RBA Unlikely to Lift Cash Rate Until May

The Reserve Bank Of Australia in Sydney.

The Reserve Bank of Australia (RBA) is unlikely to raise the cash rate until May, as the nation fully assesses and recovers from damaging floods earlier in the year.

All 11 economists surveyed by AAP said they weren’t expecting the central bank to take the cash rate above its current 4.75 per cent when its board meets next Tuesday.

Nomura Australia chief economist Stephen Roberts said the bank would be reluctant to raise rates so soon after the floods that swept Queensland in late December and early January.

“It is too close after the flood events and natural disaster events. It’s a little too soon to be raising rates,” he said.

“The inflation rates were very benign. Some the other data has been firmer, but it doesn’t outweigh the (inflation rate) yet.

“There’s definitely hints that more rate hikes are coming, but it’s the timing of those hikes.”

Mr Roberts said without the floods, the central bank may have had cause to raise the cash rate sooner than May in anticipation of pressures soon expected to hit the economy.

One such pressure comes from the jobless rate, which fell to five per cent in January, close to a two-year low.

A jobless rate below five per cent, called full employment, is a traditional inflation trigger.

However, the floods are also estimated to have harmed some sectors of industrial output, such as coal mining.

In the minutes of its February statement, the RBA said it estimated a 15 per cent drop in coal production in the first quarter of the year due to flooding across Queensland’s mines.

But the bank also forecast the effects to be short term, with the economy expected to have fully recovered by the June quarter.

Meanwhile, inflation, the traditional interest rate trigger, was lower than expected in the last quarter.

Australia’s annual underlying rate of inflation was around 2.25 per cent in the year to December, safely within the RBA’s target of two to three per cent.

Commonwealth Bank economist John Peters said the bank was managing a different set of economic circumstances than most global economies.

The RBA was the first G20 central bank to lift its cash rate from historic lows amid the global financial crisis as Australia’s economy appeared to pick up steam faster than its G20 partners.

In response, between October 2009 and November 2010 the cash rate went from a 49-year low of three per cent to its current rate.

“It’s a matter of the Reserve Bank managing prosperity, in sharp contrast to … the rest of the advanced world still worrying about toppling into a deflationary spiral,” Mr Peters said.

HSBC chief economist Paul Broxham didn’t expect the RBA to raise rates as much as they should in the near term, given the strength in the economy.

Mr Broxham, a former RBA economist, said while the RBA has been reluctant to raise the cash rate in recent meetings, strong domestic economic growth in 2011 could make future rate hikes inevitable.

“Inflation was held down in the tail-end of last year by the large exchange rate appreciation, which we don’t expect to be repeated,” he said.

“The cautious consumer has also held down inflation to some degree – at least that’s the RBA’s view. Again, we don’t think that will persist either.”

Story Source www.ninemsn.com.au

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Many Gen-Y workers saving for a home

savingMORE than a third of young, potential home buyers are saving 20 per cent of their pay packet to get on the property ladder, a new survey has found.

The latest Bankwest/Mortgage and Finance Association of Australia (MFAA) Home Finance Index found that nearly a third of first-time buyers were less worried about job security, while a third felt their financial situation had improved in the past year.

“For those with job security, a flattening in house prices and competitive mortgage deals are increasingly spurring first-time buyer intention in the real estate market,” MFAA CEO Phil Naylor said.

Of the survey’s 1100 respondents, 32 per cent were worried about losing their job – down from 41 per cent in July 2010.

Fifty-nine per cent said they were changing their behaviour and trying to save more money.

“The national savings rate has pushed through 10 per cent and it seems that young buyers putting money aside for a home deposit are part of this trend,” Bankwest head of specialist banking Ian Rakhit said.

“This could be one of the reasons for current sluggish consumer spending trends.”

While the survey found that fewer people were putting off buying a home due to the economic situation, it also found many aspiring property owners were struggling to get into the market.
Nearly three-quarters of respondents were worried about the level of debt a property purchase would commit them to, while 36 per cent didn’t think they would ever get to buy a property.

Only 25 per cent thought the Federal Government was doing enough to help them.

“Given that prices are higher and government grants lower, it may be a while yet before these extra savings match the level of first-time buyer activity seen in 2009,” Mr Rakhit said.

“However, the signs are more positive for this segment of the market.”

Story by Colin Brinsden www.news.com.au

Tags: finance, gen y, housing, money, real estate

Home loans: to fix or not to fix?

fixed rateInterest rates are on hold for now but economists expect the next move to be up.

Home buyers are turning to fixed-rate mortgages in response to the steady rise in interest rates last year and predictions that rates will go higher this year.

Mortgage broker AFG publishes a monthly mortgage index, which shows that the proportion of fixed-rate mortgages increased from just 2 per cent of its total new lending at the start of last year to 3.4 per cent in July and then 12.6 per cent in December.

With one-, two- and three-year fixed rates about the same level as (or lower than) variable rates, borrowers have little to lose by opting for fixed rates.

Variable home loans

However, they need to recognise that fixed-rate loans have different characteristics to variable-rate loans and may not suit their needs (see box).

The general manager of sales at AFG, Mark Hewitt, says the rise in the popularity of fixed-rate home loans reflects increasing consumer concern about the future of interest rates.

For another big broker, Mortgage Choice, the level of demand for fixed rates has been even higher, reaching 15.2 per cent of its approvals in December. A spokeswoman for the group, Kristy Sheppard, says it was the biggest take-up of fixed rates in almost three years.

Fixed home loan rates

”Much has been said about the cautious approach Australians are taking to their finances and our figures reflect this,” Sheppard says.

The Reserve Bank cash rate reached a low point of 3 per cent in April 2009 and started rising six months later. Since then it has gone up to 4.75 per cent, with the most recent change last November.

A trend noted by the Reserve Bank has been the marked increase in the range of interest rates offered for similar products. In the RBA’s view, this may reflect the move by some lenders to compete on non-price criteria.

Whatever the reason, it makes it more important than ever for borrowers to keep track of rate changes.

One-year fixed rates start at 6.74 per cent for the Better Option Fixed Rate Home Loan. Lenders with one-year rates under 7 per cent include NAB, Gateway Credit Union, CUA, Homeside, QuickDirect, Laiki Bank, Heritage Building Society, HSBC and RAMS.

Two-year rates start at 6.99 per cent for the AMO Fixed Rate Home Loan and RESI Pro (Fixed). Lenders with two-year rates under 7.2 per cent include Bank of Queensland, Heritage, HSBC, Police Credit, Teachers Credit Union, Nationwide Mortgage, Gateway, IMB, MECU and Newcastle Permanent.

Three-year rates start at 7 per cent for Better Option. Lenders with three-year rates under 7.3 per cent include AMP, ANZ, Citibank, CUA, Heritage, HSBC, MECU, Teachers and IMB.

The variable home loan rates offered by the big banks start with NAB at 7.67 per cent. ANZ and St George’s variable mortgage rates are 7.8 per cent, Commonwealth’s is 7.18 per cent and Westpac’s is 7.86 per cent.

Many borrowers who have sourced their loans from a big bank will be receiving a package discount of about 0.6 of a per cent. A number of smaller lenders also offer these discounts.

So, how will rates move in 2011?

ANZ’s forecast is for the Reserve Bank’s cash rate to rise from the current level of 4.75 per cent to 5.5 per cent by the end of this year. Commonwealth Bank also says the cash rate will reach 5.5 per cent by year end. Westpac is forecasting only one rate rise this year (but not saying how big it thinks that rise will be). NAB is forecasting 5.25 per cent by the end of the year.

If the economists at the big banks are right, the worst-case scenario for borrowers this year is Reserve Bank rate increases of 0.75 of a per cent – then there is the possibility that lenders will add something on top.

One issue to consider is how lenders will respond to further Reserve Bank increases in the cash rate this year. Canstar Cannex reported that only five out of 99 lenders it surveyed kept their variable home loan rate increases at the levels set by the Reserve Bank last year.

The rest all increased by more. In November, when the Reserve Bank put up rates by 0.25 of a per cent, the average home loan rate increase was 0.32 of a per cent. A home owner with a $300,000 mortgage on a 25-year term would pay an extra $150 a month if rates went up by 0.75 of a per cent to 8 per cent.

Repayments on a $500,000 loan would go up by $245 a month.

With fixed rates for two- and three-year terms so close to current variable rates, fixing is a low-risk strategy.

Borrowers have to pay a new establishment fee but may end up with a fixed-rate loan that is lower than the variable rate they are paying now.

If rates do move this year they will be ahead.

Fixed rates are different

Borrowers need to remember that, generally, fixed-rate loans are inflexible. Monthly payments cannot be varied, there is no redraw and no offset. To avoid problems that might arise from this inflexibility, borrowers should discuss a split loan (part variable and part fixed) with their broker or lender. The fixed portion will give them
protection from rate increases and they will be able to make additional payments into the variable portion. Being able to make extra repayments is an important facility. According to ING Direct’s Financial Wellbeing index, 48 per cent of home loan borrowers make extra repayments on their loans These payments serve two purposes: they create a buffer that can be called upon in emergencies and they speed up the repayment of the loan. Even small amounts help; a monthly payment of $1996 on a 30-year $300,000 loan rounded up to $2050 will cut $25,000 off the interest bill.

Story by John Kavanagh www.domain.com.au

Tags: advice, finance, interest rates, mortgage, property

Home and contents insurance a burning issue

home-contents-insuranceHome and contents insurance has jumped 30 per cent over the past three years.

Premiums for home insurance will rise by an average 8 per cent this year, after going up by an average of 11 per cent last year and 10 per cent in 2009.

As insurers pay out big claims for storms, floods and fires – they pass a lot of their increased costs back to home owners. Car insurance premiums are also on the rise, although not as much as those for home and contents.

Car insurance premiums rose by an average of 4 per cent last year, after increasing 5 per cent in 2009, and are expected to go up by about 3 per cent this year.

Many consumers stick with their established insurer because they want to hang on to no-claim bonuses and multi-product discounts.

But an increase in home insurance premiums of 30 per cent over three years has negated much of the benefit of those discounts.

It may be time to shop around for a better deal.

The figures quoted above were presented in the annual Deloitte JP Morgan general insurance industry survey, which was released last month.

Deloitte actuarial partner Elaine Collins says the increases are bad news for consumers but the good news is that there was considerable variation in pricing among insurers.

”When we asked insurers how much they expected their home and contents premium prices to rise in 2011 the average was 8 per cent but the distribution was between zero and 20 per cent,” Collins says.

”When we asked about motor insurance, the average increase expected this year was 3 per cent but the range was from 1 per cent to 10 per cent.”

Wide variation

Shopping around for insurance is time-consuming and made difficult by the fact that different insurers have different features and policy conditions.

But consumer groups such as Choice recommend that consumers do some comparison shopping by getting several quotes at renewal time each year.

The task has been made somewhat easier by the appearance, over the past couple of years, of insurance comparison sites. When the consumer finance website Infochoice was putting its car insurance comparison site together last year, it did some research on pricing.

The group’s financial services analyst, David Lalich, says he found pricing variations as wide as 30 per cent to 40 per cent. In one scenario, a consumer was offered policy prices that ranged from $1200 a year at the high end down to $750 at the low end – a difference of 37 per cent.

When looking at competitive offers, consumers have to factor in any loyalty discounts they might have with an existing insurer if they have multiple policies and also any no-claim bonuses they might lose if they switch.

Who is best?

Choice reported on car insurance earlier this month. It says the standout is Apia, which received the highest score for features, a high satisfaction rating and ”some of the lowest premiums”.

Apia is a specialist insurer for the over-50s. Shannons, another specialist insurer, performed well on price, customer satisfaction and features.

Like Apia, Shannons places some restrictions on who it will insure; its target market is car enthusiasts who make limited use of classic and collectable cars.

Choice says AAMI performed strongly, including its cover for drivers who made a claim but otherwise have a relatively good driving history. Two banks, ANZ and St George, also offered good value.

Choice says that NRMA, SGIO, SGIC, RACV, Allianz and Budget Direct all performed poorly.

Budget Direct scored well on price but not on policy features. Choice says much of the extra coverage that comes standard with top-rated insurers is sold as an optional extra by Budget Direct.

The insurer’s customer satisfaction score was low.

It highlights the importance of consumers reading policy documents very carefully before deciding which insurer to go with.

Case-by-case basis

A principal of the actuarial consulting firm Finity, Colin Brigstock, says it is important to shop around because no one insurer is consistently cheap or expensive across all product types, customer groups and regions.

”As the risk characteristics change – the age of the policy holder, the suburb they live in, the type of car they drive or house they live in – insurers assess all those risks differently based on their claims data,” he says.

”What is important to recognise is that in some cases, the big insurers can be the price leaders and in others, the challenger brands are the price leaders. Insurance is something you look at on a case-by-case basis and, for that reason, it is worth getting quotes from a wide range of insurers when renewing your policy.”

Choice recommends that consumers take the following steps when renewing their insurance.

Get quotes from at least four different insurers.

Pay attention to car insurance excess rates, which may be high in cases where the premium is cheap. Some insurers offer a flexible excess.

Check your insurer’s quote online. It may be cheaper than the premium quoted in the renewal notice. If that is the case you may be able to negotiate the cheaper online rate.

Story by John Kavanagh www.domain.com.au

Tags: insurance, policy, property, real estate

A new player in the market

black_rock_roundaboutBlack Rock has a new player in the real estate market with the opening of Chisholm & Gamon last week in Balcombe Rd.

Partner and managing director Torsten Kasper said the expansion from offices in Elwood, where they had been for more than 20 years, and Port Melbourne was a natural progression for the multi-award winning company. ‘‘A lot of our clients have moved from Elwood to Hampton, or the other way, and they’ve all said ‘when are you guys moving down?’ We’ve just followed the corridor with our clients.’’

Mr Kasper, who is a co-director with Sam Gamon, said he liked that the new office had the same village setting as the other two. ‘‘We take great pride in being involved in the community,’’ he said.

‘‘We offer a boutique service with the size of a franchise office. People now have a choice.’’

The office can be contacted on 9589 3133.

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