5 September 2016

Portfolio Capital - Mortgage Market Wrap

Portfolio Capital - Mortgage Market Wrap Portfolio Capital - Mortgage Market Wrap Portfolio Capital - Mortgage Market Wrap

by David Harris, Portfolio Capital Pty Ltd

  1. Rates Announcement
  2. Housing affordability for first home buyers

Impact of RBA rate announcement

Last month's RBA rate reduction will likely do little to stimulate the economy with the major banks retaining around half (or in some cases more) of the reduction giving their bottom line a significant boost. While the 'majors' have announced their new rates we are virtually deafened by the silence from the 2nd tier and non-bank lenders with only one announcement so far. This was from Westpac owned St George Bank who were similarly miserly in the amount they were prepared to pass on to their customers.

With the strong indication given by the RBA in its Statement of Monetary Policy that we can expect further reductions in the cash rate of up to 0.5% in the coming six months it will be interesting to see how the banks treat these reductions if they do occur. Will they look to further enhance their bottom line or become a little more generous? I guess only time will tell.

This issue does beg the question of the level of loyalty the banks deserve from their customers. It would seem that customer inertia is the best friend of the banks. The perceived difficulty of changing lenders often keeps customers just where the banks want them - on their own books.
However, the degree of difficulty is largely just perception. With the exception of fixed rate loans there is very little in the way of costs involved in changing banks, especially since exit penalties have been outlawed since 2011. The process is also usually quite straight forward and seamless.

With rates currently as low as the mid-three percent level with some lenders, refinancing can often result in a rate saving of around 0.5% which equates to around $2,000 in savings in just the first year on a $400,000 loan.

I am offering a free consultation to undertake a home/investment loan review to assess the viability and value of refinancing. Give me a call or drop me an email - I'd love to chat with you.

First Home Buyers and Housing Affordability

The other hot topic at the moment is that of housing affordability; especially for those wishing to enter the market to buy their first home. One issue I'm witnessing amongst young couples in this sector is not so much affordability of the loan payments but the ability to save sufficient funds to cover even the minimum deposit and costs while paying high levels of rent.

There are, however, a range of ways to overcome this problem.

Many lenders have products specifically designed to enable parents or other close relatives to provide assistance without the need to stump up cash or put their own financial future at risk.

These products are commonly called "limited guarantees" and provide additional security up to a pre-determined amount; usually no more than 20% of the purchase price of the new property. The guarantee is supported by a mortgage over a property owned by the guarantor.

For families in a position to provide this level of support the advantages are many and include:

  • Enables first home buyers (although not exclusively FHBs) to purchase with minimal savings
  • Avoids the imposition of mortgage insurance costs
  • Buyers can buy property at today's prices
  • Loans can be structured as two splits, often with the guaranteed amount over a much shorter term to enable the guarantee to be discharged as soon as possible
  • The risk to the guarantor is limited to the pre-determined amount - not the whole loan value

These products are not to help with payments; the borrowers need to be able to comfortably support the payments on the full loan amount. These are purely security guarantees.

If you are looking to buy your first home (or have a family member who may be in this situation) and would like more information on this option give me a call or drop me an email.

Email: info@portfoliocapital.com.au | Phone: 07 31391372 | Web: www.portfoliocapital.com.au