06 Jul July 2012 Newsletter
Welcome to our July newsletter
A shaky few months have seen many would-be home buyers and investors sitting on the sidelines, waiting patiently for some economic certainty to arrive.
Thankfully, July is shaping up to be a positive month, with some early signs of economic stability starting to emerge.
The Reserve Bank of Australia (RBA) left the official cash rate on hold at 3.50 per cent earlier this month after rate reductions in May and then June saw the cash rate cut by a significant 0.75 basis points.
While the RBA appears to be erring on the side of caution, the decision to keep rates on hold can be seen as an early indicator of a stabilising economy.
Speaking about the decision, Reserve Bank governor Glenn Stevens said recent data suggest that despite widespread media concerns, the Australian economy has performed relatively well in the first part of 2012.
“In Australia, recent data suggest that the economy continued to grow in the first part of 2012, at a pace somewhat stronger than had been earlier indicated,” Mr Stevens said.
There was also some positive news for home owners and investors this month, with Australian house prices posting their largest rise since March 2010.
According to the latest RP Data-Rismark Home Value Index, national house prices recorded an average house price growth of one per cent in Sydney, Melbourne and Brisbane.
Perth and Canberra both recorded a price increase of two per cent, and Hobart saw
the largest rise, at 2.7 per cent.
RP Data research director Tim Lawless attributed the growth in house prices to the RBA’s recent rate deductions, as well as increasing consumer confidence.
“The catalyst for the improvement in market conditions is likely to have been the 55 basis point reduction in the average discounted home loan rate over May and June,” Mr Lawless said.
“The RP Data-Rismark daily index across the eight major capitals has been consistently rising over the month, foreshadowing this positive month-on-month result.
“The increase in capital city dwelling values is an encouraging sign that the market appears to be responding to improved housing affordability and lower interest rates.”
Finally, home loan interest rates have reached their lowest point in more than two years, which is great news for property buyers.
Recent research by RateCity found the average variable rate now stands at 6.42 per cent – the lowest average rate seen since March 2010.
“The recent rate cuts have left the average standard variable home loan rate across more than 100 lenders in RateCity’s database at 6.42 per cent,” RateCity spokesperson Michelle Hutchinson said.
This is certainly good news for new and existing home loan customers and could encourage more buyers to become active over the coming months.
While uncertainty remains in key quarters of the global economy, particularly the United States and the Eurozone, figures released this month show some stability in the property market and broader domestic economy – and increasingly affordable home loan costs, which is certainly good news for everyone.
Sincerely, Nick Foale
Understanding interest rate movements
The interest rate on your home loan directly influences your monthly repayments, so it’s helpful to understand just what shapes this rate
It used to be relatively simple to follow your home loan’s interest rate movements. Since the global financial crisis, however, and the range of debt problems that has subsequently plagued the international economy, tracking the cost of housing finance has become a little more complicated.
So, what exactly influences your lender’s interest rates?
The official cash rate
The Reserve Bank of Australia (RBA) is Australia’s central bank. As an independent body, the RBA’s primary role is to ensure the country’s prosperity and to manage economic growth, including by controlling inflation.
As part of this role, the Bank’s board members meet every month to set an official cash rate, based on a range of local and global economic factors. The board’s decision is announced on the first Tuesday of each month.
The cash rate influences domestic economic activity and therefore inflation. This is because that influence affects financial instruments such as government bonds and deposits, which in turn affect interest rates within the broader economy.
Historically, the official cash rate has also acted as a measuring stick for home loan providers.
For example, if the RBA lowered the rate by 0.25 per cent it would have been expected – and hoped for by borrowers! – that lenders would lower their rates by the same percentage.
While RBA movements still have a significant effect on lenders’ rates, in today’s market, other factors – including the cost to the bank of obtaining funds – are equally if not more important.
To provide a home loan, a lender must secure funds from other lenders, both locally and internationally. This is referred to as wholesale funding.
Following the global financial crisis and subsequent European debt crisis, the availability and cost of securing funds has increased dramatically.
This has prompted many lenders to set their interest rates in line with these costs rather than in response to the RBA’s rate decisions.
ANZ, for example, even reviews its home loan rates at a different time from the Reserve Bank, having stated that “in today’s market, the RBA’s cash rate is now less directly related to ANZ’s true cost of funds”.
That sentiment was reflected in this comment from the Senate Economics Reference Committee: “The Reserve Bank’s policy rate is only one influence on banks’ cost of funds. It is therefore not reasonable to expect that banks’ variable interest rates on housing loans should always move in parallel with changes in the Reserve Bank’s policy rate.”
While higher borrowing rates might sound like bad news, a strong banking system is essential to maintaining economic stability.
Moreover, with a highly competitive mortgage market, there are still attractive home loan options available for borrowers who do their homework, including drawing on professional advice.
Tapping into the power of equity
The value of your home is a powerful financing source just waiting to be tapped
Ever wondered how investors find the capital to build a property portfolio? Or perhaps you’ve found yourself pondering how the neighbours paid for that cruise in
Many of us, unfortunately, are cash-poor – even the most successful, wealthiest individuals. But many are also asset-rich, including those with high value property or a portfolio of multiple properties. It is investors who understand the power of equity who can live life to the fullest.
Equity, in simple terms, refers to the value of the asset or assets that you own.
For example, if you purchased your family home for $500,000 with a $400,000 loan, which you have now reduced to $150,000, you have $350,000 of equity in the property.
Your lender effectively owns $150,000 worth of the property, but the other $350,000 is yours.
And while you have slowly been paying down your loan, your property’s value may well also have been increasing, which means your equity could be even greater.
That equity is the key that can potentially unlock a wealth of opportunities. You can tap into it to purchase an investment property, pay for a trip overseas or even fund a renovation.
How to go about it
While lenders offer different ‘equity’ home loans – with a range of terminology, such as ‘line of credit’ – put simply, an equity home loan lets you use a portion of your accumulated equity in the way that you want.
Your lender will assess the value of your home and review your existing loan obligations before determining how much equity power you have.
Your equity loan will then be secured against your home and you will usually be able to use as much or as little of the loan as you like.
Cautions and considerations
While an equity loan can open up a wide range of opportunities, you’ll need to think carefully about whether it’s right for you.
Certainly, there are considerable benefits if your loan is arranged properly but there are also significant dangers should you lose control of your finances.
Borrowers without a clear strategy can find themselves saddled with debt but without any real return.
Generally speaking, equity loans are best suited to borrowers who are disciplined and know what they want to use the equity for.
If an equity loan appeals to you, however, the best thing to do is to have a chat with us first. We can discuss your financial goals and circumstances and find the right loan arrangement to suit you.
Tracking down your lost super
Maintaining a healthy superannuation fund is an important step in securing a comfortable retirement
It’s a bit scary, but one in two Australians will lose track of their super during the course of their working life.
Losing some of your super can have a drastic impact on your financial freedom and lifestyle during those golden years of retirement.
Statistics released by the federal government indicate that approximately 5.8 million superannuation accounts, with a total estimated value of over $20 billion, have been lost by fund members.
Safeguard your retirement today by taking some simple steps to see if you have any lost super.
If you have switched careers, changed your name or moved house in recent years, chances are you have had super building up in different funds.
The problem with owning multiple super funds is the more accounts you have, the harder it becomes to manage.
If you know where your super is currently deposited, it might be wise to set up just one account and transfer all funds into one central location.
Not only will you find it easier to keep track of your money, you will also avoid those hefty fees associated with juggling multiple accounts.
Thankfully, there are a few cost-effective ways to help you locate and retrieve any lost super, funds that are rightfully yours.
The Australian Taxation Office (ATO) has established a simple and cost-effective way to locate your super by using an online program. The program, known as SuperSeeker, is free to use and available online 24 hours a day, seven days a week.
To access the service, visit the ATO website at www.ato.gov.au and click on the ‘Super Funds’ tab near the top of the page.
You can use SuperSeeker to check all super accounts to which you have made a contribution and to track down all lost super accounts in your name that have been reported to the ATO – as well as any super money the ATO currently holds for you.
SuperSeeker can also help you lodge a request with your fund online if you wish to transfer your super to another super account.
Don’t let your super get away from you this year – get cracking and track down your lost funds today!