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According to NAB, interest rates are expected to stay on hold for another 12 months. This would be the longest period for interest rates to stay on hold since the Reserve Bank took control of the official cash rate in 1990.

Banks

Mortgage exit fees were finally thrown out of the window on July 1, liberating borrowers from punitive home loans with excessive break costs. However, the banning of the exit fees is creating some noticeable side effects.

Property Investment Continues To Grow – Despite Mortgage Downturn
Property investors are continuing to grow in numbers despite an overall mortgages decline across Australia on the back of successive interest rate rises.
We look at why this is the case…
Portfolios is part of Australia’s largest independent brokerage network Australian Finance Group (AFG).
Throughout March, April, and likely to continue in May, AFG confirms the emergence of a two tier mortgage market, with the proportion of investors surging as sales to owner occupiers decline.
Property investors accounted for 36.9% of all mortgages arranged in April, the highest such figure AFG has ever recorded.  This compares with 10.2% for first home buyers and 16.3% for up-graders.
The remaining mortgages in April, 36.6%, were for refinancing purposes.
(Sub Headline) Why The Confidence in the Investment Property Market?
In our opinion there are a number of reasons to be confident in the Australian property market, we offer some below and welcome your comments:
* The volatility in the share markets always serves as a reminder of the stability and strength offered through a property portfolio.
* When company profits fall dividends stop – amongst all of this property investors continue to take in rental income experience changes on an anualised basis not day by day.
* Property investors – buy and hold particularly – are long term investors – minor fluctuations in the market – and they tend to be minor in Australia – do not pose a threat to long term investors
* The Australian population continues to grow at rates outstripping the supply of housing
* Australian lenders continue to operate on the conservative side of the market meaning there is confidence in the capacity for Australians to repay their debt – unlike the scenarios witnessed in the American sub-prime market collapse. See the comment by Paul Braddick below.
* Rents are continuing to climb across most markets regional and metropolitan meaning investors can get in and hang on for longer.
(Sub Headline) Property Investors Still Making Money
Property investors are continuing to see potential in the Australian property market, particularly in key market areas such as rural mining communities, growth cities such as SE Qld and Brisbane. Major growth centres, or smaller towns receiving substantial financial and infrastructure investment are good bets.
This is not so obvious as in the resource rich state of Queensland where property prices in the mining communities are still reasonable and rentals are beginning to climb even on the back of the existing investment.
(Sub Headline) Confidence Amongst Bankers
Paul Braddick, Head of Property and Financial System Research is upbeat about the state of the housing market and is cautious when discussing the need for deleveraging of debt in the market place.
Braddick says “Economy wide debt to income ratios, gearing ratios and even debt service ratios tell us little about the underlying sustainability of household debt. The distribution of debt across the household sector, lending criteria applied and the strength of the labour markets are far more telling for debt sustainability.”
“Relative to offshore  experience, lending into the Australian household sector has remained very conservative.  This is reflected in the virtual absence of a sub-prime mortgage market and extremely low delinquency and default rates.”
Braddick’s sentiments are echoed across the banking sector.
What Next?
Braddick sums it up well:
“In the near term, Australia’s growth prospects are bright and much will depend on the RBA and government’s ability to effectively manage the expansion. Higher household debt means the RBA has considerable leverage over the household sector and their actions during the GFC should instill confidence that the present upswing in growth will be handled well”
Source AFG Mortgage Index April 2010.
Source ANZ Australian Housing Update April 21 2010

Despite Mortgage Downturn

Property investors are continuing to grow in numbers despite an overall decline in the number of mortgages across Australia on the back of successive interest rate rises.

We look at why this is the case…

This week the RBA has decided to increase the cash rate by 0.25% in an effort to dampen down an economy that appears to be moving back into a growth cycle.
A growing economy is a good thing for our general prosperity but growth can be quickly neutralised by the affects of inflation. Unfortunately for us mortgage holders and property people, the primary anti inflation weapon the RBA has at it’s disposal is to increase interest rates.
As property people we are closely looking at ; property segment bubbles, stock levels, tight credit, new lending policies for low doc lending and the performance overseas.
As some people may say we appear to be coming out of the global financial crisis, we dont agree and thought you might find it interesting to view the new landscape. Just like a storm passing through a town, the GFC has forever changed the Australian home loan environment.
RAMS is now owned by Westpac.
Wizard is now owned by Aussie.
Aussie is now 33% owned by CBA.
St.George is now owned by Westpac.
CBA now owns Bankwest.
The big 4 banks now write over 92% of our home loans compared to 60% before the GFC.
The margin between the RBA cash rate and the variable rate available to bank customers is now approximately 2.1% compared to approximately 1.1% before the GFC.
NAB has purchased approximately 35% of all mortgage broking groups.
Most lenders now require borrowers to contribute 10% of the property value compared to 5% (or even 0%) before the GFC.
It takes twice as long to get a loan looked at and the overall process has blown out from 21 days to over 41.
Each and every loan is reviewed with a fine tooth comb and they are asking for documentation and letters to support the application never seen before. Most well over the top. Id they dont like you or the deal they just say typically without any real justification
Options for development and project funding are rare and tough on requirements especially presales and servicing
The one thing that has remained after the GFC is the profits being generated by our big four banks. The extraordinary revenue margins and increased market share created by the GFC has allowed the banks to maintain profits despite a large increase in bad debts of approx 1.4% across their loan books/ portfolios
Profits: CBA – $4.4 Billion, NAB – $3.7 Billion, WBC – $4.5 Billion, ANZ – $3.3 Billion, Total = $15.9 Billion
It is interesting to note that the ANZ Bank is forecasting a 1% increase in the cash rate over the next 12 months (see graph below). Further Westpac are forecasting a 0.50 to 0.75% increase by July 2010. Many borrowers might be tempted to jump into a fixed rate in an effort to avoid the increases but as you can see from the graph below,as we have been saying to people whi enquire about fixing their rates, the big banks are well ahead of that idea. The five year fixed rates and the three year fixed rates have been shooting up since March, so dont be fooled as their margin are well locked in at up to 2.5% + above the variable rate
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This is a bitter sweet decision by the RBA.
Contact the team at Portfolios to discuss and any property and finance related opinions and options for you.
Now more than ever a sound level of understanding of property and finance as a whole is required for you to … Make it Happen

As some people may say we appear to be coming out of the global financial crisis, we are not so sure and thought you might find it interesting to view the new financial landscape. Just like a storm passing through a town, the GFC has forever changed the Australian home loan environment.

Last week the RBA has decided to increase the cash rate by 0.25% in an effort to dampen down an economy that appears to be moving back into a growth cycle.