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Mortgage Broker Melbourne

According to Domain Group Melbourne prices rose 3.5% in the June quarter with most of that growth attributed to houses, a 19th consecutive quarter of house price growth. Unit prices grew at just 2.1% but, in contrast to speculation, demand is still quite strong. We will have to see how that tracks as the effect of falling foreign investment and interest only interest rate rises flow through. Australia recorded another record median house price in the June quarter to over $800k which is approximately 10% higher
than the same time last year

The Reserve Bank of Australia again decided to leave rates on hold this week, steady as she goes at 1.5%. It is now precisely a year since there was any change. It also seems unlikely rates will rise any time soon as inflation remains below the target range of 2 to 3%. Last month there was increased speculation rates would rise soon but that sentiment appears to have subsided with new pressure on the Australian
Dollar as a result of declines in the US currency and increases in commodity prices. Any rate increases are now not expected by industry experts until the end of 2018.

According the Australian Bureau of Statistics, the demand for residential home loans has increased for the second month in a row. Along with the normal seasonal adjustment I believe this is, in part, due to the new first home buyer stamp duty concessions effective July 1st. ING Direct has lead the way with a terrific variable interest rate of 3.74% for their Orange Advantage Offset Package, for loans over $500k that meet certain other criteria. Drop us a line and we will assist you in finding a product that suits your needs and guide you through the entire process from start to finish.
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The 2016 census shows a number of fascinating insights into Australia and the housing market in general. One common way people are dealing with the rising costs of housing is to share accommodation. Sydney, for example, showed an increase of more than 17% in the number of households sharing when compared to the census taken 5 years ago. While it is not certain this is directly attributable to an increase in the cost of housing it is certainly worth investigating.

Another interesting result is a drop in the cost of paying a home loan, most notably in Brisbane, where the drop seems to be most pronounced. Of all the major capital cities it was only Darwin where repayment affordability worsened.

More property news this week suggests Global investment from Chinese nationals is tipped to exceed $100bn this coming year, down considerably from last year where the figure topped $130bn. Australia is a major destination having accounted for $23bn approx of the spending last year.

Rounding out the blog with the latest from The Reserve Bank, as I prepare to go on holiday to sunny Far North Queensland (sorry Melburnians who are left to brave another winter!). Once again, the cash rate was left on hold at the record low of 1.5%, there has been no movement now since August 2016. The result was widely expected and pundits seem pretty sure a rate hike is a distant prospect rather than an imminent issue, especially while the Dollar remains relatively high and the housing market may be showing signs of a slowdown. Several industry experts are still predicting the next rate movement will be an increase but not until 2018 so we are relatively safe til then.
Signing off now for my break! Catch you when I get back!
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First Home Buyers Celebrate!

Yesterday the State Govt of Victoria passed legislation in the Senate to abolish stamp duty for first home buyers for purchase prices up to $600k. They have also significantly reduced the duty on purchase prices up to $750k on a sliding scale. There will also be an increase to the first home owner grant for those building in regional areas.

With interest rates for owner occupiers remaining low and in some cases even falling, I expect an upswing in activity from July, despite this typically being a slower time of year due to Winter. It will be interesting to see what The Reserve Bank does if house prices pick up again as a result of the new impetus. I still think they will keep them on hold for the time being while they wait to see the effect of even more restrictions being installed by APRA though. The regulator is apparently targeting commercial lending next, which has been able to continue under the radar til now. The RBA said in the latest statement they are prepared to risk low inflation rather than cut rates, to avoid fuelling the fire of house prices.

NAB analysts cite strong population growth and low unemployment as indicators that the housing market should not suffer a crash, if anything it will be a gradual slowdown according to the pundits. Even though there was a slight uptick in April, mortgage arrears remain at very low levels in Australia because the typical borrower is in a higher income bracket that a lot of other countries.

NAB is actually the latest in a flurry of lenders increasing rates for interest only loans, I heard there were more than 40 lending policy changes this month all focused on this sector. AMP made a dramatic statement when they increased their investor rates by 0.35 this month when they decided to restrict investor loans to 50% lvr. This is a drastic reduction which, if taken up by the majority of other lenders, would have a huge dampening effect on the investor market. MyState emulated the same change in policy just a couple of days later. Not to mention the number of nomination sales for off the plan units is rising due to the fact overseas investors can no longer finance purchases they made up to 2yrs ago that are nearly due for completion. I think it is a good time to pick up a bargain inner city unit!
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Finally the market is showing signs of a slowdown of its own accord rather than being forced backwards as a result of rate rises! This should mean a gradual reduction in prices instead of a crash. In May, Melbourne prices eased 1.3%. A back step is normal at this time of year, but added pressure has no doubt come from regulatory changes to investment and interest only lending. Lenders continue to increase rates for investors and to restrict maximum loan to value ratios even further to tighten the criteria for those looking to purchase an investment property. I expect more changes to roll out over the coming year as the lenders look to obey APRA and protect their portfolio at the same time from the riskier end of the lending spectrum. Times are changing though, the risky loans used to be those to the self-employed who couldn't produce a tax return to verify their income, now risky loans are to investors who can prove their income but may be gearing too high with no safety net if prices start to fall more sharply.

I see prices levelling out as a good thing. A large proportion of our clients are looking to buy a home, many their first, and they have been priced out of the market for a long time. I find that first home buyers do especially well in a cooling market because they are buying for the long term and can absorb a temporary fall in their home value but benefit at the outset by finally being able to afford to buy where they want to live.

An interesting concept has been introduced for first home buyers by Teacher's Mutual Bank whereby they can take a loan with part interest only part principal and interest repayments, to ease the cash flow but make progress reducing debt at the same time. This change is brought about by APRA rules restricting growth in interest only loans, basically they won't permit an owner occupier to take a fully interest only loan anymore, but it may have a spin off benefit of making repayments more affordable in the short term. I'll keep an eye on that to see if it goes anywhere.

That brings me to the biggest driver of first home buyer activity on the horizon, for contracts entered into after July 1st 2017, stamp duty will be abolished for purchase prices that don't exceed $600k. When the State Govt brought in their earlier incentive, a 50% reduction in duty up to the same purchase price ceiling, prices for properties rose to that ceiling and bounced off the limiter. This new initiative eases the pressure at the $600k mark by continuing to offer a hefty discount for prices that exceed $600k, staggered and phased out at $750k. You can visit the State Revenue Office website for full details but a purchase price of $650k, for example, attracts stamp duty of $11,357 instead of the $34,070 payable now.

I think it is the perfect time for first home buyers to enter the market and the team here at Mortgage Broker Melbourne looks forward to being able to assist you in realising your dreams of home ownership!
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It has been an interesting week in mortgage world!

The State Govt announced sweeping changes to the way real estate can be advertised which should provide much greater transparency to prospective buyers. Presently first home buyers are simply cannon fodder for real estate agents, who have been under-quoting sale prices to what has become a ludicrous level. I've had clients looking at a property advertised $650k+ only to see it go over $800k at the auction!

This has been a source of great frustration to me and my clients who arrange a bank cheque and sometimes even pay for a building inspection, only to watch the property go out of their reach after just a few bids.

We do our best here to provide property reports which give an idea of a property value, we have also connected now with an expert buyer's advocate, to help clients navigate these murky waters. Both give buyers some valuable perspective, especially an advocate who can really add some serious expertise and potentially save buyers thousands when they do the negotiating for them.
No longer can real estate agents advertise a property with a price that is more or less than 10% of the asking price, they can no longer use terms like "+", "offers above" or "from". If an offer is received, the agent must promptly update any advertised price or face hefty penalties. However, it is possible the reforms might backfire, when agents simply choose not to advertise any price at all, watch this space!

In budget news, a proposal has been put forth where First Home Buyers will be able to save for their home deposit inside their superannuation and take advantage of the 15% tax rate applicable to normal super contributions. They can pay a max of $15k per year to an overall maximum of 30k. I'm sure that will help but last time I checked, $30k wasn't enough for a deposit in Melbourne and 2 years more property price growth while they wait to save is not going to help!

Another proposal is to allow older Australians to deposit $300k each from their home sale proceeds into their superannuation. The Govt believes this might encourage them to downsize and free up housing stock to address, in part, the supply problem in Australia. Other initiatives include tougher stance on foreign investors avoiding capital gains tax and a CGT incentive for investors to purchase and provide affordable housing for renters. No mention of the elephant in the room though, negative gearing was left untouched and I think that is a good call. Last time a Govt interfered with that system the results were disastrous.

Until next time!
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New Broker!

I am expanding! New things. I have always been a sole broker, working for myself with Selena, and running my own business so I can give the best customer experience I can. While I am very happy with my business, and looking after my customers, I have had to turn potential customers away lately, especially when I have been on holidays. I had been outsourcing some of my customers to another broker group. Tobe Cooper was a member of that group, and last month, he decided to join the Mortgage Broker Melbourne Family.

Tobe has been a broker for the past 15 years, almost as long as me. He has a great track record of customer satisfaction, and loves his job. Tobe especially likes dealing with issues, or twists that many banks can’t deal with. It might be a lack of deposit, or just having changed jobs and not having the work history some banks require. Tobe is uncanny at remembering different lender ‘niches’ that fit different customers profiles.

Tobe has a couple of home loans himself, he is an avid property investor for quite some time and loves helping new investors and those wanting to get into property investment.

Tobe lives with his family in the eastern suburbs and can meet clients either in the CBD or their workplace or home. Tobe is an avid gardener and bike rider.

I’m really pleased Tobe has joined us, check out his reviews on google!
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Interest Only Loans Again in the Spotlight

CBA sent a shockwave through investors this week by increasing their fixed rates across the board for investment lending. The biggest jump was a 0.5 for fixed rate investment loans with interest only repayments, taking their 5yr fixed rate over 5% for the first time in a long while. I am expecting lenders to continue to gradually increase as the banks cite cost of funds as a reason, there has been even more commentary to suggest this is a furphy but, to quote The Richest Man in Babylon, they have the gold, they make the rules to a degree!

Inflation also ticked above 2% for the first time in 2 years with the biggest contributor being an increase in fuel prices. I’ve long been a believer that fuel is a key driver of inflation, the more it costs trucks to fill up, the more goods and services cost to be delivered to stores, increasing many prices generally across the board. There are still a few factors contributing to lower inflation though such as low wages growth and a high dollar so there’s little chance the RBA will be forced to increase rates in the next 12 months, given what we know at present.

Victorian first home buyer stamp duty concessions kick in for contracts signed after July 1st so I expect an uptick in activity in the sub $600k price bracket but the pundits are tipping the property market will soon cool, at least in terms of activity, if not in prices reducing. While interest rates remain low, as they are suggested to be til 2018 at least, the fallout will be insulated somewhat. Remembering the days of 13%+ I was interested by an article I did interesting recently that said a rate rise of just 1% would now put a large number of households under mortgage stress so we are always here for a chat if you are concerned about your variable rate.

Lastly rumours some sort of incentive will appear in the Federal budget in May, assisting them somehow to save a deposit, although I do not expect accessing superannuation is on the cards. First Home Buyers are usually in an age bracket where their super is low enough not to help, I heard recently the average 30 years old has less than $20k in super. Having that extra to tip in would hardly touch the sides, simply inflating property prices a tad more. Such a change in policy would also open the doors for super to be used in other, even more inappropriate ways. The govt can’t afford to let the reins slip there, it is just too important that people are able to look after themselves in retirement as we live longer, there just won’t be enough tax revenue to support an aged pension that would be anywhere near what it would need to be.

Until next time!
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A recent study has shown the majority of first home buyers would consider putting their buying plans on hold if rates start rising. The margin was slim but nevertheless is an indication of future market direction, if The Reserve Bank or the lenders themselves were to raise rates for owner occupiers.

Presently, the RBA is taking a wait and see approach, after deciding the leave rates on hold at historic lows last week. There seem to be few indicators in the economy right now to suggest any change is necessary. Any reduction could add fuel to a property market already ablaze, any increases could yield negative impact on what seems to be an already weak economy, using inflation as a measure. I did see a chart last week that believes inflation will actually fall below the target 2% minimum threshold so the RBA is caught in something of a catch 22. If that comes to fruition the RBA has little choice but to pull on their only lever, interest rates by cutting the rate to even less 1.5%.

In July, first home buyers are able to take advantage of recent State Govt initiatives to remove in some cases and reduce in others, stamp duty payable on established homes in Vic. If rates continue to remain low I expect a surge in activity, especially if investors aren't as freely able to access interest only lending, as seems to be in the APRA spotlight at present. I don't agree with the sentiment referred to earlier in this piece though where first home buyers imply they will shelve their purchase plans if rate start rising.

In past experience I have found this is the exact time they should be entering the market! When rates rise, property as an investment appears less attractive to investors. When the rent goes nowhere near covering the mortgage repayment and the loss is too high, investors slow down. The resulting impact of less demand has to be a reduction in prices and more stock for first home buyers to look at, swinging back round to more of a buyer's market. I'm told constantly by my first home buyer clients out there trying to find a property, they are constantly being outbid by investors. I say, when rates rise and prices start falling, grab the opportunity and buy your first home. Sure, don't overspend and put yourself under pressure but you shouldn't let rate rises stop you, that's your chance to get into the market.
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APRA has ruled lenders need to urgently address the percentage of interest only loans they hold on their books. They have deemed interest only loans should account for no more than 30% of the lender's total portfolio but the current ratio is 39% so some severe cutbacks will likely be coming through the system in the coming weeks as banks adjust their policies.

I am writing to you to warn these policy changes will likely affect existing mortgage holders, not just new applications. It is possible one lender reaction could be to make it more difficult for borrowers to renew an expiring interest only period. If you have a term expiring in the near future please drop us a line to see if we can renew that early for you, to save you being forced to suddenly have to make principal and interest repayments when you aren't expecting to.

This may not apply to you if your repayments are principal and interest but there is a wider issue here that everyone needs to be aware of, in my opinion.

If new investors are suddenly restricted then there will likely be a dampening effect on the property market as they shelve plans to buy a property to rent out. Demand will reduce. Combine this with the possibility investors who have stretched themselves too thin, having bought several properties relying on making interest only repayments, may have to sell some of their portfolio to make it affordable for them, potentially adding to the supply of property in the market.

Stay tuned though because I am not certain APRA have considered the wider reaching implications of this new rule. I'll keep you posted.
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In a recent report, The Reserve Bank of Australia has noted bank funding costs remain largely unchanged since mid 2016, when they did experience a jump which accounted for out of cycle rate rises we saw last year. Since then there has only been a slight shift in domestic wholesale funding but that is said to have had little effect on the cost of funds. It is my opinion this month's rate rises are more to address the perceived risk of the heightened investor activity and the property market overheating.

We did see a drop off in domestic investor demand last time the lenders raised their rates but that demand quickly returned. There was also considerable speculation that we would see a reduction in foreign demand for Australian residential property but Chinese buyers are still very active and are tipped to remain very keen to purchase here in Australia, especially in the Sydney and Melbourne marketplaces. Chinese buyers account for three quarters of foreign investor buying and prices here are relatively cheap when compared with prices in China, which have sky rocketed. Rental yield in Australia is also much higher so our market still looks attractive, even though we think prices may be rising too much. Hopefully, if we do see a reduction in prices, foreign investor demand may cushion the impact of any potential drop off.

Interestingly, in the domestic mortgage market, a large number of Australian mortgage holders have contacted their lender to re-classify their investment loan to owner occupied purpose, declaring their loan was not primarily investment purpose. This has had the effect of muddying the water for APRA who are trying to measure investor loan growth to ensure it does not exceed their benchmark of 10% growth per year. A second factor is the determination of investors to secure finance for their investment plans may see them turn to the non-bank sector, which is much less regulated. The majors may tighten controls and policies but they may just find themselves losing market share to the smaller players. I'd speculate though, the riskier loans do always find their way to those that have more relaxed policies so perhaps the majors are content to refine their loan books and reduce their risk.
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