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
GRAPH TO INSERT@@@@@@
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. 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. 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

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


2 Responses to “Does Rate Rises Mean The GFC Is Over?”

RAMS increased their home loan interest rates by 0.35%, i.e. more than RBA. Do you think it’s a new strategy by Westpac to reduce the pressure from society by testing the waters with its smaller division first?

Comment by Home Loans
October 15th, 2009

From my understanding, and investigation, Westpac and RAMS have independent business models and decision making abilities.

RAMS was offering a leading overall package to the marketplace for a while. Their risk managment team of actuaries must have really changed or heavily reconsidered their risk profile moving forward… or forced to do so as:
1. The additional 0.1 % as to lock in more margin
2. Their low doc policy went from the least required to the most in relation to documentation
3. Their policy and credit teams went from a proactive assessment to a conservative one, asking for some documentation requirements they have never before.

And all within a 2 week period.

So in direct answer to your question/ statement – no I do not think its the big brother Westpac offering little brother RAMS to society to test the waters. In the worst case a “big brother tell little brother” to watch his back as what they were doing is not as per the family values and risk profile.

Comment by admin
October 20th, 2009

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