Mortgage rates fall again in Australia as the US rates rise

The Reserve Bank of Australia reduced official interest rates in Australia to to its lowest rates ever, whilst mortgage rates n the US continue to climb.

The RBA reduced the cash rate to 2.5% in a bid to help the Australian economy transition from the peak of the mining boom and record high demand for coal and iron ore from China, to the wider economy, and especially housing construction and retail, two sectors that have suffered from a lack of confidence in recent times.

There seems to be a recovery in demand for Housing in the capital cities, especially Sydney and Melbourne,  which have seen record sales at weekend auction in recent weeks. Even Brisbane is well up on where it was this time last year.

But there is a growing shortage of homes in most of Australia’s Capital cities,  especially single unit housing, and there is hope that the Australian Government will have housing construction on its radar, as a main driver for employment and the big ticket items in the retail sector.

My concern is that we have heard nothing from either party regarding policy in this area, and a month out from the Federal election. Maybe they are keeping their policies in this for the Official Policy Launches due in a couple of weeks.

Australia has had a smooth ride since and through the Global Financial Crisis, and has a Triple A [‘AAA”] rating from all three rating agencies, a first for Australia. So things are good in the Lucky Country. But they could be a lot better for a lot of people, and for many sectors of the economy, especially manufacturing.

The mix of a high Australian dollar, high wages, employer paid superannuation, holiday pay and other benefits and working conditions, has meant that the Australian economy has defied gravity for years on the back of its economic management and stimulus packages during the GFC.

But as the economy goes into transition from the mining boom, it needs a lower $AU to help agriculture and manufacturing to take up the slack.

So apart from the RBA reducing rates even further, and causing the Australian dollar to fall further, where are the actual policies from the Opposition and the Government that will drive innovation, manufacturing and the single unit home construction industries? I am still waiting.

Source: Mr Mortgage

Interest Rates: Will the RBA start cutting rates? Westpac says yes

According to Westpac the Reserve Bank of Australia is getting ready to cut interest rates. That has to be good news for home buyers, homeowners and housing construction industry. But will it happen in October?

Westpac is Australia’s second largest home loan lender, and the biggest winner in mortgage growth in recent years since the GFC. It believes the RBA will start cutting interest rates at its next meeting. Many other experts says lower interest rates are on the way, but after October.

The prophet of profits bank

Westpac, has a good track record in predicting the timing of RBA rate cuts. After all it has a big stake in the outcomes. Westpac believes that reigning in the value of the high Australian dollar would help Australian businesses, especially those that are not  in the mining sector.

It would also be  shot in the arm for the ailing house building industry, and that is a big employer

ANZ predicts a brace of interest rate cuts, in October next month and in November!

The RBA was close to cutting interest rates in its September meeting,  but wanted more data on the economy due later in September . And things are suddenly unraveling for Australia with global economic conditions going south, the drop in commodity prices hurting Australia, and the low inflation all mean the bank could cut the base interest rate at its October 2 meeting.

All in all, a mortgage rate cut of 0.5% before Christmas is looming as a real possibility.

Source: Mr Mortgage

Are Australian Mortgage Interest rates too high?

As the Reserve Banks of Australia admits that the Major banks forced rate cuts on it to protect the profitably of those banks, we need to ask if Australians are paying too much for their home loans.

Yes, the “secret” is out. The RBA did cut interest rates to help out their pals in the Australian Banking industry, and specifically to counter higher funding costs for Major Bank lenders [seeking funds in Europe], the RBA admits.

At the same time the RBA says that interest rates are at the right level!

I kinda get this logic, but people that are paying those rates that bought their homes at the top of the market may not feel so generous or understanding.

The fact is that they paid too much for their homes because interest rates were to low before 2008 and bank lending guidelines too lax, meaning that more home buyers could spend more on their home than they would otherwise do, and could otherwise do if the rates were set right for home buying in those days. And there is the problem. The interest rates set by the RBA are in response to the entire economy, not just the housing market.

And that brings up a secondary issue. Many of the home loan cuts have not been passed on at all for credit card holders [that would help the ailing retail sector] or to small businesses in general. So is it time to rule on these low bank practices? I think so.

Deputy Governor Philip Lowe said that the RBA had intentionally offset the higher costs for commercial banks. This we all knew, and at the end of the day, having a working and profitable banking system is an essential part of a stable economy. he also said that the official cash rate would be far closer to 5 per cent had banks not faced higher funding costs after the financial crisis and held back cuts to the base rate.

Home loan competition was killed off by the FGC

The Global Financial Crisis snuffed out the non bank Securitised mortgage lenders in Australia, and all the big brands now are captive of the big four banks.
The result is that mortgage rates have now blown out to 2.7 percentage points.
Yet in the 10 years prior to 2007 the difference was just 1.5%.  So until we have another wave of non bank mortgage lending growth, then we will all be paying too much for our home loan mortgage.

Yet there seems to be a reluctance by the Federal Government to foster the rebirth of the non bank lending industry, and I suspect it gets back to the New World Order in decisions about regulating more strongly the Banking and Credit Sector, to ensure we don’t see another GFC anytime soon.

Mr Lowe said “bank bashing” was understandable as the major banks had not done enough to rebuild  “trust” with banking customers . He said that Banks needed to stop complaining about additional regulation in the wake of the GFC. {And when you consider they did well out if it, they have no room to complain.

Mr Lowe said “There has been a lot of brand damage done to the banking sector and it is understandable the community want something to be done,” Mr Lowe said.

Since late last year, the major Australian banks have held back an average of 30 basis points in mortgage prices of the RBA’s 125-point cut to the cash rate.

Source: Mr Mortgage