5 September 2016
Portfolio Capital - Mortgage Market Wrap
by David Harris, Portfolio Capital Pty Ltd
- Rates Announcement
- Housing affordability for first home
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
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
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
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.
| Phone: 07 31391372 | Web: www.portfoliocapital.com.au