Mortgage

<p>Almost three-quarters of variable borrowers who asked for a rate cut, got one, a new survey has found.&nbsp;</p>

<p>In a RateCity.com.au survey of over 1,000 mortgage holders, of those on a variable rate, 52 per cent haggled with their bank for a lower rate. Over 73 per cent of these people were successful in getting at least one rate cut.</p>

<p>A rate reduction of 0.25 per cent could save the average mortgage holder $1,241 in interest after one year and $3,656 after three years. This is based on a $500,000 loan balance with 25 years remaining.</p>

<p>While the majority of changes to fixed rates in the last two months have been hikes, the opposite is happening in the variable rate market.&nbsp;</p>

<p>[smartcode_project:default project_id=29048 project_image_fid=151675]</p>

<p><strong>RateCity.com.au home loan database analysis:</strong></p>

<ul>
	<li>49 lenders have cut at least one variable rate in the past two months.</li>
	<li>10 lenders have hiked variable rates in that time.</li>
	<li>The vast majority of variable rate cuts are reserved for new customers, not existing ones.</li>
</ul>

<p>RateCity research director, Sally Tindall, said while the RBA is not expected to move the cash rate tomorrow, one phone call could potentially save the average variable rate mortgage holder thousands.</p>

<p>&ldquo;Variable rates are at record lows, however, most of these deals are reserved for new customers, not existing ones, unless you specifically ask,&rdquo; she said.</p>

<p>&ldquo;A lot of people think a handful of basis points won&rsquo;t make much of a difference, but if the discount is permanent, then the savings can potentially run into the thousands in just a few years.&quot;</p>


While the majority of changes to fixed rates in the last two months have been hikes, the opposite is happening in the variable rate market

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Three out of four mortgage holders who asked for a rate cut, got one: RateCity 

<p class="legacy">EXPERT INSIGHT</p>

<p>So you think it&rsquo;s the right time to dive in and buy a home.</p>

<p>I can&rsquo;t tell you you&rsquo;re wrong. I can tell you it would have been better to do it before prices began soaring, and that if they keep soaring it will get worse still.</p>

<p>When the year began, the typical Sydney price was <a href="https://www.corelogic.com.au/news/corelogic-december-home-value-indices">$872,000</a>. Five months later at the start of June it is <a href="https://www.corelogic.com.au/news/australias-housing-boom-rolls-national-home-values-lifting-another-22-may">$970,000</a>.</p>

<p>That&rsquo;s a jump of almost $100,000 in a matter of months &mdash; an awfully big price for procrastinating.</p>

<p>In Melbourne the typical price has climbed from $682,000 to $740,500. In Perth it has climbed from $471,000 to $521,500, and so on.</p>

<p>And banks are beginning to withdraw the cheapest of their still-very-cheap mortgage rates, at this stage mainly the fixed four-year rates which had been below <a href="https://www.domain.com.au/news/house-hunters-facing-rising-fixed-mortgage-rates-with-further-hikes-expected-1054965/">2%</a>.</p>

<p>So why on earth wouldn&rsquo;t you dive in, cut your living expenses to the bare minimum and try and buy a home while it&rsquo;s the least bit possible?</p>

<p>One (slight) reason to relax is mortgage rates. Despite the increases in fixed four-year rates, three-year rates have barely moved. That&rsquo;s because the Reserve Bank has promised to hold the three-year bond rate <a href="https://www.rba.gov.au/media-releases/2021/mr-21-09.html">constant</a> at 0.1%.</p>

<p><strong>Buying has become a bigger commitment</strong></p>

<p>The three-year bond rate determines the cost to banks of their three-year fixed rate mortgages.</p>

<p>The Reserve Bank has said it does not expect to lift its 0.1% cash rate until &ldquo;2024 at the earliest&rdquo;. Movements in the cash rate determine movements in variable mortgage rates.</p>

<p>But there is another reason for proceeding with caution and taking stock.</p>

<p>For our parents, buying a home was an exceptionally good deal, not only because homes were cheaper &mdash; until the end of the 1990s homes typically cost between two and three times household after-tax income, they now cost closer to five &mdash; but also because over time the loan became easier to pay off.</p>

<p>That isn&rsquo;t because mortgage rates were coming down &mdash; at times they were going up &mdash; it&rsquo;s because during our parents&rsquo; times wages (and prices) were climbing.</p>

<p>It meant that even if someone of our parents&rsquo; generation just squeaked through one of the bank&rsquo;s tests about their ability to make payments on a mortgage, a few years and lots of inflation and several big wage rises down the track those mortgage payments shrank compared to everything else.</p>

<p><strong>Once, wage rises took care of repayments</strong></p>

<p>Many of our parents paid off their mortgages early.</p>

<p>One way to look at this is that the bank&rsquo;s ability-to-repay calculators were set too harshly. They failed to account for future hefty wage rises and inflation.</p>

<p>It&rsquo;s probably also true that they were set more generously than they might have been in an implicit acknowledgement of what the assistant governor in charge of the Reserve Bank&rsquo;s economic branch Luci Ellis calls &ldquo;<a href="https://www.rba.gov.au/publications/rdp/2006/2006-12/global-trends.html">mortgage tilt</a>&rdquo;.</p>

<p>The former governor, Glenn Stevens, used another term, &ldquo;<a href="https://www.rba.gov.au/speeches/1997/sp-ag-081097.html">front-end loading</a>&rdquo;.</p>

<p><strong>Mortgages were &lsquo;front-end loaded&rsquo;</strong></p>

<p>When inflation was high, and as a consequence interest rates were high, wages that climbed rapidly with high inflation made the servicing burden &ldquo;most acute in the very early phase of a loan, falling over time&rdquo;.</p>

<p>On a graph (and the former governor presented a graph) the line showing payments as a portion of income tilts down over time.</p>

<p>In a world of lower inflation and interest rates, the tilt becomes flatter.</p>

<p>By now (Stevens published the graph in 1997) the line must be near horizontal.</p>

<p>If wage growth remains near the <a href="https://twitter.com/1petermartin/status/1399520798734389250/photo/1">record lows</a> the treasury is forecasting it will become scarcely any easier to make payments on a home loan over time.</p>

<p>Yet the banks are still handing out loans using the sort of formulas they used to.</p>

<p>If you get a loan you&rsquo;ll be assessed as being able to (just) make the payments as always, but you&rsquo;ll be denied the near certainty of being able to more easily meet the payments as time goes on.</p>

<p><strong>Now, we retire mortgaged</strong></p>

<p>This is a different from the risk you&rsquo;ll also run of today&rsquo;s ultra-low mortgage rates climbing (which banks do take into account in deciding whether to give you a loan).</p>

<p>The proportion of homeowners reaching retirement age while still paying off their mortgage has doubled in 20 years. Which might be why some banks ask for details of your super before granting you a loan. It isn&rsquo;t an idle inquiry.</p>

<p>Might things get better? Maybe, if we can get wages moving again.</p>

<p>Evidence given to Tuesday&rsquo;s post-budget Senate estimate hearing provides cause for hope, and despair.</p>

<p><strong>Super hikes will make things worse</strong></p>

<p>The budget forecasts for wage growth over the next four financial years are incredibly low &mdash; 1.5%, 2.25%, 2.5% and 2.75%</p>

<p>On Tuesday Treasury Secretary Steven Kennedy revealed that each would have been higher &mdash; 0.4 points higher &mdash; had the government not persisted with the five scheduled annual increases in compulsory superannuation contributions of 0.5% of salary starting in July.</p>

<p>The treasury believes each increase will slice 0.4 percentage points from wage growth, on the basis that employers, who are legally required to pay the contributions, will have to find the money somewhere.</p>

<p>It&rsquo;s the same conclusion reached by the government&rsquo;s <a href="https://theconversation.com/that-extra-youre-about-to-get-in-super-most-of-it-will-come-from-you-but-dont-expect-the-ads-to-tell-you-that-154723">retirement incomes review</a>.</p>

<p>It&rsquo;s cause for hope because it means that when those five increases stop (in mid-2026, or sooner if the government stops them mid-track) wages might be able to grow more strongly.</p>

<p>It&rsquo;s cause for despair because if the treasury is right, we are denying ourselves wage rises we could use in return for super we will increasingly use to pay down our mortgages.<img alt="The Conversation" height="1" src="https://counter.theconversation.com/content/161873/count.gif?distributor=republish-lightbox-basic" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important" width="1" z5zyoz6tp="" /></p>

<p><span><a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <em><a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></span></p>

<p>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">original article</a>.</p>

Paying off a home loan used to be easier than it looked - it's now harder - here's why

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<p>GUEST OBSERVER</p>
<p>As a nation, Australians are fascinated with residential real estate.</p>
<p>Today, you cannot open a newspaper, turn on the radio, watch television, or even have a chat with a friend without the subject of residential real estate coming up. </p>
<p>Of course, when you consider that real estate is the nation’s number one asset class, this is hardly surprising. </p>
<p>Everyone has an opinion when it comes to real estate. Most recently, we have heard a number of people argue that lenders and mortgage brokers are encouraging borrowers to take out loans they cannot afford, putting them in housing stress. </p>
<p>I don’t want to contribute further opinion to this topic. Instead, I want to lay down some facts and figures that will hopefully go a long way to painting the true story. </p>
<p>Residential real estate, like any commodity, is driven by a few key fundamentals, including supply and demand, the cost of credit, employment and access to credit. </p>
<p>Access to credit, or the amount of money an individual can borrow, will determine what they can and will pay for a property. In recent times, there has been a lot of discussion about the high debt levels in Australia and the purported inappropriate lending practices undertaken by Australia’s lenders and mortgage brokers. </p>
<p>While we do have high levels of debt in Australia, data from CoreLogic shows the proportion of income needed to service current household debt is actually lower now than it was in 2011. </p>
<p>In 2011, the proportion of household income required to service an 80% LVR mortgage across the combined capital cities was 43.92%. By 2016, that percentage had dropped to 35.02% thanks, in part, to historically low interest rates.  </p>
<p>So while property is certainly expensive and the level of household debt is high, it would seem many Australians are actually in a better position now than they were five years ago.  </p>
<p>Moreover, lending practices are constantly improving. Borrowers aren’t being forced into higher loans, they are simply choosing to borrow more in order to purchase their desired asset. </p>
<p>The banking industry is highly regulated and both brokers and lenders are more scrupulous than ever.</p>
<p>20 years ago, a home loan application was a single sheet of paper and the level of data that was collected by a lender was scant. </p>
<p>Only 10 years ago, approximately 50% of all home loan applications in Australia required borrowers to certify their income and their asset position. These loans, commonly referred to as low-doc or no-doc loans, were very popular within Australia. </p>
<p>When you contrast these lending practices with what we have today, it is fair to say things have come a long way. </p>
<p>Today, new legislation requires brokers and lenders to forensically examine a borrower’s assets and liability situation. They are also required to verify a borrower’s employment through documentation as well as telephone checks and discussions with employers. At the end of the day, nobody - lender or mortgage broker - wants a consumer to be in a situation where they access credit they can't afford. </p>
<p>At Mortgage Choice, the vast majority of our customers are more than nine months in front of their mortgage repayments. They are overpaying their mortgage in a bid to quickly and efficiently reduce their level of debt. </p>
<p> Looking ahead, brokers and lenders will continue to do the right thing by their customers, helping them into loans they can afford and helping them to get their foot onto the property ladder.   </p>
<p>I believe property prices will continue to rise across most markets. However, the rate of growth may be more moderate than what we have seen in the past. I do not think mortgage holders are at risk of losing their property. I believe Australia’s lenders and mortgage brokers do all they can to ensure borrowers are in the right product for their needs and long will this tradition continue.</p>
<p><em>John Flavell is chief executive officer <a href="https://www.mortgagechoice.com.au/" target="_blank">Mortgage Choice</a>.</em></p>
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The industry has never been healthier: John Flavell

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<div class="column"><span style="line-height: 1.3em;">GUEST OBSERVER</span></div>
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<div class="column"><span style="line-height: 1.3em;">Housing finance commitments fell in September, driven by a sharp drop in investor lending. </span></div>
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<span style="line-height: 1.3em;">While today’s report also showed an increase in upgrader lending, </span><span style="line-height: 1.3em;">the impact of the changes to investor lending standards in recent months is clearly net negative for housing market sales activity and housing construction</span><span style="line-height: 1.3em;">. Slower auction market sales, weaker house price growth and higher mortgage rates in recent weeks point to a soft housing market outlook in 2016.</span>
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<br><span style="line-height: 1.3em;">Investor finance fell a sharp 8.5% m/m in September, and has now fallen for five consecutive months </span><span style="line-height: 1.3em;">(Figure 1). APRA will be satisfied that their measures are indeed having the desired effect of slowing annual investor credit growth down towards sub-10%. However, </span><span style="line-height: 1.3em;">the sharp loss in housing market momentum in recent months presents a soft outlook, not just for house price growth and mortgage lending, but also for the contribution to economic growth from housing</span><span style="line-height: 1.3em;">. </span>
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<div class="column"><span style="line-height: 1.3em;">Slower price growth and higher mortgage rates in recent weeks are expected to weigh on planned housing construction (Figure 1) and provide less of a boost to consumer confidence and retail spending.</span></div>
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<br><span style="line-height: 1.3em;">In contrast to weaker investor finance, owner-occupier mortgage lending increased 1.7% m/m (excluding refinance) in September. While growth in owner-occupier lending has offset weaker investor finance in recent months, today’s net negative impact is likely to continue in the coming months as the combined impact of slower house price growth, the recent increases in mortgage lending rates and weak household income growth provide a headwind to owner-occupier sales. </span>
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<p>David Cannington is s<span style="line-height: 1.3em;">enior economist, ANZ Research and can be contacted <a href="https://www.anz.com/corporate/research/" target="_blank">here</a>.</span></p>
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Australian mortgage lending confirms soft housing market outlook: ANZ Research

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<p><span>GUEST OBSERVER</span></p>
<p><span>The Reserve Bank of Australia (RBA) is rapidly losing relevance to mortgage holders amid a myriad of changes to the nation's home loan landscape to tackle concerns about investor lending.</span></p>
<p><span>While the RBA maintains its cash rate at a record low of 2.0% – where it has been since May this year - tens of thousands of borrowers have already been hit with increases to their mortgage rates.</span></p>
<p><span>The decision of many lenders to raise interest rates for investment and interest only loans as well as revised borrowing conditions means the RBA's rate deliberations have become almost irrelevant for some borrowers.</span></p>
<p><span style="line-height: 1.3em;">While there is some competition in the market for owner-occupied loans at the moment due to the restrictions on investor loans, this pricing will be short lived with the pressure on the major banks to meet Australian Prudential Regulation Authority (APRA) measures by June next year. We will likely see rates increase for owner-occupied in the future.</span></p>
<p><span style="line-height: 1.3em;">The actions of the banks to increase rates in response to industry and regulatory desires to tackle the growth in investor lending due to concerns about booming Sydney and Melbourne property prices has changed the lending landscape.</span></p>
<p><span>Despite the RBA keeping its cash rate on hold, thousands of borrowers have been notified already by their lender that their interest rate will go up by as much as 49 basis points.</span></p>
<p><span>In the history of home loans it has never been more confusing for borrowers, who now need to be better informed than ever before.</span></p>
<p><span style="line-height: 1.3em;">Not only are rates for investors and people on interest only loans being targeted, there is a great variation now for all those looking to borrow money for investment purposes. Any investor who has purchased should revisit their approval as lending conditions have changed dramatically.</span></p>
<p><span style="line-height: 1.3em;">There have also been changes to loan servicing calculations, Loan to Value Ratio (LVR) requirements as well as the rental income needed to help service a loan.</span></p>
<p><em><span style="line-height: 1.3em;">John Kolenda is managing director of 1300HomeLoan and can be contacted <a href="https://www.1300homeloan.com.au" target="_blank">here</a>.</span></em></p>
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RBA decisions losing relevance: John Kolenda

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<div class="column">Housing finance decreased in April, with investor finance posting a sharp 5 percent decline in the month.</div>
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<div class="column">Looking through today’s soft monthly growth, the housing market has shown clear cyclical improvement recently, reflected by the pick-up in house prices and building approvals. This cyclical rebound is likely to be further supported by the May interest rate cut. However, today’s data indicates that growth in the current cycle will be limited by soft household income growth, the presence of macroprudential policy targets, and concerns about future tightening of housing policy.</div>
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<br>Today’s data was driven by a sharp monthly decline in investor lending. This continues to reflect the negative impact of macro prudential policy targets on investor lending, with lenders mindful of the regulatory investor lending growth target. Nonetheless, investor demand for housing is likely strengthen in the coming months, supported by the solid pick- up in house prices (Figure 3).</div>
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<br>In comparison, owner-occupier finance posted an increase in April, with upgrader finance higher and first home buyer finance lower in the month. While upgraders remained the key to driving owner-occupier lending, first home buyers continued to be weighed down by housing affordability concerns, which are being amplified by weak wage growth.<br>Finance for the purchase or construction of new dwellings declined sharply in the month.</div>
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<div class="column">However, the pipeline of existing housing construction remains solid. Building approvals have trended higher recently, and are likely to be supported in the coming months by both solid house price gains and lower interest rates. As such, we continue to expect that housing construction activity will remain elevated in 2016, however today’s data indicates that any further growth is likely to be modest compared to recent years. </div>
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<p><em>David Cannington is senior economist, ANZ and Daniel Gladwell is economist. The can be contacted <a href="https://www.anz.com/personal/" target="_blank">here</a>.</em></p>
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Australian mortgage lending slows in April: ANZ Research

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<p>Australian homeowners are skeptical about receiving unbiased advice from a bank when it comes to refinancing a home loan, according to research commissioned Mortgage Choice.</p>

<p>The research reveals two out of five (38%) homeowners are either in the process of refinancing or are considering making the move to a new loan.</p>

<p>However, 53% of homeowners are wary that if they speak to a bank they won’t be advised if they could get a similar or better home loan deal elsewhere. One in two (49%) homeowners feel that banks don’t always have their best interests at heart.</p>

<p><strong>High levels of trust for mortgage brokers </strong></p>

<p>The survey results confirmed that a significant majority (94%) of Australian homeowners say they trust the loan recommendations made by a mortgage broker.</p>

<p>For half (55%) of the respondents surveyed, the number one benefit of partnering with a mortgage broker during the refinancing process is professional support comparing loan options, rates and features. For 45% of refinancers, a mortgage broker streamlines the process, “saving time and hassle”.</p>

<p>“Faced with what can be an overwhelming choice of home loans, homeowners want to be confident they are making the move to a loan that will improve their financial wellbeing through a lower rate, improved loan features, or both," Susan Mitchell, CEO of Mortgage Choice said.</p>

<p>“While banks can provide information on their own product suite, they do not have an in-depth understanding of competitors’ products. That is why I urge borrowers in the market for a better deal to engage the help of an experienced mortgage broker to learn what other options they have,” she added.</p>
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Mortgage Choice found 53% of homeowners are wary that if they speak to a bank they won’t be advised if they could get a similar or better home loan deal elsewhere

urban.com.au

Australians are skeptical about receiving unbiased refinancing advice from banks

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<p>Is it a case of banks don’t know what’s going on, or is it more a statement they don’t want to know? Pour yourself a fresh cup of coffee and read on. Don’t forget, your comments are welcomed and be sure to share them.</p>
<p><span>There are three main issues that banks appear to be very silent on and the question that is fitting in this property-climate is simply: “why are they so quiet?” A question which begs a straight answer; especially with the concerns surrounding <em>foreign</em> and <em>local property investors</em> buying newly built property and pricing local first-time-home-buyers out.</span></p>
<p><span><strong>The three concerns and issues I refer to are:</strong></span></p>
<p><span>·</span><span>     </span><span>Rental guarantees</span></p>
<p><span>·</span><span>     </span><span>Overly inflated commissions and</span></p>
<p><span>·</span><span>     </span><span>The scourge of the financial industry sector, selling property without a real estate industry license.</span></p>
<p><span>My immediate guess is, if you are riding the “Gravy Train” of “Overseas &amp; Local Investors” why should these seemingly illegal practices be of concern to banks? Again and for now, I’m just speculating that;<em> it’s best to turn a blind eye than it is to confront what may well be considered unfair and unjust to local home buyers</em>. After all, first-time-home-buyers aren’t the flavor of the month to all concerned, now are they?</span></p>
<p><span>It is my strong belief that the three topics noted, create an unfair advantage that has driven property values sky-high as developers reach for the skies.</span></p>
<p>Why is this unfair? I have previously discussed in other articles, <span>“Rental-Guarantees” and “Overly-Inflated Commissions” are ultimately paid by the investor.</span></p>
<p><span><a href="https://mail.privatemedia.com.au/owa/redir.aspx?SURL=buh8exBazU3bNSloPOr0rrJNNQesJNSotxGFO7YMkRixynWPdWzSCGgAdAB0AHAAOgAvAC8AdwB3AHcALgBsAGkAbgBrAGUAZABpAG4ALgBjAG8AbQAvAHAAdQBsAHMAZQAvAGkAbgB0AGUAcgBuAGEAdABpAG8AbgBhAGwALQBpAG4AdgBlAHMAdABvAHIAcwAtAGIAZQBpAG4AZwAtAGQAdQBwAGUAZAAtAHMAeQBkAG4AZQB5AC0AYQB1AHMAdAByAGEAbABpAGEALQBlAGQAdwBpAG4ALQBhAGwAbQBlAGkAZABhAA..&amp;URL=http%3a%2f%2fwww.linkedin.com%2fpulse%2finternational-investors-being-duped-sydney-australia-edwin-almeida"> </a></span><em>Ha! And you thought the developers were generous and paid for these right?</em> Therefore, driving the values of the newly built properties upward.</p>
<p><span>Now allow me to break it down for you.</span></p>
<p><span><strong>Rental guarantees:</strong></span></p>
<p><span>What is common amidst most of the activity surrounding the sales of newly built property is the rental guarantees. Some rental guarantees are lasting for as long as 3 years.</span></p>
<p><span>It is my belief that any incentive made by the vendor or the agent to enhance the sale, the incentive has to be disclosed and must also form part of the contract of sale. The inducement being the rental guarantee but this is not limited to a rental guarantee.</span></p>
<p><span><em>In my time I have also seen cars and furniture packages form part of sales incentives, all in the aim to entice the investor to buy</em>.</span></p>
<p><span><strong>Inflated Commissions:</strong></span></p>
<p><span>Yes, I know I speak out a lot about this very subject</span><span> but when spruikers earn 5 times what the local agent earns in one sale, there has to be something wrong. If I don’t speak out, will the REI NSW step in or any of the REI’s for that matter?</span></p>
<p><span><em>I stopped holding that breath 4 years ago</em>.</span></p>
<p><span>Nevertheless, the banking bodies should take note as their clients (the investors) are ultimately paying for this.</span></p>
<p><span>I also note that most of my endeared friends that have created this negative impact on the local home front, all sell newly built property. An arena where highly inflated commissions can and are paid out.</span></p>
<p><span><strong>Selling without an industry license:</strong></span></p>
<p><span>The temptation is just too great and the grass is greener on the other side.</span><span> When so much money is at stake we have seen; brokers, accountants, financial planners and advisers jump the fence to moonlight as real estate agents as they lead their clients astray.</span></p>
<p><span>Again, this is an area where the banks should focus on, as local investors fall prey to the rogues within the financial sector.</span></p>
<p><span>A closer eye and perhaps a magnifying glass should be used to review contracts especially when the buyers are: Trustee Companies for Self-Managed-Super-Fund (SMSF) Trusts. More to the point when the property is new as this is the territory where these rogues, feast and boast about the high commissions earned.</span></p>
<p>Rental guarantees, overly inflated commissions and spruikers selling real estate without a license under the guise of calling themselves property-marketers: should send alarm bells ringing through the banking sector. But once more, why is there so much silence surrounding the very issues that have overly inflated the value of a new property in Sydney?</p>
<p><span><strong>Getting to the nuts and bolts</strong></span></p>
<p><span>Unethical real estate agents, spruikers, property marketing companies and the scourge of the financial sector; all have been ensnared by the prize of the high commissions and in turn lure investors by creating false perceptions of property: growth, demand, under-supply and high return on investment. How? By the simple use of instruments (such as rental guarantees) outside of the contract of sale and therefore, making the transaction questionable and unconscionable.</span></p>
<p><span>The falsely represented, high priced, new property sales ultimately filters down to established homes and we have what I refer to as “property-osmosis”. Property osmosis is an upward pull of established property's prices, caused by the exaggerated values of the surrounding new developments.</span></p>
<p><span>Most people are also under the impression that Overseas-Investors are paying for their properties with 100% cash. However, that it is not the case. Most investors buy property with a high deposit and borrow 50-60% through a loan vehicle.</span></p>
<p><span>In actual fact, Chinese citizens can only take up to $50,000 out of China through legal channels. However, there are means and ways to take $200K-$400K without much fuss.</span></p>
<p><span>Therefore, banks are more than happy to lend at 60% Loan to Value Ratios, as they are well secured even if the market dips by 20-30%. As you can see, there is very little risk for the banks.</span></p>
<p><span>Then there are our home grown Local-Investors that have been enticed to buy. Their property investment guides as previously mentioned are mainly, property spruikers and financial experts that assist in creating (SMSF) schemes to buy property. These vehicles also requiring low LVRs to purchase.</span></p>
<p><span>Typically, the SMSF schemes may borrow 70-80% to buy the investment property. Again the banking sector feeling secure on all counts.</span></p>
<p><span><strong>What banks and Industry bodies need to do</strong></span></p>
<p><span>The first and foremost prudent demand banks should place on the real estate industry is, for the “Sales Inspection Report and Agency Agreement” to be disclosed. Disclosure of what the “AGENCY” is being rewarded for the sale, will provide a twofold and strong indication to the valuer if there are any hidden agreements not being revealed.</span></p>
<p><span>·</span><span>     </span><span>Overinflated commissions</span></p>
<p><span>·</span><span>     </span><span>Payments made to agent/agency to cover rental guarantees and other incentives not disclosed in the Contract of Sale, which are passed on to the investor.</span></p>
<p><span>A copy of the agency/corporation license, should also accompany the contract of sale when providing the relevant documentation to the valuers. For the bank valuers to properly asses the true value of the property.</span></p>
<p><span>·</span><span>     </span><span>An agency or business name on the front page of the contract inserted after "Vendor's Agent" does not represent that the agent holds an industry license.</span></p>
<p><span>Perhaps at this very moment there is simply too much at stake to curve these questionable practices. The banks, financial institutions, real estate agents and we may also include the government, are all making too much money on this gravy train, to really care about our local first home buyers.</span></p>
<p><span>I am troubled nonetheless to think that all these practices that may be considered highly questionable if not illegal, have and continue to go on and right under the very noses of the banking institutions.</span></p>
<p><em><span>EDWIN ALMEIDA</span> is licensee in charge of <a href="https://www.just-think.com.au/" target="_blank">Just Think Real Estate</a>.<a href="https://www.just-thin.com.au/"><br></a></em></p>
<p><em>He is also the creator of <a href="https://www.youtube.com/user/JustThinkProperty" target="_blank">Oz Real Estate.TV</a> and a presenter for <a href="https://propertyinvestingvault.com/" target="_blank">propertyinvestingvault.com</a>.</em></p>
<p><span> </span></p>
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Banks turning a blind eye: Edwin Almeida

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<span style="line-height: 1.3em;">Australia's largest and most recently listed mortgage aggregator Australian Finance Group (AFG) released its December 2015 quarter </span><span style="line-height: 1.3em;">Mortgage Index</span><span style="line-height: 1.3em;">, which now again includes figures at the state level.</span>
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<div>The index, which is not seasonally adjusted, showed a solid 7 per cent increase in the volume of mortgages sold from the prior corresponding period, up from $12.9 billion in December 2014 to $13.8 billion last quarter.</div>
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<div><a href="/images/2016/01/14/AFG1.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/14/AFG1.jpg" alt=""></div>
<div> </div>
<div>
<div>This was in spite of the investor share of the market continuing to decline, with this sector slinking back down to a 6 year low.</div>
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<div>Investor loan volumes are expected to stabilise from here, with the impact of tighter lending rates for investors and tougher lending criteria now largely baked in. </div>
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<div>Click to enlarge</div>
<div><img src="/images/2016/01/14/AFG2.jpg" alt=""></div>
<div> </div>
<div>
<div>The investor segment of the market had clearly become overheated in 2013, contributing to slowing rental growth.</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">State versus state</span></strong></div>
<div> </div>
<div>At the state level, AFG recorded more than $5 billion of mortgages written in New South Wales for the third time, as the state saw mortgage volumes up by 12 per cent from one year ago.</div>
<div> </div>
<div>The data series adds further weight to the suggestion that the Melbourne market may be set for a bright 2016, with mortgage volumes in Victoria up by nearly 18 per cent over the year in rising to a new high, despite the final quarter of the year being a short one due to the Christmas break.</div>
<div> </div>
<div>Mortgage volumes written also increased by 13 per cent over the year in South Australia, but have declined in Western Australia (-10 per cent) and the Northern Territory (-21 per cent respectively).</div>
<div> </div>
<div><a href="/images/2016/01/14/AFG3.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/14/AFG3.jpg" alt=""></div>
<div> </div>
<div>
<div><strong><span style="text-decoration: underline;">Mortgage sizes have soared</span></strong></div>
<div> </div>
<div>The average size of mortgage written continues to rise, up by 20 per cent over the past three years to a fresh all-time high of $476,479.</div>
<div> </div>
<div><a href="/images/2016/01/14/AFG4.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/01/14/AFG4.jpg" alt=""></div>
<div> </div>
<div><span>The average size of mortgage written in NSW increased to a new high of $583,708, with mortgage sizes also rising by around 7 per cent over the past year in Victoria, Queensland, and South Australia. </span></div>
<div><span> </span></div>
<div><a href="/images/2016/01/14/AFG6.jpg" target="_blank"><span>Click to enlarge</span></a></div>
<div><span><img src="/images/2016/01/14/AFG6.jpg" alt=""></span></div>
<div> </div>
<div> </div>
<div>
<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
<div> </div>
<div>While AFG's index may be distorted by changes in market share, meaning that users should be wary of premature extrapolation, the figures do provide further hints as to what to expect in the year ahead.</div>
<div> </div>
<div>It is evident that markets will increasingly be driven forward by owner-occupiers rather than investors, while the market in Melbourne continues to defy...well, people like me, I suppose, who felt that the market have may peaked some years ago.</div>
<div> </div>
<div>Overall, APRA's cooling measures appear to have worked and the property market seems to have calmed after the frenzy we saw around April and May last year, particularly in Sydney.<br><br>That said, mortgage volumes - and particularly mortgage sizes - have to date remained very high, with owner-occupiers plugging most of the gap being left by investors. Accordingly, we might expect to see a more sustainable and balanced market going forward in 2016. </div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Our mortgages are getting bigger: Pete Wargent

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<p><span style="line-height: 1.3em;">Someone with lots of time on their hands and not much to do has decided I’m a stressed person.</span></p>
<p><span style="line-height: 1.3em;">I should probably seek professional help because not only am I stressed but, alarmingly, I don’t know it. I’m never felt more relaxed in my life, but the aficionados has declared me stressed and these people are experts. Clearly I have a serious disorder.</span></p>
<p>But it gets worse. Apparently Australia is chock full of people just like me - stressed to the max, but don’t know it. We’re delusional apparently.</p>
<p>We’re all suffering from a new 21st Century disorder known as mortgage stress. The symptoms are a high standard of living, a quality home, an ability to pay all your bills, holidays overseas, happy kids and 30% of your income spent on your mortgage.</p>
<p>It’s a national issue because we don’t know it’s serious. We should all be in therapy but most of us aren’t. Someone should bring on a parliamentary inquiry. </p>
<p>Sorry, I forgot, they already have. We already have an politicians inquiry into affordability, following close on the heels of the previous 18-month investigation that found nothing of value.</p>
<p>Here’s how it works. One of those pointless businesses that compare home loans and interest rate deals has decided to drum up a bit of publicity in a competitive industry.</p>
<p>They know the key to success is to publish something sensationally negative and they know media is obsessive-compulsive over the whole issue of house prices and affordability.</p>
<p>So they’ve invented something called mortgage stress. They’ve arrogantly decided on a benchmark based on nothing other their desire for media profile. </p>
<p>So they’ve come up with garbage like this: “On average many owners in capital cities are on the tipping point of mortgage stress, committing 29% of their income to cover repayments. When owners use 30% of their income to repay their loans they are considered to be in mortgage stress.”</p>
<p>Really? According to which experts? Who has pronounced 30% to be the point at which we all fall into stress?</p>
<p><span style="line-height: 1.3em;">The answer is someone who writes press releases for a loan comparison outfit. It’s the quintessential case of lies, damned lies and statistics.</span></p>
<p>With the latest findings of this pointless exercise, you could actually come up with something spectacularly positive. Because the latest “research” indicates that Sydney residents with mortgages are NOT mortgage stressed. On average, Sydneysiders with mortgages spend only 26% of income on their mortgages payments. </p>
<p>After all the hysteria about Sydney prices and the so-called affordability crisis, Sydney households are actually very comfortable with their home loans. Isn’t that extraordinary?</p>
<p>Melbourne also is a city bereft of mortgage stress, with the typical household paying only 28% of income on the mortgage. Perth is very comfortable also. And across Australia, the average household is below the arbitrary red line of 30%.</p>
<p>That’s worth a headline, I would have thought, assuming you believe these figures have any relevance at all.</p>
<p>But the press release writer has buried this deep down the bottom of the media statement, because it’s a rather inconvenient fact. It doesn’t fit the objective of a sensationally negative finding.</p>
<p>The spokesperson for the pointless organisation (which will remain nameless because they don’t deserve the publicity) has declared the results “a bit worrying”.</p>
<p><span style="line-height: 1.3em;">“It’s alarming that so many Australians are over-stretching themselves and first home buyers and those buying with others are the worst off,’’ she said.</span></p>
<p>Actually, it’s not alarming at all. It’s quite the opposite. According to their figures, the residents of our largest and most expensive cities are not mortgage-stressed at all. And the average Australian is below the manufactured stress level.</p>
<p>So what did media do? Naturally they published the “findings” pretty much verbatim from the press release, breathlessly declaring a crisis.</p>
<p>Another addition to the great seething mass of misinformation about Australia real estate.</p>
<p>In my perfect world, publishing this kind of dishonest, fabricated-crisis nonsense would be a criminal offence. I see it as a form of fraud.</p>
<p><em> </em></p>
<p><em>TERRY RYDER is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a> </em></p>
<p class="Normal"><span>Terry was recently joined by </span><em>Property Observer</em><span> editor at large Jonathan Chancellor for a webinar on why research is the key to successful property investing in 2015. You can download slides and audio from the webinar </span><a href="component/content/article?id=42796" target="_blank">here</a><span>.</span></p>
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