Black and White Finance update - March 2018
Is our household debt really that much of a problem for us? Which banks are offering the cheapest home loan rates? Why is the industry receiving such alarming publicity? These are the areas of focus in this month's snack-sized update – enjoy!
Why is there so much noise in the banking industry and what’s this Royal Commission?
The industry focus of late has been on the Royal Commission. The Royal Commission is an investigation, an initiative, set up specifically by the government to look into Misconduct in the Banking, Superannuation and Financial Services Industry. The Commission is reviewing responsible lending and looking to see if banks, lenders, and brokers are doing the right thing.
See here: https://financialservices.royalcommission.gov.au/Pages/default.aspx for more details on the Royal Commission, key dates and people the government has empowered to implement it.
A final report needs to be compiled by February 2019 but until then, one thing is for sure, applications for finance will require a little more attention to detail by those people applying, those submitting and by those approving applications. Some experts believe this Royal Commission is more important than ever now given how high Australia’s debt levels are but others maintain a different notion of our debt levels.
Is our household debt really that much of a problem?
A lot of experts out there have focused on the level of debt and yes, while numbers may reveal it is high, we have actually come from a very low debt economy in general. This is because in the early 1990’s, interest rates were a lot higher and so the cost of borrowing was much higher - Australian’s couldn’t afford it. If you look at the 1990’s, we had rates at 10 to 15%, see below.
If we look at household debt specifically for Australians, it is approximately 2.5 trillion at the moment, according to the Australian Bureau of Statistics. Assets in total on the other hand, amount to 11 trillion. So, while household debt may seem high, in comparison to our asset level, it’s quite low - with your accounting hat on you’ll say we’re sitting on a pretty healthy balance sheet.
Will the debt level mean the Reserve Bank will hike rates?
While Australia’s debt levels are high in comparison to what they’ve been in the past, economists believe that the Reserve Bank of Australia (RBA) is not that worried, they are a little, but not overly concerned. If wage prices and spending does start to increase causing inflationary pressures, then the RBA could be forced to start lifting rates. Most economists are saying this will occur very slowly and not until 2019 at least.
According to Alan Oster, NAB’s Group Chief Economist, if rates did rise 1 or 2 percent, it would not crash the economy and maybe house prices might come back 5 to 10 percent. Mr Oster believes that if unemployment rises to 8 or 9 percent however, then people will stop spending and so then the economy could be in serious trouble – but this is not likely.
ANZ and Macquarie’s economists recently reversed their forecast where they previously said that rates could be rising this year. They’ve changed their minds and said as part of their rate review that rates will more likely change next year, in 2019. They also said that they need wage growth to accelerate before any of that can happen.
With rates staying lower, who’s the cheapest?
Off the back of these revised forecasts, major lenders have reduced their key fixed rates. As of today, see some of the most competitive fixed residential home loan rates below.
For owner occupiers, making principal and interest repayments, wanting fixed rate repayments over 3 years:
ING: 3.89%
NAB: 3.94%
Bankwest: 3.98%
ANZ, CBA, Westpac, Suncorp and St George: 3.99%
For investors, making principal and interest repayments, wanting fixed rate repayments over 3 years:
NAB and Westpac: 4.09%
CBA: 4.19%
Bankwest: 4.28%
ANZ: 4.29%
That’s just to name a few, before assessing suitability, before considering your objectives, needs, and financial goals.
We're keen to hear what you think about our monthly updates. We're keen also to receive your questions and if you want to know of some other great terms or rates on offer at the moment, please send a note to peter@blackandwhitefinance.com.au. Once again, thank you for reading.
Peter Vassilis