Newsletter - March 2012

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March 2012

Equitimax Pty Ltd PO Box 929 Chatswood NSW2057 Tel: 02 9411 5322 Mob: 0417 448 691 Fax: 02 9411 5200

1. Price Bubble Debunked 2. What if... 3. Book Review 4. Fix or not? 5. Technology Trends 6. Did you know?

Price Bubble Debunked Despite talk of a housing price bubble, ANZ research shows there is little chance of a housing market crash this year. The bank forecasts prices to remain on hold or fall slightly, but not crash. In its recent property market assessment, ANZ argues that gains in house prices have been driven by lower interest rates and an increase in household income. The ANZ ‘Australian Housing Chartbook’ reports: “A combination of lower interest rates, falling house prices and rising household incomes has improved Australian house purchase affordability over the past 12 months.” “Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive.” This is backed up by ANZ compiled data on international house prices, rental yields and house price-to-income ratio comparisons – showing Australian house prices have not deviated from international trends. HSBC Bank chief economist Paul Bloxham agrees that there is little to fear from a price bubble. In the recent HSBC global research report ‘Australia in 2012’, he states there are three main reasons why prices won’t plummet: the majority of houses can service their debt; the undersupply of housing is growing at a greater rate than the decline in population growth; and there is strong demand for housing close to major urban centres. “We remain unconcerned about the possibility of a large decline in housing prices this year,” concludes Bloxham.

What if... Considering investing in property, but worried about all the things that might go wrong? Here we look at how to deal with a number of common ‘what if’ scenarios. What if I buy the wrong property? Rental yield, capital growth, tenant quality and demand should be upmost in your mind when searching for properties, which means not allowing your emotions or personal preferences to influence your decision. Think about what appeals to a tenant and what property types are in demand now and in the future. Researching your market is an important part of knowing what features tenants are looking for. What if I have problems with my tenants? Screening tenants before signing contracts is the single most important tip for protecting yourself against this scenario. If you choose to hire a property manager to screen tenants, make sure their process is thorough and detailed, like using industry databases that list bad tenants. Conduct as many background checks as privacy laws allow and always ask for the tenant’s references to include company names (not just mobile numbers) to ensure their legitimacy. Remain vigilant after the tenant has moved in by conducting regular general property inspections and promptly dealing with any issues that arise. Landlord insurance can cover you against damage by the tenant or loss of rent. What if I can’t get a tenant? This is a common fear among first time investors but you only need look at the low vacancy rates for rental properties to realise you are unlikely to have trouble finding tenants. Of course nothing turns potential tenants off faster than a run-down, dirty house, so for the greatest tenant appeal ensure the property is in good condition and the rent is on par with other similar properties in the area. What if now is not the right time to buy? Many property investors will tell you that ‘when’ to buy is nowhere near as important as actually ‘buying’. With a long term strategy in mind, so long as you take a reasonably cautious approach, a decent property is more than likely going to deliver growth in the long term. The longer you hold off, the more time you spend missing opportunities to enter the market and grow your wealth. What if I get the wrong advice? You wouldn’t take advice from an unqualified doctor, so don’t take property advice from smooth talking sales people. Do your research and triple-check all the fine print before you enter purchasing schemes like rent guarantees and off-the-plan purchases. Remember, if it sounds too good to be true, it probably is!

Book Review A Short History of Nearly Everything by Bill Bryson This book is a quest to understand everything that has happened from the Big Bang to the rise of civilization - how we got from there, being nothing at all, to here, being us. Bill Bryson's challenge is to take subjects that normally bore the pants off most of us, like geology, chemistry and particle physics, and see if there isn't some way to render them comprehensible to people who have never thought they could be interested in science. It's not so much about what we know, as how we know what we know. How do we know what is in the centre of the earth, or what a black hole is, or where the continents were 600 million years ago? How did anyone ever figure these things out? Bill Bryson takes us with him on the ultimate eye- opening journey, and reveals the world in a way most of us have never seen it before.

Fix or not? A drop in fixed rates by a number of banks and lenders has increased the number of borrowers who are fixing their home loans. If you decide to do the same, make sure you are fixing for all the right reasons not just the lure of a cheap rate. Be fully informed of the implications of locking into a fixed rate as you don’t want to later regret your decision if variable rates drop. Your financial situation and personal preferences should always be the guiding factors in whether to choose a fixed or variable home loan. Both loan types have their pros and cons so talk to us for the best advice about what product suits your budget and lifestyle. The insurance of fixing Choosing a fixed loan is similar to buying an insurance policy; it gives you certainty over a period of time. In the current climate of global economic upheaval, a fixed rate can be a good option if you are on a tight budget because it allows you to know exactly how much each repayment will be. On the downside, many fixed loans charge for extra repayments and early payout (break fees). Seek advice before you sign the contract on how the break fees are calculated in case you have to sell or refinance within the set term. The more rates fall, the higher the break cost because the re-financer has to compensate themselves for the loss of re-lending the money at a lower rate. The ups and downs of variables Variable loans have more features and greater flexibility than fixed loans but as the rate fluctuates according to various market conditions they can be risky if you’ve overcapitalised on your loan. If your variable rate falls, you may be making lower repayments than if you had fixed your rate but if the variable rate rises, your monthly repayments increase. When choosing a variable it’s important to plan for the possibility of rate rises and be able to adjust your budget accordingly. Other options Split rate and capped loans are hybrids between fixed and variable loans. Split rate loans allow you to divide your loan between fixed and variable interest rates, which gives you a foot in both camps. Capped loans are often offered as honeymoon or introductory loans and under this type of loan the interest rate is fixed for the capped period. During this period, the interest rate cannot go higher but it may go lower if the lender’s standard variable interest rate falls below the capped rate.

Technology Trends Just as the fax machine has been relegated to dinosaur status, so too will email be considered old hat. Analysts predict that 2012 will see technologies become more social, more connected and increasingly voice controlled. Embracing the rapid movement in technology is not always easy but investing the time and effort to take on a new technology almost always pays dividends. Let’s look at what’s in store for us over the coming year. Voice Command The success of Siri (a speech-recognition ‘personal assistant’ that's built into all Apple iPhone 4S smartphones) will prompt this type of technology to be used in other handsets, computer tablets (mobile computers), PCs and on websites. Email on the Out The popularity of social networks and messaging products marks the decline in email usage. Downloading services that allow the sharing of links has also proved quicker and more smart-phone-friendly than email. App on the Up App stores will grow in the number of available options as more companies come forward to help free us from content overload. Windows 8 - Touch Windows 8 Touch will bring ‘touch’ into the mainstream PC market, narrowing the gap between notebooks and tablets. Users of Windows 8 devices will be able to tap and swipe their way to touch-based applications via big, touchable panels. Social media Social media will continue to grow and insert itself into even more aspects of daily life, particularly those that are geared to photo and video based interaction. Social networks will add more features and get even more competitive, with Google+ trying to dominate the market. Mobile capabilities There will be an increase in mobile phone capabilities in every aspect and a growing number of internet users will demand access to content through mobile devices. Phone hardware and software will become more sophisticated and phone video will continue to improve in quality. Getting Thinner Our TVS, PCs and tablets are thin – so too will our laptops become as thin as manufacturers can allow. The emphasis will be on laptops that look great, run quietly, and are easier to carry.

Did you know? If you apply for a fixed rate loan, the advertised rate offered is current only for that day. By the time your home purchase happens, that rate may no longer be on offer unless you opt for a Rate Lock. Some lenders offer this service automatically, while others require you to pay a fee to put the rate lock in place.

Broker market share set to grow: NAB

Monday, 20 February 2012

Simon Parker - theadvisor.com.au The head of NAB’s third party mortgage business believes brokers will become more popular as an increasing number of time-poor customers grapple with a complex array of financial products. In an interview with The Adviser, Antony Cahill, the executive general manager of growth partnerships – a NAB business unit which brings together a number of entities that provide products and services to the mortgage industry – said mortgage brokers now accounted for up to 48 per cent of NAB’s loan transactions, and this was likely to grow. “I think it will continue to get larger, and I think there are a number of reasons for that as we see regulation coming through and continued professionalisation,” he said. “People are becoming more aware that financial products can be quite complex – and they are seeking help, guidance and advice. Brokers are ideally placed to provide that.” Since his commencement in the role 15 months ago, Mr Cahill’s Growth Partnerships portolio has posted growth of more than six times system. He said the relationship between banks and mortgage brokers had matured in recent years, which will support ongoing growth of the broker channel. “I think the industry has come a long way,” he said. “Ten years ago, in a sense there was a bit of a confrontational relationship. “Ultimately, we’re all part of that end-to-end business, and we have valuable relationships with brokers to ensure we give great service to clients, and everyone has a role to play.” “From our perspective in NAB, we want our customers to choose which channel they come through,” he added. Link to article http://www.theadviser.com.au/breaking-news/6733-broker-market-share-set-to-grow-nab

Standard Variable Rates - The Truth

We have recently seen banks lift and decrease their Standard Variable Rates and some banks now claim "We have the Cheapest Standard Variable Rate". Other lenders will say they are: "Always cheaper than the Major bank's Standard Variable Rate".

The Reality is that almost no-one pays the Standard Variable Rate.  

(if you are paying the Standard Variable Rate - talk to us now)

If all you were looking at was the Standand Variable Rate then it would be easy to work out what is the cheapest rate. See below a table of Standard Variable Rates as at 14th Feb 2012

Lender	Standard Variable Rate
Homeside/NAB	7.34% pa
ANZ	7.36% pa
CBA	7.41% pa
Suncorp*	7.43% pa
Westpac	7.46% pa

What is the actual rate you will pay?
It all depends on what Discount are you getting?

What the lenders do not tell you is how much of a discount you can get of these rates. Some lenders also offer you a 0.50% discount and some will offer 1.0% or more.

How much of a discount can you get? Well that depends on a lot of things.
- How much you borrow
- How much equity you have
- Other loans you have
- Your Knowledge of the market (ie what is the Competituion Offering)
- The competency of your broker

Below is an example of the discounts offered for a $550,000 loan with a Lending Ratio of 70% (ie 30% equity position) as at 14th February 2012. As you can see the Standard Variable Rate is part of the story but it really does not matter. The actual Rate you pay is what counts (and this is before we even look at fees, charges, features and suitability of the loan). If you need advice - come and talk to us.

Lender	Standard  Variable Rate	Discount Offered	Actual Rate
Homeside	7.34% pa	0.95%	6.39%
ANZ	7.36% pa	0.90%	6.46%
CBA	7.41% pa	0.80%	6.61%
Suncorp	7.43% pa	1.03%	6.30%
Westpac	7.46% pa	0.80%	6.66%

ANZ Media Release - 0.06% increase

Media Release
For Release: 10 February 2012

ANZ February 2012 Interest Rate Review
- variable rates for mortgages and small business increase by 0.06%pa;
three year fixed rate mortgage cut by 0.15% to 5.99%pa -

ANZ today announced it will increase interest rates for variable rate mortgages and small business lending by 0.06%pa while reducing the three year fixed rate package mortgage by 0.15%pa maintaining competitive interest rates for customers.

The decision follows ANZ’s monthly interest rate review which considered:
• the intense pressure on retail and business margins in recent months being sustained following:
- increased competition among banks for consumer and business deposits that has provided higher relative returns to ANZ’s 2.9 million deposit customers;
- higher costs paid by ANZ for $8 billion in long-term wholesale funding raised since October 2011 as a result of the economic and financial crisis in Europe which has made money more expensive for all banks to borrow.
• the stable monetary policy setting announced this week by the Reserve Bank of Australia following successive reductions in the cash rate in late 2011.
• the competitive environment, the impact of higher rates on customers and on loan growth, and also the need to act in a considered way with growing pockets of weakness in the Australian economy.

Effective 17 February 2012, ANZ’s new standard variable mortgage rate will be 7.36% pa
(7.46%pa comparison rate). New small business rates are effective from 17 February.

The 0.06% increase will add $6.50 per fortnight to the average home loan of $280,000. For small-to-medium sized business customers, the increase will add $3.00 per fortnight to an average loan of $130,000. Most customers will not need to make additional repayments with 85% of ANZ mortgage customers already ahead on their repayments.

ANZ will cut its three year fixed rate mortgage by 0.15% to 5.99%pa as part of its Breakfree banking package. ANZ’s Breakfree package currently provides the lowest fixed rates of the major banks across two, three, four and five year terms. ANZ CEO Australia Philip Chronican said: “This month we faced a serious dilemma in our review, balancing the rising cost of bank funding including deposit customers’ interests in receiving highly competitive rates, and the expectation of borrowers that we keep lending rates as low as possible.
“In December and January we absorbed the additional funding costs in the hope that funding pressures would ease and that no change in lending rates would be necessary. However, margins in retail and business banking have now been squeezed for a number of months and we’ve taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times.

“Our new monthly interest rate review process recognises that the Reserve Bank’s cash rate alone is not an accurate reflection of bank funding costs, particularly since the global financial crisis which has left all banks with the task of raising funds in volatile global markets and through stronger competition for deposits.
“This change comes with a duty to explain to our customers what drives our decisions and provide greater transparency about our funding costs.
“We also want to assure customers that we are committed to providing competitive products and we hope there will be an opportunity to lower rates in the coming months as greater confidence returns to global funding markets,” Mr Chronican said.
Mr Chronican added: “There has been much debate on banks in recent days. While we recognise our decision may leave some people frustrated and even angry, we believe Australia needs safe, well-run commercial banks that aren’t a burden on taxpayers and that can continue to lend. The alternative of weak, constrained banks that we see in the United States and in Europe is a recipe for stagnation and recession in Australia.”

ANZ has a number of options available to help customers concerned about interest rates manage their repayments. These include extending loan terms or switching to a fixed rate loan to provide greater certainty on future repayments, or to an ANZ Simplicity PLUS home loan, with fewer features at a lower interest rate. Customers who would like assistance should visit any ANZ branch, log on to anz.com or contact ANZ on 13 13 14.
Today’s monthly interest rate review follows an announcement by ANZ in December 2011 that it would review variable rates for retail mortgages and small business lending on the second Friday of each month.










 


• ANZ Criteria used to Assess Interest Rates
1. Ensuring attractive returns for depositors: ANZ is committed to providing customers with competitive returns and absolute security for their savings.
2. The cost of wholesale funding: This covers the interest we pay on funds from wholesale markets. The cost of these funds has become more volatile and expensive since the GFC and has been elevated in recent months as a result of the European debt crisis.
3. Our competitive position: ANZ is determined to remain competitive by attracting customers, winning business and managing our costs.
4. Our customers’ ability to afford loan repayments: We are committed to pricing loans and lending in a responsible way and giving consideration to the financial health of our customers, the economy and the banking system in Australia.
5. Regulatory requirements: As a bank, ANZ works within a strong prudential and regulatory environment. For example, we must hold capital reserves and levels of liquidity to operate safely and securely for customers.