Rate hike still on the cards: RBA

Reserve Bank Governor Glenn Stevens has reiterated that further interest rate hikes may be on the horizon.

In a speech to a Brisbane luncheon for the Economic Society of Australia, Stevens said the RBA expects inflation to continue to rise, and that further tightening of monetary policy could be necessary. However, Stevens may have taken a rate rise in July off the table, commenting that new data will be available late that month to help the RBA assess the level of inflation.

"New information will, as always, be important in our monthly assessments of what monetary policy needs to do. As far as prices are concerned, we will get another comprehensive round of data in late July," he remarked.

Stevens also defended Australia's multi-speed economy, saying that while the RBA recognises certain segments of the economy face hardship, the resources boom means a better overall economic position. Stevens claimed this filtered through to the broader economy in ways that are not always apparent.

"The average consumer in an advanced economy is effectively experiencing a decline in purchasing power over food, energy, and raw material-intensive manufactures. Australian consumers face this to some extent as well. Were Australia not a producer of raw materials, we would be experiencing a good deal more of it. In such a world, there would be no resources sector build up. Our currency would be much lower. We would be paying much more for petrol at the pump, for our daily coffee and for a wide range of other consumer products. We would not be holidaying overseas in our current numbers," Stevens said.

(Source: By Adam Smith | 16/06/2011)

Investors dive back into market

Investors appear to be taking advantage of the softer market conditions, with mortgage sales rising 18.8 per cent in May.

According to the latest AFG Mortgage Index, total mortgage volume for May was $2.5 billion – just 1.7 per cent lower than the figure recorded for May last year.

Victoria and New South Wales saw the biggest month on month upswings in mortgage volumes, increasing by 27.2 per cent and 23.3 per cent respectively.

Both states also had the highest proportion of investment loans with 38.8 per cent of loans in Victoria and 37.9 per cent of those in New South Wales, processed for investors. May also saw a surprise increase of investment loans in Queensland, up to 36.5 per cent - its highest such figure for well over a year.

AFG general manager of sales and operations Mark Hewitt said while property investment has remained at consistent levels throughout the ups and downs of the property cycle, it strengthened significantly in May.

“It is certainly a buyer’s market right now, and investors looking at rising yields are probably better insulated from the impact of rising interest rates than other types of buyers,” he said.

Refinancing remained steady at 36.8 per cent despite higher levels of competition between lenders, and the abandoning of exit fees by many. It seems that many borrowers have adopted a long term view of their lender relationship, as encouraged by AFG.

CBA Update: Line of Credit Accounts without payments

CBA now forces clients to make payments to Line Of Credits, or cancel their limits.

They no longer allow capitalising of interest in a line of credit.

Why? As a result of the GFC, they want people to continuously prove their liquidity.

What should you do?

If you have a CBA line of credit, make sure you set up a round robin of payments to debit then credit your line of credit, enough to show you are making payments equal to or exceeding your monthly interest. That is how you will avoid showing up on the radar of the bank.

Tighter lending hurts business borrowers

Business borrowers are struggling to gain finance under tighter lending criteria, the MFAA has claimed.

MFAA chief executive Phil Naylor said SMEs increasingly have to raise capital from a decreasing number of lenders, as the majors return to dominance in business lending.

He said brokers who could not attract funding from mainstream lenders were being forced to take deals to private lenders where interest rates could range from 10 per cent to 20 per cent.

“Our finance brokers are reporting that many of the smaller banks and the non-bank lenders have left the SME market, especially when it comes to property developing and office equipment and fit-outs,” Mr Naylor said.

“That leaves the large retail banks with most of the market.”

Mr Naylor said brokers reported that the major lenders were clearly cherry-picking the market: many property developers were being asked for larger equity commitments and at least 50 per cent qualified pre sales.

One large lender was asking property developers to refinance their loans so it could exit that sector.

Mr Naylor said finance brokers were frustrated that cash flow lending – where the decision to lend is made on the quality of the business and the receivables – had been dropped in favour of a return to fully secured lending.

“The GFC created a liquidity issue in our banks, and in response most of them have re-absorbed their business finance arms into the main operations of the bank,” said Mr Naylor.

“It means experienced business lenders who negotiated deals with brokers on their business merits, are now subject to more conservative practices.”

“There’s nothing wrong with banks being careful with their lending. However, SME debt finance is an important part of the Australian economy and the MFAA wants to see more competition in this vital area.”

The MFAA’s concerns are backed by Reserve Bank of Australia data that shows lending to businesses declined by 1.7 per cent in the year to February 2011 – a period in which housing credit rose by 7 per cent. The Reserve Bank says the four major banks controlled 86 per cent of the SME debt lending market in September 2010, while the majors only wrote 74 per cent of all business loans.

(Source: Staff Reporter, Thursday, 21 April 2011)

Industry consolidation tops 20pc

The National Consumer Credit Protection Act has resulted in widespread industry consolidation, new data has revealed.

According to the latest statistics from Market Intelligence Strategy Centre, there are currently just 138 active loan writing brokerage groups in the industry – 27 per cent less than this time last year.

But despite the contraction, the data shows these fewer broker groups actually wrote 7 per cent more business in the December quarter, suggesting it was part-time brokers that have dropped out of the industry.

This equated to $14 billion in new lending settled for the months of October, November and December 2010.

The top 5 broker groups, according to the MISC Lender and Broker Cooperative Industry Pool, accounted for 56.4 per cent of all broker loans. But this high level of concentration showed clear signs of competitive pressure.

A year earlier the top 5 broker groups wrote 60 per cent of all broker loans. By comparison, the remainder of the top 20 broker groups increased their market share from 34 per cent to 36 per cent of all settlements on the latest full quarter results.

This industry wide consolidation comes as no surprise to industry pundits.

Earlier this year, Aussie chief executive Stephen Porgess told The Adviser that the onerous responsible lending obligations and education requirements being pushed upon the industry by the new legislation would adversely impact the number of players within the mortgage space.

“There is no doubt we will see a lot more consolidation in the industry moving forward. The amount of time, money and effort we put into being ready for the new regulation is extraordinary. It is our number one focus. And, if we are struggling, and we are struggling to keep up with it because it changes on a day to day basis, I do not understand how the smaller players can cope with all the changes,”

(Source: By Jessica Darnbrough)

Industry urges RBA: leave rates alone

One industry stakeholder is urging the Reserve Bank to leave the official cash rate on hold for the rest of the year.

Loan Market Group’s chief operating officer Dean Rushton said the RBA’s decision to leave the cash rate unchanged at 4.75 per cent yesterday was a “sound move”.

He said there was no reason for the RBA to lift rates this month or any other month in 2011.

“The four rates rises they implemented in 2010 are still having an impact through much of the economy,” Mr Rushton said.

“The RBA should weigh less of the decision on what’s happening in the minefields of Western Australia and focus more on what’s happening to retailers out there.

“There have been some major business failures recently and if you walk through any suburban shopping centre or retail strip you will see shops that have closed down.

“Consumer sentiment remains soft and many elements of the economy, including the home finance market, continue to lag.

"The last thing they need now and in the foreseeable future is for interest rates to go up. Any rate increase would be a serious setback to consumer confidence which is quite fragile at the moment.”

(Source: www.theadviser.com.au, Wednesday, 06 April 2011, Staff Reporter)

NAB Broker explains service snafus

NAB Broker has promised to provide "compelling, consistent" service, after admitting a one-off December 2010 technical glitch had fermented negative perceptions among brokers.

Speaking to over 300 brokers in the ballroom of Sydney's Hilton Hotel yesterday afternoon, Flavell said that based on feedback from its broker network, a desire for constant service was a key priority, and that it was no good being "good one minute and terrible the next".

Flavell said a system enhancement in November 2010 - when the bank removed a piece of legacy software to establish one platform for processing loan applications - had resulted in a period of blackouts when brokers were unable to track the status of these loans via instant SMS messaging, as well as online. At the time, Flavell said there were 270 "in-flight" loan applications.

NAB Broker service feedback data showed that as a result, 38% of brokers were unsatisfied with the bank's service at the time, and only 39% declared themselves satisfied.

However, Flavell said the bank was now resourcing ahead of time and "running rich" in its processing team to ensure consistency. As a result, Flavell said more recent data showed a shift in satisfaction, with 55% of brokers now indicating they are satisfied with the service, and only 22% unsatisfied.

Flavell said he considered the bank's current average turnaround of 7.5 days was "too high", and that the bank would "feel more comfortable" with a turnaround of between five and seven business days, as long as this is provided at least 90% of the time, in line with desires for consistency.

He said that this meant there was an obligation on both parties - both bank and broker - to ensure that loans were submitted appropriately and processed effectively. He declared himself "frustrated" with other banks who indicated that the responsibility for conversions lay entirely with the broker.

Reassuring brokers, Flavell also indicated the bank will hold its commissions at their current level for at least the next few years. He said the commission model had been designed to withstand a business cycle of seven to eight years, and the "principles are still sound" in the middle of the cycle.

NAB Broker figures show that brokers will soon begin to see the long-term benefits of NAB's "ramped" trail commission structure, which pays higher trail commission over time, up to 0.35% after five years.

In chatting with Chris Carn, Head of Homeside Lending, we learned that Homeside (100% owned by NAB) is taking on a new direction, communicating with brokers more and changing their ways.

Lets see if this is true in the coming months...

(Source: By Ben Abbott | 1/04/2011 6:00:00 AM www.brokernews.com.au)

ASIC moves to axe ageism

ASIC has provided new guidance to preclude lenders from discriminating against borrowers on the basis of age.

With some industry pundits predicting NCCP regulations could potentially shut over-55s out of the borrowing market, ASIC commissioner Peter Boxall has said lenders should not take a restrictive approach to older borrowers.

'We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans because some lenders are adopting an unnecessarily restrictive approach to meeting the responsible lending requirements," Boxall said.

Boxall commented that older borrowers often have a variety of assets other than those from employment which could be used to service a mortgage.

"Undertaking the range of enquiries required by the legislation will often reveal other ways that they will be able to repay the loan," he commented.

In response to the issue, ASIC has updated RG 209 to include clarification that reasonbable enquiries into a borrower's financial situation can reveal other means by which a loan can be serviced, even when there is no continued income stream. It has also provided new guidance on issues which should be considered by lenders when assessing a borrower's ability to repay a loan. Boxall said responsible lending should not keep people from securing housing finance on the basis of age.

"The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford," Boxall commented.

(Source: By Adam Smith | 1/04/2011 www.brokernews.com.au)

St George woos business borrowers

As banks continue to offer sweeteners to entice home loan customers, St George has upped its proposition to business banking customers.

The bank is offering business borrowers a pay back of up to 0.5% of the size of their business loan to switch to St George, up to $50,000. The move comes as new RBA figures show business lending fell 01.% in January, and 2.4% over the past 12 months as demand for business finance flagged. St George COO Andrew Moore has told the Australian Financial Review the Westpac-owned bank is looking to expand its business customer base, along with growing residential lending.

"We are looking to acquire new customers, which is a bit of a change from the approach at St George over the last few years, which have been dominated by the merger with Westpac and the global financial crisis," Moore said.

Moore said recent competitive moves among the banks signalled a fight for market share in an environment of waning demand for credit.

"Competition, whether it is in the home loan market, deposits or business lending, is as strong as it has ever been. Post-GFC, we are in a lower credit growth environment. To win business at the moment, you need to really fight harder for it and when there is low credit growth you have to take customers from competitors," Moore remarked.

A St George spokesman told Australian BrokerNews the business banking initiative will be available to borrowers who apply for new business finance of $250,000 or more by 31 July, and open their primary business transaction account with St George.

"The 'up to $50,000 towards switching right now' covers the cost to us of waiving your business finance establishment fees and the eligible costs to you of moving your business to us, in total up to 0.5% of the total amount of your new business finance, or $50,000 whichever is the lesser," the spokesman said.

St George has also made moves to intensify its residential mortgage lending, raising its LVR from 90% to 95% for new to bank customers and offering a 100 basis point discount off its standard variable rate for the first year of its Introductory Rate Home Loan. The bank has also tried to woo brokers by returning to paying trail commission on loans between 30 and 60 days in arrears.

(Source: Adam Smith | 28/03/2011 5:00:00 AM www.brokernews.com.au)

Proposed ban on exit fees becomes law

The federal government’s proposed blanket ban on exit fees was passed into law yesterday sparking anger across the mortgage industry.

The original plan to ban exit fees was tabled last year when the majors moved above and beyond the Reserve Bank of Australia.

Treasurer Wayne Swan hailed the new law, which will apply to all new home loans from 1 July, as a victory for Australian families.

“Exit fees can be so high that they completely wipe out the savings from switching to a cheaper mortgage with another lender,” he said.

But it seems not everyone feels the same way as Mr Swan.

Speaking to The Adviser about the government’s decision, Smartline’s executive director Joe Sirianni said the new law would hamper, rather than promote, competition between mortgage lenders.

“The banks will come up with different ways of recouping the fees. The ones that are really hurt by this law are the smaller banks and non-bank lenders,” he said.

“The mortgage industry has warned the government time and time again that this move would do little to stimulate competition, but they just haven’t listened, which is very disappointing.”

Mr Sirianni said it would be interesting to see how lenders react to the news and what the non-bank lenders will do.

“We will just have to wait and see what happens,” he said.

(Source: Jessica Darnbrough, Thursday, 24 March 2011 www.theadviser.com.au)

The Smaller the Fish, the Bigger the Appetite

Throughout most of 2010, it was clearly demonstrated who had the biggest appetite out of the major four lenders. Westpac and CBA were not aggressively chasing new mortgage business whereas NAB and ANZ were generally hungry for new business. Recently, CBA has changed its appetite and is now keen to grow its mortgage book. NAB is still trying to buy new business (with its low standard variable rate). I think we’ll continue to see lenders jostle for position during 2011.

Interestingly, we have noticed some relaxation of credit policy over the past few months which results in lenders extending higher LVR’s and/or increasing their lending capacity. This is a good sign for borrowers.

I am quite optimistic for the lending market in 2011. I think we’ll see increased competition from non-Big 4 banks and more competition in the marketplace putting customers back into the driver’s seat.

Lack of Competition - What does this mean for you?

If you are with CBA – it’s time to review your home loan for a better rate. You can save thousands by considering a move to another lender. CBA were spanked in customer satisfaction surveys recently, however the service and rates won’t improve until they get hungry again.

Westpac – They have the biggest market share at 27% of all home loans. They bought St George and have had a full belly since November 2009 when they moved their rates up 0.5% and became non-competitive. Still overpriced in home loan rates and not looking to change.

NAB – Super hungry. They had no major acquisitions, only buying smaller organisations such as Challenger, and a stake in a mortgage broker group such as FAST. NAB is now relatively small to CBA and WBC, and very hungry for business. They offer the better rates of the majors.

ANZ – Mildly hungry. They want to grow fast to keep up with the joneses. ANZ have been keeping out of the headlines, offering some decent rates, however they will keep rates low to buy market share. On the policy front, ANZ reduced LVRs post-GFC, however had increased them back to 95% LVR to gain market share again.

The top 4 banks hold an 83% market share of the loan market.

There are plenty of other lenders (another 40) which provide the other 17% of all loans, however they are so insignificant to the major four banks, it’s like comparing a giant with an ant.

So, for the foreseeable future, expect much of the same from the major lenders with small improvements in lending policy. With a gross lack of competition, the major banks call the shots on fees and rates, with only one impedance...Government reform. Read about these reforms in our next interest rate bulletin.

(By Anton Hamer)

Buyers to win as bank battle breaks out

Investors’ financing options are widening as competition between the big banks fires up.National Australia Bank kicked off the war between the majors with its Break Up campaign this week, which is attempting to show consumers it is not ‘in bed’ with its competitors.

As part of its blitz NAB is offering to pay the mortgage exit fees of clients of the Commonwealth Bank and Westpac looking to make the switch.

Meanwhile, Westpac has responded with rate cuts of as much as 0.80 per cent on some of its selected home loans taken as part of its Premier Advantage Package.

Kristy Sheppard, spokesperson for Mortgage Choice, said conditions were looking healthier for borrowers however she warned buyers must be cautious of switching lenders and ensure they are completely aware of the true benefit versus cost equation.

“It will benefit many consumers by heightening their awareness of the wide variety of home loans and lenders available,” she said.

“Let’s just hope they look beyond fancy marketing campaigns and understand the true value of any incentives.

“Our advice is to focus on comparing the real substance of home loan products available today. The benefits of switching must outweigh the overall cost of doing so.”

Ms Sheppard said the new offers would stimulate borrowers to reconsider their financing arrangements.

“Mortgage Choice is already observing a significant spike in borrowers researching their options. Our website’s unique page views for refinancing-related content have jumped 25 per cent on the same period in 2010 and 14 per cent on last month.”

(By:Kate Miller www.spionline.com.au, Wednesday, 16 February 2011)

Low-docs halved under NCCP

After a resurgence last year, low-docs are on the decline according to mortgage broker Loan Market, shutting some borrowers out of the lending market.

The company has released research indicating low-doc applications have fallen by half, accounting for only five percent of overall loan lodgements. Before NCCP regulations introduced on 1 July of last year, the loans accounted for 10% of Loan Market's lodgements. Chief Operating Officer Dean Rushton has put the decrease down to lender caution following NCCP legislation.

“Under the new NCCP legislation, lenders are being more cautious when lending to the self-employed and small business owners who, unlike PAYG borrowers, do not have straightforward pay slips or group certificates to verify their annual income. As a result, many hard working self-employed people and small business owners are finding it harder to get finance,” he commented.

Homeloans Ltd general manager of operations and funding Scott McWilliams agrees, and has told Australian BrokerNews NCCP legislation may shut some borrowers out of the market.

"I think a number of lenders still believe that under NCCP, a low-doc loan is not eligible. Their argument would be that a low-doc loan may not demonstrate sufficient enquiry to see if the borrower can service the loan," he remarked.

Rushton believes the falling lender appetite for low-docs in the face of NCCP regulations will hurt many small business owners.

"Small business owners are already struggling with the impact of successive rate rises on retail sales, and are now being hit with tougher lending conditions," Rushton said.

According to McWilliams, small business owners seeking low-doc loans may not be the only borrowers to be shut out of the market by NCCP.

"I'm afraid we're going to return to the situation we had 20 years ago where a number of borrowers could not source housing finance because they did not fit within the very narrow box of what banks considered a good credit risk," he remarked.

(By: Adam Smith, 17/02/2011 )

Aussie households too relaxed with debt

Complacency may set in following the RBA rate hold yesterday, causing further rises in already high levels of household debt.

According to financial comparison site RateCity, the nation should be concerned about its current levels of household debt.

"Australia has never seen households take on this amount of debt, where Reserve Bank figures show we have collectively $49 billion of credit card debt. That's almost $2.4 billion more than December 2009," said RateCity's consumer advocate Michelle Hutchison.

Hutchison said the outlook for homeowners this year is "worrying", due to slowly rising property prices, expected rises in interest rates and more debt held by households.

"For instance, the average home loan in 2010 was $285,533, which is almost $20,000 more per household than in 2009," she said.

Hutchison urged borrowers not to take the cash rate for granted when managing their debts, due to lenders breaking away from the RBA cycle, and suggested borrowers should use the current repreive to pay off debt.

"We estimated that households are paying more than $4,000 extra in interest annually than in 2009. This can be easily avoided by reviewing your budget and controlling your spending while making higher repayments towards your debts."

(By: Ben Abbott, 2/03/2011, www.theadvsier.com.au)