However will the Banks pass on the rate cuts? Possibly not.

Also in the press, Fitch the rating agency, has expressed concerns about the current ratings of the big four banks, mainly as they borrow a lot of their funds from overseas including Europe. If Europe has a squeeze on, this will flow onto our Australian banks.

So there migjht be lower rates, but we are not immune to what is happening in Europe.

(This article is an update on the original article on Housing Affordability and looks at housing affordability on a national basis for September 2010 quarter. Click here to see the original article.)

The year to September 2010 recorded the largest annual decline in housing affordability since the beginning of the decade, with the proportion of income required to meet loan repayments increasing 5.8 percentage points to 34.8% over the year.

Over the September quarter, housing affordability decreased 0.2 percentage points nationally. Despite the decline, some states and territories experienced a moderate improvement in affordability over the quarter, with the exception of the Australian Capital Territory, Queensland and Victoria where declines were evident.

During the quarter, the Reserve Bank of Australia’s (RBA) cash rate remained on hold at 4.5%. Whilst the average quarterly standard variable rate remained unchanged during the quarter, average quarterly fixed rates declined moderately, albeit enough to record the largest quarterly decrease observed during the year.

The Australian Capital Territory recorded a decline in housing affordability, but it remained the most affordable state or territory to own a home, with the proportion of income required to meet loan repayments increasing 0.8 percentage points to 18.8%; 16.0 percentage points below the national average.Despite recording an improvement in housing affordability, New South Wales remained the least affordable state or territory in which to own a home, with the proportion of income required to meet loan repayments decreasing 0.3 percentage points to 37.7%; 2.9 percentage points above the national average.

Compared to the same quarter of the previous year, all states and territories recorded a decline in housing affordability. The largest decreases were evident in New South Wales and Victoria where the proportions of income required to meet loan repayments increased 6.5 and 7.5 percentage points respectively.

The lower this number is, the better it is for borrowers.

The Australian Capital Territory and Western Australia experienced the smallest declines for the year, with the proportion of income required to meet loan repayments increasing 1.6 percentage points.

The total number of loans (excluding refinancing) continued to decrease during the quarter, down 2.9% to 101,364. All states and territories experienced decreases in the total number of loans, with the largest decrease in the Northern Territory. Over the year, the total number of loans fell 28.3% – the largest annual decline in Australia since March 2001.

Home Loan Affordability Indicator

The Home Loan Affordability Indicator (HLAI) is the ratio of median family income to average loan repayments. An increasing value reflects improving affordability of housing loans.

Table 2 shows the HLAIs for Australia and each state and territory for the September quarter 2010, compared with the preceding quarter and the September quarter 2009. The higher the number, the more affordable residential property is.

Factors Influencing Home Loan Affordability

A range of factors influences home loan affordability, including the following:

• The amount to be borrowed reflects the price of the property being purchased and the borrower’s equity situation.
• The size of loan, interest rates and the period of the loan determine the average loan repayment.
• The ability to repay the mortgage depends upon the family income.

Median House Prices

Over the September quarter, Australian median house prices decreased in most capital cities, with the exception of Sydney, Melbourne and Hobart. Once again, Sydney is the capital city with the highest median house price. Hobart remains the capital city with the lowest median house price.

Median Family Income

The national median weekly family income increased 0.7% over the September quarter, to $1,434 (or approximately $6,214 per month).

Average Loan (All Borrowers)

The average loan size of new lending commitments (excluding refinancing) increased 1.5% to $305,764 over the September quarter, an increase of 9.5% over the year.

Key Ratios

Table 3 shows a summary of key factors. Percentage changes are shown in the table below:

Source – REIA Deposit Power Housing Affordability Report.

You can download the full report at www.reia.com.au

Iden Director Brian Rowe said this offer would last until 31st January and was offered with a variable rate of just 6.87%, no application fee. The loan would also be offered as a combination loan with a low 2 year fixed rate of just 7.27%.

He said that this was a quality offer which included an offset account and discounted fixed rates between 1 and 5 years. Borrowers considering refinancing their existing loans would benefit greatly by obtaining their approval prior to the end of January.

Click here to visit our Specials page to see this offer.

The REIA’s Deposit Power Housing Affordability Report, released today, shows that the proportion of income required to meet mortgage repayments increased 5.8% to 34.8% over the year.

Over the third quarter, housing affordability nationwide decreased 0.2%, though some states and territories experienced moderate improvements.

“Compared to the same quarter of the previous year, all states and territories recorded a decline in housing affordability. The largest decreases were evident in New South Wales and Victoria where the proportions of income required to meet loan repayments increased 6.5 and 7.5 percentage points respectively,” REIA president David Airey said.

The total number of loans excluding refinancing fell 2.9% over the quarter, and have declined 28.3% over the year. The REIA has said this represents the largest annual decline since March 2001. The third quarter also saw the lowest quarterly participation of first home buyers since 2004.

“These all-time lows are extremely concerning. Not only is affordability on the decline, but loans being issued are down and first home buyer participation in the market is the lowest it has been in six years,” Airey said.

Source: BrokerNews website, 8 Dec 2010

Reserve Bank deputy governor Ric Battellino said banks are not increasing their profit margins on the back of rate rises. He told members at a Perth business lunch yesterday that bank margins have not changed in the past six years – remaining in the range of 2.25% and 2.5%.

Treasurer Wayne Swan called the banks arrogant, while Shadow Treasurer Joe Hockey is calling for a regulatory overhaul of the banking system that would prevent the banks from such actions in the future. Perhaps they are wrong.

It has been reported for a long time since the GFC that the cost of raising funds has been increasing and this is not the first time banks have raised rates beyond the RBA rise. Undoubtedly bond holders want more return (security) for their investment since the huge losses incurred by them during the GFC.

Iden Money Director Brian Rowe said as banks roll their funding lines they are being charged a higher rate than in the past. This means that loans previously advanced with funds that cost less are being affected by the higher cost of money as old funding lines mature.

Mr Rowe said there would be close scrutiny of bank net interest rate margins when they next report.

Most lenders continue to have exit fees, some larger than others. Under the new ASIC guidelines the fees are not outlawed but must be justified.

It has been widely reported that non banks have higher exit fees than many of the banks however in most cases this is a symptom of the system in which non banks work. Exit fees charged by non banks are mostly put in place to cover the fee paid to the broker who wrote the loan, if the loan discharges in the first 4 years. Often, this fee reduces as time goes by and the lender has earnt margin income on the loan. Once the loan has run for a pre determined period the fee is no longer charged. This may not be the case with banks, who may charge a non reducing, pre-set exit fee out to 5 years.

Exit fees should not be confused with “break costs” which may be levied when a borrower opts out of a fixed rate. This fee is generally charged if fixed rates have fallen and the lender cannot re-lend those funds at the same interest rate, for the remainder of the period that it borrowed the funds for. Break costs will generally not be charged if current fixed interest rates exceed the rate being charged to the borrower.

Borrowers should carefully weigh their options with each lender. Non banks offer excellent products, often at lower interest rates than banks. This should be compared with the exit fees applicable and the anticipated term of the loan. Many loans through non banks never charge an exit fee because they run past the period in which the fee is chargeable – generally 3 to 5 years.

Mr Rowe advised prospective borrowers to consider how long they would hold the property for. If it is clear that it would be for longer than the exit fee term, then the fee should not be an issue and it is very likely that a lower interest rate could be obtained via a non bank.

In an e-mailed statement released early this week, the party announced it would be introducing the ban in the lower house, along with rules that banks pass along decreases to the official central bank rates and scrap some small fees.

“The Banking Amendment (Delivering Essential Financial Services for the Community) Bill 2010 provides legislative protection for customers including a ban on unfair A$2 bank ATM fees, ensuring basic fee-free bank accounts, capping the level of mortgage exit fees, and introducing a variable rate mortgage product (“Fair Price Mortgages”) that will only permit genuine changes to the lender’s cost of funds to be passed on to customers,” said Senator Bob Brown in a statement.The announcement follows NAB and Westpac’s decision on Friday to raise rates by .43% and .35% respectively. All four majors have now announced changes to their standard variable rate mortgages.

CBA’s variable rate home loans sit at 7.81%, while ANZ is 7.80%, Westpac is 7.86% and NAB is at 7.67%.

Treasurer Wayne Swan’s weekly economic note expressed the frustration mortgage holders feel at the jump in rates.

“Unfortunately this week ANZ, Westpac and NAB all confirmed the culture of arrogance and contempt for the community we are seeing among the big banks. So it wasn’t surprising to read reports that the number of people looking to re-finance their mortgage, or switch home loans, more than doubled over the past week and a half, Mr. Swan said.

“The number of customers looking to switch to the smaller building societies sky-rocketed. We know there is still more work to do to build up competition in the banking sector. I’ll soon be announcing a carefully considered, effective plan to promote more competition and give people a fair go.”

Source – Brokernews

Data from Australia Property Monitors found just 7.1 per cent of properties cleared in Brisbane over the weekend – significantly down on the 38.2 per cent achieved this time last week.

The news was just as sour in Melbourne, Adelaide and Sydney.

In Sydney 53.8 per cent of properties cleared – down from the 67.4 per cent achieved this time last year.

The dearest property sold in the capital city over the weekend was a three bedroom house in Newtown, which went under the hammer for a cool $13.9 million.

The cheapest property sold was a one bedroom unit in Fairfield which went under the hammer for $135,000.

Source – The Adviser

It might appear to get to the heart of the problem. You are unhappy with Bank A putting up its mortgage interest rate; you want to move to Bank B; but that exit charge might wipe out the benefit.

So if there’s only a low exit fee, or better still no exit fee, people will be — literally — free to move.

To, as the prime minister creatively put it, take their money and go elsewhere. Actually with a loan, it’s not your money.First little problem. If there are no longer exit fees, there will be — or should be — entry fees. Because that’s exactly what an exit fee is — a deferred entry fee.

In the good old days, you paid up-front when you got your home loan for the costs of establishing — and yes, there are costs to a bank in agreeing to a home loan and setting up — a mortgage.

Then along came the non-banks, and as a competitive lure, they offered low or zero establishment charges, which would be recouped in the interest paid each year over the life of the loan.

Except if a borrower paid the loan out early: hence very big exit fees. Which the banks then followed in order to remain competitive.

You think a $900 exit fee from a bank is outrageous? What about a $12,000 one — which featured prominently in a case a few years ago involving a non-bank? Just to be clear, a non-bank.

So if you abolish exit fees, you might well undermine the very competition that this whole exercise is supposed to be trying to achieve.

There’s not much point doing it, if you enable people to switch from one big bank only to another big bank.

This leads to two other big if less obvious problems with this ‘solution’.

First, switching involves real costs. So the more switching that’s encouraged, the more the cost of banking increases. Somebody has to pay it; and ultimately it has to be the customer — more accurately, some customer, not necessarily the switcher.

More generally, instead of having exit fees paid only by a switcher, you go back to all customers paying it in their establishment charges. Even if most never ‘use it’.

Yes, the payment would be much lower, but why should one customer pay for a service they don’t receive.

In the good old days, banks operated on much fatter interest margins between what they charged home loan borrowers and what they paid on deposits. They covered all the costs of banking in that margin.

We’ve — partly — moved to a fee-for-service model; where a customer pays a specific fee for a specific service.

Which in broad terms is better for the customer and better for the system. And which saw a big drop in those interest margins.

The second concern about abolishing exit fees is the incentive it gives borrowers to chase seemingly low interest rates which might prove to be costly to that customer. Especially if there are entry fees.

You’re unhappy with the CBA’s new rate? You switch to, say, Westpac, and find yourself in a year paying more than the-then CBA rate.

It’s not quite as a dangerous but it’s similar to superannuation portability. You decide to switch from Super Fund A to Super Fund B because it has superior performance numbers.

But they were both yesterday performances. You might switch just as Fund A starts to generate higher returns than B. You could end up continually chasing higher performance only to actually get lower performance.

The critical bottom line in all this is the misperception about bank profits. That they are gougingly high. That the banks can afford to give something back to one set or all of their customers and not aim to recoup the money somewhere else.

While in a perfect world they could give something back, and still generate reasonable returns for shareholders and still be safe, that figure is not huge.

Yes the CBA has just made $6 billion. But that’s on $666 billion of assets. It and indeed all the banks make less than 1 of profit on every dollar of assets.

They don’t have a lot of margin for error. The one thing worse than a bank making too much profit is one making not enough.

Crucially, it’s not just about the banks. The tougher we make it for the banks, the even tougher we would make it for the non-banks.

So the tougher we make it for the big banks, we are likely to create less competition from the non-banks and even the few remaining smaller banks.

This is a much bigger and more complicated issue than simply attacking bank fees and charges. Which is why we need a much broader inquiry into banks and the financial system.

In particular, how to take costs out of the system. How to create real competition.

Source: Terry McCrann | Herald Sun | November 09, 2010

http://www.heraldsun.com.au/business/terry-mccranns-column/terry-mccrann-bank-shopping-beware/story-e6frfig6-1225949642396

While CBA took less than one hour to announce its rate hike, the other major lenders have been a little slower off the mark.

Federal Treasurer Wayne Swan branded CBA’s rate hike as a “cynical cash grab” and vowed to introduce reforms to boost competition between the lenders.

But while CBA’s decision managed to appal Mr Swan, it failed to shock the industry, with both CBA and Westpac consistently warning that higher funding costs would cause them to step out of cycle with the RBA.

If all the majors move this week, it could open up sound opportunities for the non-bank sector.

Advantedge’s general manager, lending – distribution Brett Halliwell said the timing is perfect for mortgage managers, and the non-bank sector in general, to increase its market share as borrowers become frustrated by the big banks.

“Borrowers are becoming increasingly aware of the banks’ grip on mortgage lending and this is beginning to reflect in the business that is starting to flow back to the non-bank sector. Recent concentration in the market towards banks is no doubt opening up new prospects for non-banks,” Mr Halliwell said.

“We see this as a major opportunity for mortgage managers, and Advantedge is in a strong position to support its partners at a time that the market is opening up.”

Mr Halliwell says mortgage managers can now capitalise on growing customer sentiment towards non-banks as well as the positive impact that NCCP regulation will bring to the industry.

“The non-bank sector is at a cross roads. Our mortgage managers’ forum has shown that non-banks are reinvigorating their businesses and moving forward to meet the needs of tomorrow’s customer.”

“We are leaders in the business of creating, distributing and supporting financial products, tools and advice, and committed to helping our mortgage manager partners capitalsie on the resurgent market.

Source: The Adviser