RBA Announcement September 2021

The RBA left the cash rate on hold at 0.1% at its September meeting, surprising no one..

The central bank has been telling everyone for some time now that it won’t consider a rate rise until at least 2024, even though some analysts are predicting it will hike earlier than this. And it also remains determined not to cut again and risk going into negative territory, though other analysts think negative interest rates are far more likely than an increase anytime soon.

“Prior to the Delta outbreak the Australian economy had considerable momentum,” RBA governor Philip Lowe said. “GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year. Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”

Lowe said Australia’s economic recovery had been “interrupted by the Delta outbreak and the associated restrictions on activity” and that he expected a decline in GDP in the next quarter and a rise in unemployment.

However he said some areas are “continuing to grow strongly” and the setback to the economic expansion “is expected to be only temporary.”

Taper the talk of the town

Much of the contention and anticipation in the lead up to the meeting had all been about whether the RBA would taper down its buying of bonds from $5 billion a week to $4 billion a week.

September was the month it planned to make that reduction, but there had been widespread debate from forecasters and major lenders about whether it would actually happen.

On one side of the coin, NAB was predicting it would continue with the reduction as planned. On the other side, ANZ anticipated a month’s delay to get a better idea of when and what lockdown restrictions might be lifted or eased in major cities. Most analysts expect a strong post-lockdown economic rebound, which could come this year or next year.

So what was the call?

Spoiler alert, the RBA surprised quite a few when it decided to stick to its plan.

The Board’s decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak,” Lowe said. “These bond purchases, together with the low level of the cash rate, the yield target and the funding that has been provided under the Term Funding Facility, are providing substantial and ongoing support to the Australian economy.

Banks battle for borrowers

Continued uncertainty is a win for would-be borrowers, with banks dropping variable rates in a bid to attract new customers.

Fixed home loan rates may continue to rise, but in a further show that we won’t have to worry about higher variable mortgage payments for a long time yet, RateCity research found the number of variable rates under 2% in the market has leapt from 28 products to 46 in just 2 months.

The 68% increase has happened in spite of there being no official rate movement since November last year.

“Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates,” RateCity research director Sally Tindall said, adding that ABS data showed refinancing hit another record high in July with $17.22 billion in loans settled for the month. “The latest surge in refinancing is putting pressure on the banks to keep their rates competitive.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

Reach out for a better deal

Each month, regardless of what the RBA decides to do, there are deals out there to be made. It’s a great time to be a borrower and it’s rare that your current deal is the best one available to you. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy for structuring your finance and find the deals that suit you best.

 

 

RBA Announcement – August 2021

The RBA left the official cash rate on hold at 0.1% today, as rolling lockdowns keep Australia in a state of economic uncertainty.

RBA governor Philip Lowe had already reaffirmed his intention not to raise rates until at least 2024, but some analysts thought the move might come earlier. However, the Delta variant of Covid and the constant lockdowns called around major capitals has that speculation on ice for now.

At its monthly board meeting, the RBA also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue its stimulus measures of purchasing government securities at a rate of $5 billion a week until September and then $4 billion a week until November and potentially beyond.

In its media statement the RBA noted that while the economic recovery in Australia has been stronger than was expected, recession was on the cards, saying “the recent outbreaks of the virus are interrupting the recovery and GDP is expected to decline in the September quarter”.

However, the central bank expects a fast recovery next year. “The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery,” it said.

The RBA says it will continue to monitor and review its approach to the rate of bond purchases, according to economic condition and the nation’s health situation. The board still believes conditions will not warrant a rate increase until 2024.

Sentiment suffers

Meanwhile, a recent survey of 40 experts and economists by Finder revealed that two in five believed another two months of lockdown could cause another recession.

The positivity around Australia’s quicker than expected recovery from last year’s lockdowns has disappeared in a flash, with confidence in key indicators such as housing affordability, employment, wage growth, cost of living and household debt all plummeting. Confidence in employment had the sharpest fall, going from 71% in July to 29% in August.

Other key takeaways from the survey of experts included 52% believing household debts would increase due to lockdowns; while 43% believe Australia’s response to the pandemic has seen our international reputation take a hit.

“Economists fear that a prolonged lockdown could push us into recession, and the extension of the measures in Sydney will get us a third of the way there,” said Graham Cooke, Finder head of consumer research.

Give yourself a rate cut

There may be a pause on talk of official cash rate rises, but there have been a number of interest rate movements from lenders in recent times. While fixed rate products have been subject to interest rate hikes, the opposite is happening in variable rate markets according to further research.

A RateCity study shows 49 lenders have cut at least one variable rate in the past two months. Sounds good, but your bank is unlikely to come to you with a better deal, according to RateCity research director Sally Tindall.

“Variable rates are at record lows, however, most of these deals are reserved for new customers, not existing ones, unless you specifically ask,” she said, adding that the best way to get a better deal was to pick up the phone and ask.

“Before you call, check what rate your bank is giving new customers for the same home loan, but also find out what other lenders have on offer,” she suggested.

“If you are paying significantly more than a new customer, pick up the phone and ask your bank ‘why?’.”

The RateCity study found that more than 73% of bank customers they had surveyed were successful when they asked their bank for a personal rate cut.

“If you have a good track record of paying down your debt, and the bank thinks you might switch to a more competitive lender, they’re likely to play ball,” Tindall said, noting that a reduction of just 0.25% could save you more than $1000 a year on loan repayments.

“A lot of people think a handful of basis points won’t make much of a difference, but if the discount is permanent, then the savings can potentially run into the thousands in just a few years.”

 

 

RBA Announcement – July 2021

The first RBA board meeting of the new financial year was one of the most eagerly anticipated in some time. Not because of what might happen with interest rates – which incidentally were left on hold at 0.1% for the eighth consecutive month – but because the RBA was expected to begin winding back parts of its quantitative easing program as the economy continues to recover from coronavirus ahead of schedule.

Since Australia first went into lockdown in 2020, the RBA has splashed out hundreds of billions of dollars on government bonds and kept the yield on three-year government debt under control in order to offer cheap loans to banks…who would then pass more affordable money onto borrowers.

But is all that still necessary?

Three main goals

There has been plenty of speculation from economists and so-called experts that the RBA will raise official interest rates earlier than its repeated promise of “not before 2024”.

In order to consider moving rates away from the historic low of 0.1% and back up towards longer term averages, the RBA wants to see the unemployment rate keep travelling down, wages growth begin to grow again and inflation to get back to a target bracket of 2 to 3%.

And at least one of those boxes is ticked, with unemployment now down to 5.1%, a 17-month low, even as we head into another series of lockdowns in various parts of the country. There are more people employed than before the pandemic kicked off, which is also partly due to the decline in overseas worker arrivals with international borders closed.

However, the RBA statement from today noted that “despite the strong recovery in jobs and reports of labour shortages, inflation and wage outcomes remain subdued”. The statement added that the RBA expects a gradual and modest pick-up in inflation and wages growth, with inflation likely to only reach 2% by mid-2023, after a short-term bounce to 3.5% over the next year due to the reversal of Covid-related price reductions from the previous year.

RBA takes cautious first steps

The anticipated first step to take in getting things back to some kind of normal was to end the targeting of a yield of 0.1 per cent on three-year government bonds. The RBA today however announced it would continue to maintain the current target to “keep interest rates low at the short end of the yield curve and support low funding costs in Australia”.

The next thing to do would be to wind back the level of spending on government debt. The $100 billion quantitative easing program announced in November last year will finish in September.

The RBA today confirmed that it would continue to purchase government bonds after September but would respond to the strengthening economy by adjusting its weekly spend to $4 billion, down from the current spend of around $5 billion. The new spend will be in place until at least mid-November, at which stage the RBA can take stock of the situation again.

So will official rates rise sooner than expected?

The RBA continues to stand firm and say it won’t be in a position to raise rates until at least 2024.

Even though the housing market is strong across major markets, with value growth, housing credit growth and increased borrowing from owner-occupiers and investors, the central bank says it will not increase the cash rate “until inflation is sustainably within the 2 to 3% target range”.

What about the unofficial rates?

As we’ve reported in recent months, Australian lenders are already increasing their rates independently of the central bank.

They began by raising rates on five and four-year fixed rate mortgage products but have since begun to target three and even two-year loans.

A recent analysis found that in the last month, 19 lenders increased a three-year fixed rate, including Westpac and NAB, while 17 increased a two-year fixed rate.

This was the first month that the number of lenders hiking a two-year fixed rate outnumbered those cutting (albeit only by one, 17-16). Meanwhile, for one-year fixed rates, 13 lenders cut, while 11 hiked.

There are still close to 200 loan products out there in the market for below 2%. So, if you are worried, you’re not on the best deal, remember to regularly see what’s out there and refinance when necessary.

 

 

RBA Cash Rate Remains On Hold At 0.1%

The RBA has left its cash rate on hold at 0.1% during its May meeting today which came as no surprise to analysts.

The decision marked the sixth straight month the rate has remained unchanged, after Australia’s central bank lowered it to 0.1% in November 2020.

RBA Governor Philip Lowe has repeatedly stated in recent months that the rate would remain unchanged until at least 2024, as the bank attempts to maintain its commitments on interest rates and market expectations.

One of these commitments is the three-year government bond yield target of 10 basis points. The initial $100 billion government bond purchase wound up last month and the next $100 billion program is underway.

More jobs but wages stagnant

As Australia’s post-pandemic economic recovery continues, unemployment is on a downward trajectory from its 5.8% level in February, but still remains too high for the RBA’s liking and wage and price pressure remain subdued.

There had been speculation from some corners that rates could fall into negative territory since the November rate cut, which saw the RBA move away from the traditional 25 basis point reduction that would have taken the official rate all the way to 0%, and instead lowered by 15 basis points. But so far the RBA has remained firm.

Most analysts predicted the hold decision, with AMP economist Shane Oliver saying that while he believes a rate rise will come before 2024, now was not the time to make a move.

“While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike… a tight jobs market, wages growth well above 3 per cent and actual inflation sustainably within the 2 to 3 per cent target range,” he said.

Fellow economist Saul Eslake agreed that a hike may come before 2024, but that wages growth needed a major boost first.

“It will take some time for unemployment to fall to a sufficiently low level to trigger wages growth fast enough to ensure price inflation sustainably within the RBA’s 2 to 3% target range – but I suspect that situation may be reached before ‘2024 at the earliest’,” Eslake wrote in his forecast.

Banks looking four years ahead

Meanwhile in a sign that major banks think official rates have bottomed out and will rise after 2024, lenders have begun increasing rates on long term fixed products.

Last week Westpac and its subsidiaries increased rates on their four and five-year fixed loan offerings.

Westpac’s four-year rate of 1.89% was previously the lowest on the market, but the 30 basis point hike now sees the new rate at 2.19%. Westpac also raised its five-year fixed loan rate from 2.19% to 2.49%.

The last two months have seen 24 Australian lenders hike at least one four-year fixed rate, leaving just six now offering rates below 2%. NAB is the only big four bank to offer less than 2%.

Rate City research director Sally Tindall said Westpac’s 1.89% four-year rate was consigned to the history books.

“With a cash rate hike on the cards in 2024 and the RNA’s term funding facility wrapping up in a couple of months, the bank’s record-low four-year fixed rate was unsustainable,” she said. “It’s hard to see a major bank dropping its four-year fixed rate this low for a very long time, if ever.

“While the majority of banks’ three-year fixed rate changes are still cuts, rather than hikes, the tide could turn later this year as the economy continues to recover.

“The cost of funding is likely to increase in coming years, so it’s no surprise lenders are starting to factor this in.”

Any future rate hike would be a momentous occasion, however, as the RBA has not raised rates for over a decade. The last rate hike was all the way back in 2010, when Australia was still experiencing the fallout from the GFC.

 

 

ZIN-Last-Call-For-2020

Last Call For Property Finance In 2020

If you can remember back to when we were able to go to the pub, ‘last call’ always signified that the bar was about to close for the night and this was your last chance to get a beverage.

‘What? Already?’

The end of the night can creep up on you, because time flies when you’re having fun.

However, you don’t have to be having fun. Time can also speed by when there’s a lot happening…like the year 2020 for example.

We’d barely begun picking up the pieces from the deadly bushfire season, when we were thrown into pandemic panic… if you can believe it, that first lockdown was now more than seven months ago.

While it’s felt like a long year for many (shout out to our poor friends in Victoria especially), it’s about to be all over.

So ask yourself, when it comes to your finance goals, what have you been able to achieve?

And is there enough time to make the rest of the year count.

Bank backlog

If you were still planning to buy property this year, you’re running out of time. An average settlement period of six weeks would take you through to Christmas, and that’s after you’ve sourced the property and made a successful offer.

If you’re in a position to offer a shorter settlement to the vendors, you might be able to get the deal done, but if you need to borrow money from the bank, that could be a whole new kettle of fish.

The pressure put on the banks by COVID and its financial mess means many have a backlog of loan and other applications they will need to get through before assessing yours.

There are stories out there at the moment about buyers picking up great property deals, only to run out of time to settle before the bank is able to pick up and process a loan application that they would be all but certain to grant.

The flipside is that if you don’t need finance approved, you may be able to swoop in and pick up a property from an eager vendor while your competition struggles to get their finances sorted.

As government grants and economic stimulus begin to wind up, there will be a lot of people looking to offload assets to free up capital or get rid of some of their debt.

A motivated seller may mean you pick up a property for $50,000 cheaper than you otherwise would have and that will be money you have earned on the way in when the market gets back into the swing.

Get in shape for summer

There is never a wrong time to make sure your finances are in the best health possible.

Look at the interest rates you are paying on investment properties or your permanent place of residence.

Chances are, you will be able to get a better deal by refinancing, or even calling up your own bank and threatening to look elsewhere unless they give you a rate reduction.

Especially since the RBA dropped rates yet again. With the official rate set at 0.1% there are now lenders offering rates below 2% and RBA Governor Philip Lowe says it will realistically be at least three years before rates look like rising again, so you’re in a strong bargaining position for a better deal.

Prepare for next year

While you’re at it, look at whether you can get a better deal in other areas affecting your household budget.

If you have been with the same energy provider or health insurer for longer than a year for example, you are missing out on a better deal from elsewhere.

Pick up the phone and you may save thousands and make sure you’re ready to start the new year with maximum borrowing power freed up.

Set your 2021 goals now and get the jump on those that do so in January. Make plans and get what you need into place to make sure next year is a great one.

And talk to a Zinger Finance strategist to see what you need to do to get finance ready for your 2021 goals.

Property Interest Rates On The Rise?

There are a lot of changes taking place in order to help banks make more money (not that they need to). And even though the RBA isn’t moving their interest rates, property interest rates are on the rise after the banks decided they’ll do so independently.

The first change to take place was announced last week by Westpac, and discussed by Nathan in his recent Facebook Live seen above. Westpac have stated that, as of the 19th of September 2018, their home loan interest rates will increase by 0.14% independently of the RBA.

 

What sort of changes do we expect to see in the future?

In short, we are expecting other banks to follow suit.

The APRA restrictions have caused all banks to bleed. To compensate for that loss, banks now must raise their rates to get back some of that money.

Depending on what their needs are, they will play around with their interest rates accordingly.

 

So what does this mean for Australians?

The cost of money is going up all around the world. However, in Australia it hasn’t. This will cause 2 things:

  • The Australian dollar will suffer because of it, as all other countries around the world are rising their rates.
  • We are also going to be facing some rate rises independently of the RBA.

What is the good news?

As much as this may seem to be a restrictive situation, many opportunities arise due to it.

Since the interest rates have changed, so will the policies and criteria for lending.

Not many people will be buying or investing in properties. This opens a lot of doors and opportunities for bargains to those who are looking to invest and start building a property portfolio.

Rent prices are very likely to increase, and if you already have a property investment portfolio, you will potentially earn more rental return.

 

Why shouldn’t we panic?

This is just a natural part of the cycle and it’s happening all around the world.

Here at Zinger Finance, we don’t focus on interest rates and, even though property interest rates are on the rise, we’re not concerned about them. We don’t even believe that they will increase dramatically anyway.

In our experience, we’ve found that banks will offer cheap rates just to get you in the door. But, we guarantee you, that these cheap rates come with a lot more terms and conditions that don’t necessarily complement your long-term goals.

Therefore, don’t settle for cheap loans, as quite often they won’t get you very far.

 

What to do next?

Senior Zinger Finance strategist, Graham Turnbull explains that there are solutions, regardless of your current position.

“If you are a experienced investor, focus on building your investment portfolio and make sure to stay away from the bank’s cheap marketing strategies.

If you’re not already an investor, there are heaps of varying interest rates floating out there that you may be able to strike a good deal out of.”

 

As we have said before, we don’t just focus on interest rates. There are many things to consider when choosing the right home loan for you and your situation.

If you are buying your own home, you would potentially look at a different loan structure to what you would look at if you were building an investment property portfolio.

Zinger Finance structures mortgages in a way that minimizes the impact of changes such as the increase of interest rates.

If you have any questions, our experienced team at Zinger Finance are more than happy to help.


Westpac Wages War On Mortgage Interest Rates

Have you seen in the media about the ‘war’ on mortgage interest rates that’s going on right now? Major banks across Australia are dropping their rates and Westpac is the latest to get involved by offering discounts of up to 105 basis points for their property investment loans.

This is the second time this month that the nation’s second largest lender has cut their rates and Westpac is following in the footsteps of NAB, CAB and ANZ.

This time, the focus is on first time home buyers and rentvestors – property investors who rent their principal place of residence.

Westpac have introduced the following changes:

  • fixed rates for first time buyers have been reduced by 40 basis points for principal and interest repayments
  • a five year introductory variable rate for first time buyers
  • the abolishment of establishment and monthly fees
  • a five year investment loan of 4.09 per cent (including a discount of 105 basis points)
  • a ‘flexi’ five year loan of 3.79 per cent (including a discount of 80 basis points)

Andy Wright, Head of Portfolio Management for Home Ownership at Westpac, said the changes have been implemented “to help first time buyers at the start of their home ownership journey and a cut in fees means they can put their savings towards purchases for their new home.”

The offers have also been extended to first home buyers who are purchasing their first home with the intention of renting it out, a trend that is increasing significantly.

We’ve seen first home buyers emerge in force after high prices, tougher controls on overseas buyers and tighter lending standards saw the overall demand in the property market decrease.

In the last quarter of 2017, Victoria saw a 12.6 per cent increase in first time home buyers, about 9900 loans. This was a 40 per cent increase compared to 12 months before.

NSW saw a 75 per cent increase in the year-on-year comparison and the last 3 months of 2017 witnessed an 11 per cent increase, equating to 7500 loans.

Although the Reserve Bank of Australia and prudential regulators have concerns about record levels of household debt, major Australian lenders have been aggressive in reducing key fixed and investor interest-only rates.

Australia’s big four banks undershot APRA’s 30 per sent cap on new lending, which is how they are now able to apply additional interest-only cuts. They are also trying to reclaim their market share from smaller lenders, so they can boost their profits. Hence the rates ‘war’ we’re now seeing.

currency wars

The new lending strategy suggests that our major lenders are not anticipating an increase in rates any time soon, despite a lot of economists predicting an increase come the next interest rate change.

The Australian Bureau of Statistics has reported a reduction in fixed rate loans, implying that property buyers are also discrediting the probability of rates increasing.

Graham Turnbull, Senior Finance Strategist at Zinger Finance, says that this could be the end of APRA as we know it, but urges people to not place too much emphasis on only going after the lowest rates.

“When servicing for any home loan, you need to consider your long term goals. Going after the lowest interest rate is not always the best strategy because it doesn’t always equal the best value for your needs. Although a loan may offer the lowest rate, there may be other features lacking. That’s why our team of Finance Strategists look beyond today’s loan and think about how it will affect tomorrow’s.” 

 

What to know more?

Feel free to contact the team for a free Financial Review.

 

Are There More APRA Changes To Come?

APRA has hinted at the possibility that they may be ready to remove caps on home loans for investors since the recent improvements to mortgage lending standards and investor loan demands.

Wayne Byres, APRA chairman, has said that the 10 percent restriction on banking lending to property investors was “probably reaching the end of its useful life”.

By rescinding the cap, its possible that the pressure on mortgage rates for investors could diminish. The introduction of the cap forced banks to increase their rates in order to stay within the limit. This could no longer be a requirement. Which means that banks are able to write more investor loans which, in turn, boosts credit.

Byres explains that due to better mortgage lending standards and a lower demand for investor loans, the 10 percent restriction is potentially no longer necessary.

Investor loans have declined to below 5 percent, which is at 50% of the cap. New interest-only lending is now at about 20 percent, which is a third of where it was.

Byres has said that there is still work needed before APRA can formally say they are comfortable but they have seen huge improvements in the way the industry is writing business in the last few years – the standard of quality has improved dramatically.

Before we find out when they plan to remove the cap, APRA will need to hold further conversations with the Council of Financial Regulators.

Though they are looking at relaxing this restriction, other key lending restrictions will still remain in place, such as the 30 percent interest-only limit on new loans issued.

Six months after the 30 percent interest-only limit on new loans was issued prices of homes across major East Coast locations started to fall. Byres has said that they want to see how and where the industry settles before looking at also relaxing this restriction. So we can expect this one to be in place for a while yet.

APRA

Why did these APRA changes happen?

In December 2014, APRA was given permission to intervene if an individual bank increased their investor lending by more than 10 percent in a 12 month period.

They, along with the Reserve Bank of Australia, had increasing concerns about the banks’ poor lending standards, as well as many unpredictable factors in the property market.

Banks have been under scrutiny from regulators in recent years. This has resulted in them having to re-assess how they evaluate a customer’s suitability for a loan, which is based on factors such as annual earnings, debts, expenses, and sensitivity to higher interest rates.

APRA have been slammed for being too blunt and for creating additional tax deductions for property investors.

With news that they are now looking to relax some of the restrictions, the future doesn’t look as bleak.

Madhu from Zinger Finance says, “I believe the majority of property owners are going to benefit immensely from the proposed changes. Everyone who owns property right now should be approaching their respective Finance Strategist to qualify themselves so they are able to cash in the minute the floodgates open. In essence, you have got to be in it to win it.”

Do you need to talk to someone about your finances in light of this news? There’s never been a better time for a financial health check!

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