Buying your first home is an exciting time! Did you know that the Australian Government has two new initiatives that support first home buyers? These are the First Home Loan Deposit Scheme (FHLDS) and the First Home Super Saver (FHSS) scheme.
First Home Loan Deposit Scheme (FHLDS)
What is it? FHLDS helps first home buyers purchase a home sooner by providing a guarantee allowing those on low and middle incomes to buy a house with as little as 5% deposit (lender’s criteria apply).
Who is eligible? Singles and couples that meet the following key checks: an income test, a prior property owner test, a minimum age test, a deposit requirement, and an owner-occupier requirement. Get in touch soon so we can check if you meet the criteria.
First Home Super Saver (FHSS) Scheme
What is it? FHSS allows you to make voluntary before-tax and after-tax contributions into your super fund to save for your first home. Eligible candidates can then access these contributions and associated earnings to buy their first home. As of July 2019, there have been changes to the scheme, including only applying to buy your first home in Australia, compared to the previous version that applies to any location.
Who is eligible? First home buyers who live in the premises they are buying or intend to live there as soon as practicable; and who intend to live in the property for at least six months within the first 12 months they own it. The buyer also must have never owned a property in Australia and have not previously requested a FHSS release authority.
Get in touch today to learn more about these schemes and explore opportunities suitable for you. I can provide details on how each scheme works, the ins and outs, and the pros and cons that apply to your current situation.
The central bank has urged borrowers should be “shopping around” for a lower rate after data sheds light on the interest rate gap between new and existing customers.
According to the latest monetary policy statement by the Reserve Bank of Australia (RBA), which contains an analysis of collected new mortgage rate data, the price differential between new and outstanding variable rate home loans grows with the loan’s age.
Specifically, the RBA found that borrowers with variable-rate mortgages that originated four or more years ago are charged an interest rate roughly 40 bps more than borrowers who had just taken a new loan.
For example, a $250,000 loan balance implies an extra interest payment of $1000 per year, the bank observed.
The pricing gap reflects changes in lenders’ discounting behaviour, explained RBA governor Philip Lowe in his opening address to the House of Representative last Friday.
“This reflects the fact that the discounts offered to lenders’ standard variable rates have risen over recent years, and these discounts tend to be fixed for the life of the loan – what might have once seemed a big discount might not be so big now,” Lowe said.
The RBA data shows that the average discounts major banks offer on standard variable rates went from roughly 100 bps in 2015 to an average of roughly 175 bps in 2019. This discounting disparity, the RBA said, allows lenders to remain competitive in the marketplace without the need to adjust pricing for existing customers.
However, the bank also noted interest rates charged on outstanding variable rate loans dipped by more than standard variable rates in recent years, and this can be attributed to the readiness of “well-informed borrowers” to negotiate larger discounts.
The aggressive pricing behaviour of borrowers to attract new borrowers reflects a highly competitive mortgage market, the RBA acknowledged.
“In part, the variation in interest rates paid by different borrowers reflects their creditworthiness or the riskiness and features of loans. In addition, it reflects the different interest rates offered by different lenders,” said Lowe.
“However, the time at which the mortgage was taken out also has an important influence on the interest rate paid. This reflects the tendency for competitive pressures to be strongest for new and other borrowers who are in the process of shopping around for a loan.”
Speaking to the standing committee on economics, Lowe encouraged mortgage holders to capitalise on the market’s competitive dynamic by reviewing their interest rate and refinancing to a better deal.
“If you took your loan out a while ago, it is worth shopping around and checking in with your lender to see if it can now give you a bigger discount,” added Lowe.
The Reserve Bank has cut the official cash rate for the second month in a row, with focus now shifting to the response from the mortgage market.
The Reserve Bank of Australia (RBA) has cut the official cash rate to a new record low of 1 per cent, in line with the expectations of most industry pundits.
In minutes released from last month’s board meeting — in which the RBA dropped the cash rate for the first time in almost two years — the central bank acknowledged that further cuts to the cash rate were “more likely than not”, with governor Philip Lowe also conceding that the market was not “making any inroads into the economy's spare capacity”.
The RBA’s unusually strong signal to the market prompted observers to predict back-to-back rate cuts in July and August, as part of an aggressive strategy to stimulate the labour market and boost GDP growth.
ANZ Research’s head of economics, David Plank, had said: “[Clearly] there is a very real chance the cash rate is cut in both July and August given the RBA’s assessment that “we are not making any inroads into the economy’s spare capacity.”
AMP Capital’s chief economist, Shane Oliver, who also predicted cuts in both July and August, stated that the RBA could lower rates by a cumulative 2 per cent.
“We remain of the view the RBA will [cut] in July/August, November and February, taking the cash rate to 0.5 per cent,” he predicted.
However, governor Lowe has noted the RBA’s reluctance to exhaust its monetary policy tool by dropping the cash rate to a “dangerous low”.
Expected rate cuts from the Federal Reserve in the United States and from the European Central Bank (ECB) have been flagged as a potential catalyst for a revision to the Reserve Bank of Australia’s (RBA) monetary policy strategy.
Analysts have observed that rate reductions from foreign central banks may undermine the RBA’s hopes for a lower Australian dollar to improve the domestic labour market’s competitiveness in the global arena, prompting it to ease further .
In a panel discussion hosted by the ANU Crawford Australia Leadership Forum, governor Lowe acknowledged the challenges but said the central bank would not look to out-cut its foreign counterparts.
“If everyone’s easing, the effect that we get from exchange rate depreciation [isn’t there], so we don’t get the same stimulus that you would normally expect from monetary easing,” he said.
“It may be possible if you ease more than others, but that’s quite a dangerous path to go down.”
He added: “There are limits on what further monetary policy can achieve.”
Mr Lowe renewed his call for alternative policy measures to stimulate the domestic economy.
“In my mind, that means we need to focus on fiscal policy and structural reforms,” he said.
Attention shifts to mortgage market
The RBA’s June cash rate announcement prompted an immediate response from the market, with several lenders, including the big four banks, passing on the reduction to their mortgage customers.
However, despite warnings from both RBA governor Philip Lowe and Commonwealth Treasurer Josh Frydenberg, some lenders opted not to pass on the cut in full, citing margin pressures and considerations for deposit customers.
Ahead of the RBAS’s July board meeting, Mr Frydenberg renewed his call for full 25bps mortgage rate reductions.
“[We] do expect the banks to pass on in full to the Australian people the benefits of sustained reduction in their funding costs,” Mr Frydenberg told the media.
However, CoreLogic’s research analyst, Cameron Kusher, has said that lenders would look to protect their savings customers and ease margin pressures.
“Our expectation is that banks will be holding back on passing on the full cut as they seek to balance out mortgage rates with deposit rates and protect net interest margins,” he said.
The Australian Prudential Regulation Authority’s (APRA) latest quarterly ADI institution performance statistics, revealed that the collective net profit after tax of Australia’s banks fell by 12.6 per cent ($1 billion), from $8.31 billion in the March quarter of 2018 to $7.26 billion in the March quarter of 2019.
When assessed on an annual basis, the collective net profit after tax of Australia’s ADIs dropped by 4.1 per cent ($1.6 billion), from $36.1 billion in the 12 months ending 31 March 2018 to $34.5 billion in the 12 months ending 31 March 2019.
According to a 25-year veteran of the banking and finance industry, “the top three losers” from the royal commission were single parent families, lower income earners and borrowers over 45 years of age.
“The unintended outcome of the lending environment created by both the royal commission and APRA is that those who are most negatively affected are the very people you would like to most help in the community,” said Roger Ward, director of Champion Mortgage Brokers.
Ward says the combination of higher assessment rates, higher assessment of living costs, and the finance industry using a retirement age of 70, have pushed already marginalised groups even further from achieving their home ownership goals.
“It hasn’t just locked a few borrowers out. There are tens of thousands of people around the country that have just been moved out of home ownership,” he said
Further, Ward observes that while in years past regulators handled compliance on a macro level, they’re now moving into a micro level.
“This is a very different thing, because the regulators are not in touch with the risk profile of the contemporary economic environment,” he said, naming the unreasonable assessment rate benchmark which has raised the income threshold for lending as an example.
According to Ward, the rapidly complexifying market only further contributes to the need for mortgage brokers.
He explained, “Most borrowers have no idea about bank lending policy. They’re being declined, with the only reason being that they’re sitting in the wrong bank. They could be good borrowers, good risks.
“Brokers are the only mechanism in the market that understands, on a micro level, bank lending policy. We better understand the client and can place them before lenders that are going to be sympathetic to their borrower plight.”
While Ward believes that the role of brokers is crucial across the board, he also highlighted that after two decades of the banks pulling back from regional Australia, the need for mortgage brokers in certain areas has become “desperate.”
He added, “There are towns that have no banking representation whatsoever. Mortgage brokers are the only mechanisms able to deliver lending services to those communities.”
“Brokers truly need to advocate for consumers,” Ward concluded.
While economists have been divided on whether a cash rate cut was to be expected this afternoon, the odds for an alteration ahead of today's meeting were the highest they've been since the rate last moved in August 2016.
However, the Reserve Bank of Australia (RBA) has announced that the rate will remain on hold at 1.5%.
Given the election set to take place at the end of this month, it is less surprising that the RBA would hold off on instituting a change. Both the government and opposition are promising tax cuts intended to boost household finances, encourage spending and stimulate the economy at large.
According to CoreLogic head of research Tim Lawless, "The flat CPI reading for the March quarter wasn’t enough to drag interest rates lower, although the likelihood of a cash rate cut over coming months remains high.”
“While inflation remains below the RBA’s target range, labour markets generally remain relatively strong, supported by New South Wales and Victoria, and the decline in housing values has lost some speed over recent months,” he added.
Kristina Clifton, CBA senior economist, agreed that labour market growth has likely contributed to the decision, but expects the RBA to hold the rate at 1.5% for the “next couple of years.”
This view is tied to the disconnect between the stagnating GDP and the robust labour market.
She explained, “The RBA has talked a lot about the tension between the data, and not really having a full understanding of what’s happening at the moment.”
As such, RBA governor Philip Lowe has said it would take “a sustained rise in the unemployment rate” for the cash rate to be cut.
Clifton clarified, “We certainly have not seen that. We’re continuing to see decent jobs growth, and the unemployment rate is staying around 5%.”
Additionally, there has been a surge of doubt recently expressed concerning whether a cash rate adjustment would address the struggling economy in a meaningful way.
Yesterday, Westpac CEO Brian Hartzer said that "interest rates are not the problem," and instead called for policy reform to inject life back into the economy in a sustainable and lasting manner.
Lawless expressed his own reservations saying, “A reduction in mortgage rates would provide some support for housing demand, however, we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts.”
“Generally, housing sentiment remains low and borrower mortgage serviceability is still assessed based on mortgage rates of at least 7%.
“Households who already have a mortgage, or prospective borrowers who are able to satisfy lender credit policies will be the winners if interest rates do fall later this year,” he concluded.
The number of home loans is down on the previous year in all but two of the states and territories, according to the latest State of the States report from CommSec.
The Northern Territory and New South Wales came in the weakest, both showing loan commitments 14.8% down as compared to last year.
The only two regions to show an increase were Tasmania, up 3.9%, and South Australia, up by 0.1%.
The survey also measured the quantity of home loans against the decade average in each state and territory.
With this parameter, the ACT topped the list with the number of commitments up 17% on the long-term average. Tasmania was not far behind, its home loans up by 16.4%.
Victoria and South Australia were both also up on the average, 5.0% and 1.1% respectively.
The Northern Territory yielded the weakest result, home loan commitments 32.1% lower than the long-term average.
Western Australia was down 24.5%, Queensland down 7.4%, and New South Wales down 4.9%.
According to the report, “Housing finance is not just a leading indicator for real estate activity and housing construction, but it is also a useful indicator of activity in the financial sector.”
While values have changed, the ranking remains the same from the previous quarter.
I was surprised to see the CEO of the CBA state he wanted a flat fee for service for Mortgage Brokers. This is a clear example of offering up a Scape Goat. Nowhere in the Royal Commissions findings did it state this model was a good idea, in fact, the opposite. The Commission found that Mortgage Brokers offer an important service for consumers.
Real Estate agents receive a lot more in commission payments than Mortgage Brokers however no one is talking about reducing their commission and the reason why is simply because consumers pay Real Estate Agents commission and banks pay Mortgage Brokers commission. Cutting what brokers earn by two-thirds would save CBA $197 million, which is good for CBA’s shareholders. However, it would destroy competition, leaving millions of customers without access to credit outside of major lenders.
ASIC’s extensive, data-driven review of mortgage broker remuneration concluded that there was no finding of systemic harm caused by the broker channel.
Rather than looking at themselves and the clear facts uncovered by The Banking Royal Commission, banks are using the platform not to reform their behaviour, but to further reduce consumers access to quality information and options.
Its absurd given the revelations of the past 12 months, that a major lender could be tasked with reforming Australia’s home lending market. All banking CEO’s should be made to address the findings of The Banking Royal Commission and not be given the opportunity to push a self-serving agenda.
BRISBANE house prices are continuing to grow, with new figures revealing they have hit a record high.
BRISBANE’S house prices have hit a record high with new figures revealing the median had now hit $670,000. While the property market continued to cool in southern states, new figures released by the Real Estate Institute of Queensland showed the median house price within the Brisbane local government area was 3.1 per cent higher in the March quarter. REIQ CEO Antonia Mercorella said the growth demonstrated “admirable resilience’’ in the local market. She said the price rise was buoyed by steady population growth and strong demand and a lack of new listings. Stock on market was down to just 6.1 per cent — the lowest in the state. As a result Ms Mercorella said buyers had to act fast if they wanted to snare a property with days on market now at just 32 days. Matt Lancashire of Ray White New Farm, said the past quarter had been a strong one for the Brisbane market “Our last quarter was the most positive quarter in this financial year for us,’’ he said.
The oversupply problem in Brisbane is heating up, with the Queensland Treasury now warning its apartment market could take a turn for the worse, especially if the bigger Sydney and Melbourne markets begin to falter.
But Metro said the discounts applied only to residual stock, not entire projects or launch prices, with residual discounting being part of a business-as-usual stock clearance.
"We are not discounting [the original prices of] apartments in Brisbane, but rather managing an orderly sell down of any remaining stock we have," Metro marketing and sales general manager Phil Leahy said.
The heat has certainly come out of the Brisbane market from where it was a couple of years ago, but we see it as just back to normal market conditions with good buying opportunities and plenty of growth potential in the coming years to buyers entering the market now.
"We have already secured buyers for the four buildings and are in the run up to settling the last of these units over the next couple of months."
He said discounts were sometimes offered by agents on their own accord, hoping developers would accept the lower prices.
Lendlease says Brisbane's unit oversupply will peak this year and is bracing for rising defaults on settlements in the short-term as buyers fail to complete purchases.
The developer, Australia's best-performing real estate company over the past year, also said in an investor presentation on Friday the royal commission had driven a tighter lending environment but it was too early to estimate the effect on its residential portfolio.
Lendlease shares closed up 39¢, or 2.1 per cent at $19.29 on Friday after Kylie Rampa, the company's Property Australia division head, said the profit margin for outstanding settlements was covered by provisioning carried out in the company's first-half results and that she expected Brisbane's market to strengthen in the medium term.
The stock has gained 16 per cent over the past 12 months, more than any other company on the 23-member S&P/ASX 200 Real Estate Index