Black and White Finance update - August 2018
Welcome to the Black and White Finance update for August 2018, we are so glad you are here with us. We delve into demystifying the latest finance and property related matters you should know about just before we launch into Spring. This month:
Rates – what’s happening and who is the cheapest
Wage growth – enough to spur a rate increase
Lending conditions – remaining tight
Good news for First-home buyers
It’s a buyers’ market
Rates – what’s happening and who is the cheapest
Even though the actual cash rate is being placed on hold at 1.5 percent, we’ve seen AMP, Macquarie, ING and many other smaller-tier lenders increase home loan rates slightly as a result of increases in funding costs. This is because the banks in Australia borrow not just from each other, or from the Reserve Bank, but also from overseas funders. This money then gets used to lend to customers. If our banks incur increases in what they pay for the money overseas, this increase gets passed onto the customer. It is fair to assume that the major banks are feeling the funding pressures too, but maybe don’t want to make changes any time soon in the midst of the royal commission. See below some of the most competitive home loan rates and repayments on the market for new to bank customers. *
Owner-occupied home loan rates when making principal and interest repayments:
Investment home loan rates when making principal and interest repayments:
Wage growth – enough to spur a rate increase?
The Australian Bureau of Statistics (ABS) revealed that over the June quarter, wages grew by 60 basis points and by 2.1 per cent year-on-year in Australia. The Reserve Bank has repeatedly said that it will not consider increasing interest rates until wage growth starts to improve significantly and 2.1% is hardly significant.
The chief economist at AMP Capital, Shane Oliver, has noted in the media, “While it’s good to see wages growth up from its lows two years ago, we are yet to see a meaningful pick-up. We [AMP] remain of the view that the RBA won’t start raising interest rates until 2020 at the earliest”. Bill Evans from Westpac has recently echoed the same.
The Reserve Bank undoubtedly understands the Australian population may simply not be able to afford increases in interest rates. See below the actual ratio and percentage of income each household needs to service a mortgage, according to Corelogic’s recent figures. It’s showing that we’re using a lot of our income to go towards our home loans:
Lending conditions to remain tight:
While rates are to remain low for some time, the banks may be a little tougher to deal with in terms of assessing your financial situation and this could continue for quite some time. It’s more important now than ever to have a broker that can help navigate you through the different deals on offer, understanding all the diverse requirements.
Heavier scrutiny is being applied to customer stated living expenses and lenders are continuing to apply APRA’s interest only limits. Further, smarter credit checks with the introduction of Comprehensive Credit Reporting (CCR) and a greater focus on high debt to income ratios will make lending conditions tighter.
The tightening of each lenders policy in the areas listed above have clearly had their desired effect. The reduction in interest only loans for example, is one area which has seen a huge drop as can be seen below as represented by Corelogic’s percentage of mortgages originated on interest only terms.
Good news for First-home buyers:
This is great news for First-home buyers who can now take advantage of less investors in the market. See below from Corelogic, first time buyers have become a larger proportion of the owner occupied demand.
It’s a buyers’ market
The focus has been on Sydney and Melbourne’s slowdown mostly because of the extra construction that has caused supply issues, and less property demand from China. Most capital cities have also seen a slowdown. It can be seen in the recent changes in dwelling values, as per the below Corelogic report. Sydney’s decline is most noticeable and Hobart's stability has received much praise in the media.
To wrap things up, investors have dropped off, there is a lot more supply and property demand from China has slowed. Some experts are saying this could last years, others are saying a rebound is around the corner given our population is growing, our infrastructure is strong and foundations overall will support the long term. As the governor of the Reserve Bank of Australia put it, speaking at the House of Representatives Standing Committee on Economics on Friday (17 August), “Australia has a very good financial system”.
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We are keen to hear what you think and also keen to receive your questions. If you want to know more about each banks requirements, or of some great terms, or rates on offer at the moment, please send a note to peter@blackandwhitefinance.com.au or simply click start today below . Once again, thank you for reading.
* Your full financial situation would need to be reviewed prior to any acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria.