place.
The World Economic Forum ranks 55 of the world’s leading financial systems and capital markets.
Australia’s rise in position in the World Economic Forum’s rankings as a global financial centre are based on over 120 variables including institutional and business environments, financial stability, and size and depth of capital markets.
The financial crisis caused most countries’ ratings scores to drop significantly, but Australia was an exception.
According to James Bilodeau one of the authors, Australia was the only country in the top 10 to have a positive change in its overall score.
“Australia performed very well across many of these different areas” he said.
So certainly financial stability while there were some distresses in the system, we see strength in the banking system, certainly from a sovereign debt point of view, and then general strength across other areas – the banks are extremely efficient according to the measures that we’ve captured,” he said.
“We scale size by GDP as a measure of depth, Australia does well here, and then financial markets very strong.”
According to Mr Bilodeau it is a surprising achievement, for a relatively small country like Australia to trump the US in the rankings.

Both the US and the UK did poorly on financial stability – London coming in 37th and New York 38th out of the 55 countries.
“In terms of this snapshot, sort of looking at the relative placement of countries, certainly the US and the UK have both lost ground,” Mr Bilodeau commented.

Australia is the place to invest your money right now

Many people are also noting Australia’s surprisingly strong September jobs figures.

Australia is the place to invest.

Richard Cookson the head of global asset placement for HSBC said that Australia was the place to invest.
Author: Rick Adlam Mr Mortgage

Australians love to hate the banks. That’s a given. But is there good reason to distrust your bank when it comes to mortgage rates you are being charged?

According to Peak consumer group Choice, Australia’s major banks have been inconsistent when setting their mortgage interest rates [that is ripping off it's customers when the opportunity presented]. The four major Australian banks announced yesterday they will lift their standard variable home loan rates by 0.25 percentage points in line with the official cash rate increased announce this week by the Reserve Bank of Australia.

Australia is the first Nation to have its Central Bank raise interest rates since the Global Financial Crisis hit last year, and this is a good sign that the RBA bankers believe that the worst is over in Australia, and now the focus is on putting a lid on inflationary pressures, especially in housing markets.

Sauce for the Mortgage Goose

As the Choice spokesman Christopher Zinn pointed out, because the banks did not pass on the full amount of earlier rate cuts, because they said that the cost of funding was not tied to the cash rate. He says the same principle should apply when the cash rate increases. [Good Luck on this one Chris. The logic is sound, but without anyone to go in punching for you, you have Buckley's chance of moving the banks.] “The banks really should just have passed on part of this increase in the cash rate and not the full 0.25 per cent if they were going to be consistent with their argument that the cost of funding was not just related to decisions made by the Reserve Bank,” he said.

“If that really was the case [concerning mortgage interest rates] then you would think it would be the case now and  this exposes the inconsistency of their argument in the first place.”

The ANZ was first bank in line to raise its standard variable rate, which will now be 6.06 per cent per annum, equivalent to a 6.16 per cent comparison rate. From the same date, the NAB will lift its standard variable home loan rate to 5.99 per cent per annum, and Westpac will lift its rate to 6.06 per cent. The Commonwealth Bank will raise its interest rates a day later, on Tuesday October 13, taking its ‘Complete Home Loan’ variable rate to 5.99 per cent per annum.

The real reason Australians get ripped off every chance the Big banks get.

In my view, the banks don’t have to be consistent when it comes to decisions on what to charge their customers for mortgage finance. There is no law that says they should, and there is no real competition in the mortgage space in Australia. We have had a shrinkage of mortgage brokers and many non bank mortgage lenders being taken over in the wake of the GFC. What we need I believe is more real choice. And more real competition to break the power of what I see as Australia’s banking Cartel.

Author: Rick Adlam, Mr Mortgage

Some of Australia’s mortgage lenders are putting the squeeze on mortgage brokers to extract more loans out them, and this brings up the question “Do mortgage brokers work for the benefit of their client or the Banks? You may not like the answer.

Mortgage brokers can’t get you a loan for a lender that they are not accredited for. Does that make sense to you?

And right now Westpac and the Commonwealth Banks are starting to make brokers jump through performance hoops, in order to retain their accreditations with them.

The false assumption

Some in the mortgage broking industry claim that their “Independence” as a mortgage broking professional is ” in jeopardy” due the pressure put to them by the major banks to favour their loans. This assumes that the mortgage broker is independent of the banks in the first place. This in my view is a false assumption.
What is more, if any mortgage broker claims to their customer that they are “Independent”, they are guilty of deception and misleading the customer.

How can that be you might ask?

That’s easy. Determine who the principal is and who the client is and who the customer is.

A principal in an agency is easy to spot. They are the one who pays the agent.
Who is the customer? Easy they are the ones who buy the product or service from the agent.
Who is the client then you might ask. Good question! It can’t be the customer, because in the relationship, the customer is the one who pays for the goods or services.
The client is the one who pays the agent for bringing buyers and seller together. When a home buyer pays all the money to the lender, and the lender pays the broker, then the client in my view is the Bank!

Why do I say this? Because the mortgage broker is paid by the banks, not the client. So the mortgage broker is dependent on the Bank or Non-bank Mortgage Lender for his livelihood.  And no broker can claim to be independent of the banks. They are the opposite. They are completely dependent on the Bank.
Mortgage Brokers also have to ensure that they look after the best interest of the lender.
Can you see anything wrong in this? Yes, the mortgage broker appears in fact a [non-exclusive] commission agent of the bank. He or she only gets paid if they bring a deal to the lender that settles.
The banks of course will argue that “No”; they don’t employ the broker as an agent. He or she is merely an introducer to the lender.
If, just for the moment, we take a look at Real Estate Agents and their relationships with buyers and venders of property we can see that the real estate agents principal is the vendor [seller], because [in most situations in Australia] the seller is the one who hires the agent to effect the sales, and the seller also pays the commission on success to the real estate agent. Real estate agents in effect work for the seller to market and sell them property on the seller’s behalf. They have the skills and knowledge to get the best possible price in a given market to affect a good outcome for the seller.

What is the difference with a bank hiring a mortgage broker to sell their loans? I can’t see any. Maybe I have missed something in the home loan or real estate business, so if I have please explain it to me. Until that happens [I’ve been waiting eight years now] I am convinced otherwise. And I will stick with my long held view, that mortgage brokers are the agents of the banks that they represent.
And that brings up a question, and the question is this. What’s wrong with that? Nothing I say. As long as the client is made explicitly aware of this fact, by the broker in a statement, or in writing, before transacting a loan.

Mortgage Brokers get angry when you tell them this.

This notion will rile the many honest brokers who work hard to get the best deal they can for their client. But that is not the point. Yes, most brokers are honest, and will work to get the best loans for their customer [let’s stop calling them clients, OK in case we give someone the wrong impression.
But that is not the point. The point is they don’t have to be honest. They can if they wish sell the customer a worse than optimum loan for their needs. We have all heard of brokers who hire sales people and tell them to sell a particular loan, when they know that this is not best loan or outcome for the client, but benefits the mortgage broker instead.

What is needed is legislation that clears the air so that customers know where they stand on this point, and who is the mortgage broker really working for.

Any Mortgage Broker that tells you that he or she is independent, should be given a wide berth, or reported to the Office of Fair Trading as far as I am concerned. 

Are Mortgage Brokers Honest?

The notion that mortgage brokers will lose their independence if the banks make them sell a certain number of loans is rubbish. To use the real estate agent analogy again, if you give the agency to a real estate agent, who then uses your home as a way to sell other people’s homes instead of yours, is he or she being honest with you, the client and principal? And can you sack the agent if they don’t perform? Of course you can!
Mortgage brokerage need to take a good look at themselves, and start being more honest with their customers, and maybe they need to start with themselves and the relationships with their lending panel.
The final question about honesty is what is implied in a name. Does “broker” imply an agent client relationship? If it does maybe it should be replaced with Mortgage Introducer. That is a more honest name in the opinion of Mr Mortgage.

The big four Australian banks have had it sweet for so long, but have copped a serve from Prime Minister Kevin Rudd in recent weeks, as struggling mortgagor homeowners haven’t been getting all the interest rate cuts from the RBA passed on to them.
Obviously the banks are used to having their names dragged through the mud as its becoming an Australian pastime to bag the banks behaviour by Jill and Joe Public. So the Prime Minister has good right to feel that joining in with a quick flurry of words on behalf of Mr and Ms Mortgage can’t harm him in the polls. But it is not going to change the Banks’ motives or behaviour. After all, they have to work in the best interest of their Shareholders, and on that basis you would have to say they are going a great job, if you compare their performance and results against banks in the US or the UK.
But the big four Banks have a privileged position, and banking is a mainstream public service as well as a business, so Mr Rudd needs to deliver effective competition within the Australian Mortgage Industry to create a level playing field. In my view this will mean legislating for an effective mortgage and credit card marketplace, and one with real competition.
Regional Banks and building societies and credit unions, as well as non bank securitised mortgage lenders need some legislation that might be called positive discrimination to level that playing field.
The big four Australian banks [CBA, NAB, Westpac and ANZ] are, obscenely profitable. For example and raked in $9.5 billion in profit in just six months. And this is while there is a global recession? Australia’s banks are among the world’s most stable and profitable and have been for some time.
The Finance Sector Union (FSU)has urged that banks make their lending practises more responsible by suggesting that Australians’ ever-increasing credit card debt is unsustainable; and that linking salaries to peddling high-debt products like mortgages does not serve customers well, especially when it’s to buy shonky and highly geared investment products such as the two tier real estate market in Queensland in the 1990’s and the recent Storm Financial collapse.
Its time for action Mr Rudd, not another verbal bashing. A viable mortgage alternative to the banks is required by all homeowners and home buyers. The current system means that second tier lenders get the customers that the big four don’t want, and this will only increase the gap in profitability between Australia’s big and small mortgage lenders.
Rick Adlam is Mr Mortgage

Australia appears to have escaped the recession the World recovers

Based on record retail sales, lifting new home sales and recovery in our trading partners, the Reserve Bank of Australia deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June Meeting.

The Rudd government must be dancing in the corridors of Parliament house. Expect them to make the Liberal opposition pay now for its criticism of the stimulus package handouts, and first home owners Grant boost, which saved the building industry from decline and job losses.

The Retail industry must also be thankful as the stimulus reaped them a record April shopping sales.

The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders because there is money to throw at any weakness the RBA board sees later in the year.

In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.

“The turnaround is clearest in China and some other emerging countries,” he said.

“Recovery in the major countries is likely to take longer to begin and be slower when it does occur.”

Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.

“The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed.”

The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.

The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government’s stimulus packages.

The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.
Mr Mortgagesays that this is good new for homeowners, home buyers and the residential building building industry.

The Housing industry of Australia [HIA] is Australia’s largest residential building association gave its approval to the pro-active decision of the Federal Government to triple the First Home Owners Grant (FHOG), saying at the time that the measure was necessary to save jobs in the residential construction and manufacturing industry.

They they are applauding the Governments decision to extend the Grant boost til the end of this year.

HIA Managing Director, Dr Ron Silberberg said that there had been widespread evidence of job shedding by major builders as well as plant closures and retrenchments by building product manufacturers, which were eroding the industry’s supply capacity.

Thanks to the tripling of FHOG for new housing, major builders have told HIA that they will now curtail further job retrenchments,” he said.

Building product manufacturers will be looking to re-open plant and move from a 4-day to 5-day operating week.” The increase in FHOG has invigorated confidence in the industry and lifted the spirits of many aspiring first home buyers looking at purchasing a new dwelling. Already, builders are reporting an increase in inquiry levels.

“The tripling of FHOG appropriately is targeted at increasing the supply of new housing and will complement other major initiatives to increase the availability of lower-cost new housing. By moving quickly to stabilise the industry’s supply capacity, the initiative will help to ensure the industry is better placed to handle a sustained upswing in general buyer activity down the track, said Ron Silberberg.

A yawning deposit gap has prevented many first home buyers from attaining homeownership. This measure will assist many who due to a lack of deposit and previous increases in interest rates were unable to get into the housing market.

It is ironic that just two weeks ago, some commentators were predicting falls in house prices of 40 to 50 per cent. Following the increase in FHOG some are predicting a house price boom. Neither proposition is credible nor based on empirical research.

Even if the additional FHOG was capitalized fully into house prices (assuming no supply response), the impact on a typical first home of $400,000 would be less than 4 per cent, hardly the impetus for a house price boom. “It is difficult to see how a nine-month stimulus from the extra FHOG could lead to a break-out of house price inflation.

The new FHOG will help to sustain employment in the residential construction industry and provide welcome assistance for many who have been shut out of the housing market,” said Ron Silberberg.

First home buyers are returning to the housing market in the UK just as they are in Australia, and are now accounting for the highest proportion of those looking to buy a home in four years, [even more than in Australia, due to our higher mobility and stronger mum and dad property investment markets.
 
The UK findings from the Council of Mortgage Lenders are the latest indication of a pick up in Britain's struggling housing market, which also found borrowers spent the least amount on their monthly mortgages in half a decade.
It found that first-time home buyers accounted for a massive 40 per cent of house purchase lending, the highest proportion since April 2005, when it last reached this level. However, the total number of first-time buyers remains low - 12,500, up from 9,200 in February, although significantly below the 17,800 recorded in March last year.
 
At the same time, home owners spent 13 per cent of their income on mortgage payments, the lowest level since April 2004 when the figure was at 12.7 per cent. It compares to a high of 18.9 per cent in November and December 2007.
Howard Archer, an economist at Global Insight, said: "While housing market activity has passed its low point, ongoing very poor economic fundamentals and still tight credit conditions suggest that the improvement in activity will be gradual.

Consequently, house prices look likely to fall significantly further, although we do expect the rate of decline to progressively moderate.

The CML's research comes after a significant fall in house prices, with the average value of a home dropping from £199,612 at the peak in August 2007 to just £154,716 today, according to the Halifax, Britain's biggest mortgage lender.
Lending criteria has eased in recent days with some high street lenders, including Abbey, offering better rates for those with a smaller deposit.
But experts said new borrowers were still relying on their parents to help get them on the property ladder.
Andrew Montlake, of mortgage brokers Coreco, said: "The first time buyer figures are particularly interesting and show that many purchasers are beginning to find slightly larger deposits, helped, no doubt, by the Bank of Mum and Dad."
Bob Pannell, head of research at the CML, highlighted the "sharp dividing line" between those who can raise a deposit and those that can't.
"For those who can, the burden of debt payments is low and mortgage interest is consuming proportionately less income than for a number of years. But for those without significant deposits, entering the market is still both difficult and uncertain," he said.
The CML said 31,000 loans were advanced for house purchase in March, up 29 per cent on the previous month, but a third less than the amount approved during the same time a year earlier.
Remortgaging [called mortgage refinancing in Australia and the US] activity also increased in March compared to the previous month with 40,000 remortgage loans approved, worth £5 billion, and up 8 per cent on February 2009 – but down 45 per cent on March 2008.

The mortgage industry has some way to go before its out of the woods.

Australia’s biggest bank has bought a lemon in BankWest and the decision is now biting a CBA.

Commonwealth Bank, the nation’s third-largest lender, has revealed a near 10-fold increase in bad-debt charges at its newly acquired Bankwest.

Australia has so far avoided a banking crisis, partly because local lenders have focused heavily on a domestic market that is only now coming off an historic economic boom.

With all major banks reporting higher bad debts and non performing loans, the banks values may be tested over the next few weeks.

CBA said Bankwest, which it bought from struggling British bank HBOS in December, took $825 million in loan-loss expenses in calendar 2008, up from only about $88 million in  2007.
CBA said specific bad-debt provisions had been boosted by a few large property-related debt exposures in New South Wales and Queensland.

Australian banks are in far better shape than many overseas lenders but that rapid growth in bad debts in Australia will test the confidence of investors.
 One thing that we can all be grateful about is that all four major Australian banks remain profitable.

Australian Banks earned billions of dollars in fees and charges on customer accounts in the weeks leading up to the Federal Government’s move to protect the sector from the global financial crisis.
Strong rises in the charges on everyday transaction and deposit accounts — the most popular held by Australian consumers.
The banks collected $1.43 billion worth of fees from the accounts in the September quarter, the peak of the world banking crisis with the collapse of Lehman Brothers prompting Labor to guarantee retail deposits.
The fees raised were well up from the $1.36 billion accrued six months before that and the $1.407 billion in the June quarter.
The Australian Prudential Regulation Authority figures showed there was a small drop in the broader fees collected by all the banks, but the dip was only among the smaller institutions. The major four banks kept their total fees steady at $3.4 billion in the three-month period but for the year they earned $14.3 billion, $2 billion more than the year before.
The Government has vowed to crack down on Australian banks slugging customers with unfair fees, after Kevin Rudd revealed he and Wayne Swan had met banking chiefs earlier this month to discuss their charges.
The banks have also been increasing the proportion that fees make up of their overall income, with 28 per cent of revenue sourced from the charges.
The increase came as Australians began to save more.
Consumers have $1.5 trillion in savings accounts and the major banks have snared 70 per cent of the market.
Consumer Action Law Centre policy director Nicole Rich said the fee increase and strong profit margins of the bank showed the lack of competition in the national banking sector.
“Fees are now a reality of the Australian banking market; fees have become an essential part of the bank’s income,” Ms Rich said.
“It’s an important revenue stream, the banks are reliant on them … that is hard to undo.
“We are paying more fees because it has become harder for the banks to give it up.
“This is the reality, and we should encourage more competition.”
The Reserve Bank’s assistant governor of financial systems, Philip Lowe, said yesterday he believed the recent reforms to ATM laws meant there was now increased competition and transparency for customers.
Mr Lowe said that since the reforms were introduced on March 3, most cardholders were paying no more for ATM transactions, and “may have the opportunity to pay less”.
“Interestingly, our liaison so far suggests that the increased transparency of the fees is already having an effect,” Mr Lowe told a cards and payments conference in Sydney yesterday.
“In particular, some ATM owners have reported that the number of withdrawals from their machines has declined, with some customers deciding not to proceed with a withdrawal once they are reminded of the cost.”
The RBA reforms resulted in the abolition of interchange fees, where banks were able to levy a charge if a rival bank’s customer used one of their ATMs. According to Mr Lowe, this fee had been fixed for many years, and it was “all but impossible” for ATM owners to negotiate a higher fee.
While ATM owners did not charge cardholders who used their machines, most cardholders were hit with a fee by their own bank — so-called foreign fees — even though the banks incurred no cost in providing the service. This led to questioning of why banks charged a foreign fee of $2 for withdrawals, when the interchange fee they paid to the ATM owner was only about $1.

The fee rip-off  by Australian Banks will continue because Banks have become addicted to them and regulators won’t do anything to stop them. Afterall we at least have a strong banking industry that still has the capacity to lend. Things could be worse.