Archive for the ‘Enconomy’ Category

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Rate cut fails to improve sentiment

Friday, May 18th, 2012

Consumer sentiment is flat, despite a 50 basis point cut from the Reserve Bank. The Westpac Melbourne Institute Index of Consumer Sentiment increased by 0.8 per cent in May from 94.5 in April.  Westpac’s Chief Economist, Bill Evans, said the results were surprisingly low and fell well below expectations.  Its is a disappointing result. It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 per cent to 4.9 per cent.

However, other factors appear to have offset these positives. Firstly there might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by an average of 0.37 per cent. The results show that sentiment is two per cent lower now, than when the cash rate was, 100 basis points higher last October at 4.75 per cent.

 
The lower than expected sentiment could give the Reserve Bank reason to cut the cash rate again in the coming months.  Westpac’s current view that the Bank will wait until July before it cuts again but developments overseas along with today’s evidence that the recent cut has had little impact on Confidence could easily see the Bank bring that decision forward to the next Board meeting in June.

Posted in Budget, Enconomy, Financial goals, Home loan product, Inflation, Interest rate, Wealth | Comments Off

Residential vs Commercial

Thursday, May 17th, 2012

Are your investment goals and finances better suited to residential or commercial property investment? To answer this commonly asked question it’s important to first understand the differences between the two…

Length of leases
Commercial properties attract longer lease periods – typically three years or more rather than the 6-12 months of residential properties.

Maintenance costs
Most residential property maintenance is the responsibility of the landlord, whereas the costs of maintenance, rates and repairs on a commercial property are paid by the tenant.

Costs and returns
Commercial property offers the potential for higher rental yields, whereas residential property generally offers higher capital gains.

The net income tends to be higher for commercial property investment, in part because the tenant pays most of the property expenses.

Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10 percent on the property’s purchase price, which you may be eligible to claim back as a tax credit.
Both commercial and residential options have tax benefits such as negative gearing, depreciation and reduced capital gains tax rates.

Risk
Commercial property value can be hard to predict and demand tends to fluctuate with the business cycle, which is why it is usually regarded as a higher risk asset than residential property.

To manage this risk, lenders commonly charge higher interest rates on commercial loans, higher upfront and ongoing fees and lower loan to value ratios, which means borrowers have to come up with significant deposits.

Loan terms are typically shorter for commercial property and it is not uncommon for lenders to require regular review of the borrower’s business financials.

Tenants
It can be harder to find tenants for commercial properties, but on the flip side commercial tenants tend to pay more attention to maintaining the property as part of their business.

Both types of properties have their pros and cons so it is advisable to research well before you make your investment decision. Please give us a call for any questions we haven’t yet answered.

Posted in Enconomy, Finance News, Financial goals, House prices, Wealth | Comments Off

More banks move rates

Wednesday, May 9th, 2012

As more lenders continue to move on rates, one thing is becoming very clear: no lender is prepared to pass on the full rate cut to borrowers. In the last few days, BankSA cut 38 basis points from its standard variable rate to 7.04 per cent, while St George also cut 0.38 per cent from its SVR, taking it to to 7.04 per cent effective from May 14. Bendigo Bank cut its rate by 0.35 per cent and CUA passed on half of the Reserve Bank’s 50 basis point cut by slashing 25 basis points from its standard variable rate. One of the biggest interest rate cuts so far is the Bank of Melbourne, which passed on a 0.41 per cent rate cut to borrowers.

Posted in Enconomy, Financial goals, Home loan product, Interest rate, Wealth | Comments Off

Cash rate to hit 3pc by year’s end: ANZ

Tuesday, May 8th, 2012

The Reserve Bank is expected to cut the official cash rate by a further 75 basis points before the end of the year, after new research revealed job advertisements slumped yet again. According to the latest ANZ Job Advertisement Series, the number of job advertisements on the internet and in newspapers fell 3.1 per cent in April. Overall advertisements are now approximately 1.7 per cent below the level of April 2011.

 
Sustained uncertainty by consumers and businesses and an expectation that fiscal policy will subtract from growth in the year ahead as the Government returns the budget to surplus in 2012/13, has forced ANZ to forecast further 0.75 per cent drop in official interest rates by the end of 2012. In addition, expect to see the unemployment rate rise slightly to 5.3 per cent this month.

Posted in Enconomy, Financial goals, Inflation, Interest rate, Wealth | Comments Off

CBA follows NAB lead

Thursday, May 3rd, 2012

The Commonwealth Bank of Australia has cut its standard variable rate and thrown down the gauntlet to ANZ and Westpac. This morning, CBA announced it would cut 40 basis points from its standard variable rate, taking it to 7.01 per cent – 0.02 per cent higher than National Australia Bank.

Yesterday, NAB announced it would cut 32 basis points from its borrowing rates, taking its standard variable rate to 6.99 per cent. CBA’s rate decision now puts pressure on Westpac and ANZ. It is very unlikely that any lender would look to pass on the rate cut in full to their borrowers. I expected all of the lenders to withhold 10 to 15 basis points of the 0.5 per cent rate cut.

It is just a sign of the market at the moment. It looks like Australia’s second tier lenders will withhold even more. Last night, ING DIRECT announced it would decrease the interest on its variable rate mortgages by 0.3 per cent.

Posted in Bank Profits, Enconomy, Finance News, Financial goals, Home loan product, Inflation, Wealth | Comments Off

Majors hold fire on interest rate cut

Wednesday, May 2nd, 2012

Australia’s major banks are unlikely to pass on the full 50 basis point rate cut to borrowers. Yesterday, the Reserve Bank cut the cash rate by 50 basis points to 3.75 per cent the biggest drop since the peak of the Global Financial Crisis and the lowest level since December 2009.

Within hours of yesterday’s announcement The Bank of Queensland confirmed that it would pass on 35 basis points of the rate cut to its borrowers.However, at close of business yesterday, all of the majors were yet to make announcements around their mortgage rates.

 
I expect the big banks to follow the lead of BoQ and hold back some of the rate reduction. This is a very big move from the Reserve Bank and it will help thousands of households, with people on a $300,000 mortgage potentially saving around $1,000 per year.

But it’s unlikely that all lenders will pass on the full 50 basis point rate cut. The signals from the big four banks suggest that they will try to hold on to part of this rate cut,  remember that of the 50 basis point cash rate reduction from the RBA since November, the big four banks have only passed on around 40 basis points to variable rate home loan customers.

Posted in Bank Profits, Enconomy, Financial goals, Home loan product, Inflation, Interest rate, Wealth | Comments Off

RBA cuts interest rates 50bp

Tuesday, May 1st, 2012

The Reserve Bank of Australia (RBA) has cut the official cash rate in its May Board meeting today, following weaker than expected inflation data. The Board thought it was prudent to cut the official cash rate 50 basis points to 3.75 per cent, after headline inflation turned out to be significantly lower than the RBA’s target range of 2 to 3 per cent.

The rate cut failed to shock industry analysts, with many forecasting a rate cut last week.   The RBA’s decision was the right one, as the economy was in serious need of a boost. We have seen a lot of softness in the economy of late. House prices are down on where they were, retail activity has slumped and headline inflation was just 1.6 per cent for the year.  There is no doubt the economy is doing it tough at the moment and hopefully this rate cut will help ignite consumer spending once again.

Minutes from the meeting today show the RBA took inflation results onboard was making the rate cut decision. Recent data for inflation show that after a pick up in the first half of last year, underlying inflation has declined again, and was a little over two per cent over the latest four quarters.

In considering the appropriate size of adjustment to the cash rate at today’s meeting, the Board judged it desirable that financial conditions now be easier than those which had prevailed in December. A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates.

With the RBA slashing rates, all eyes will now  be on Australia’s lenders to see if they pass on the full rate cut to borrowers.

Posted in Enconomy, Finance News, Financial goals, House prices, Inflation, Interest rate, Wealth | Comments Off

Westpac rate adjustment could be sign of things to come

Tuesday, May 1st, 2012

Westpac’s decision to increase its standard variable rate discount could be a sign that the lender expects the Reserve Bank to cut rates at today’s Board meeting. Yesterday, Westpac announced it would increase its standard variable discount to 0.70 percentage points from 0.40 per cent to home loans from $150,000 on the same day the Reserve Bank meets to decide on changing the official cash rate.

Westpac has jumped the gun and announced fixed rate reductions and a variable rate discount before the Reserve Bank meeting. It seems like Westpac are betting on the RBA to drop the official cash rate. It also gives some cover for Westpac to pass on less than the full cash rate reduction, by pointing to these discounts and fixed rate cuts.
Lenders are getting more creative when it comes to offering discounts and incentives for home loans. But borrowers need to remember that big discounts don’t mean you are getting the best home loan deal. We’re in a new lending environment where many lenders are moving their interest rates independently of the RBA, whether it’s by not passing on the full rate cuts to their customers or creeping their rates up slowly every few weeks.

 

 

Posted in Enconomy, Finance News, Financial goals, Home loan product, Interest rate, Wealth | Comments Off

Rate cut expected after weak inflation

Thursday, April 26th, 2012

The Reserve Bank of Australia is all but certain to cut rates in May, with new CPI data weaker than expected.  CPI rose by 0.1 per cent in the March quarter of 2012.

The Housing Industry Association said the CPI result was weak enough to warrant a 50 basis point rate cut at next week’s Board meeting. The wider Australian economy needs a further 75 basis points of interest rate cuts and there is nothing standing in the way of a 50 basis point move to get the ball rolling next Tuesday.
50 points would be a bold move for the RBA, but it would be entirely appropriate given the pulse of the Australian economy.

 

 

 

 

 

Posted in Enconomy, Financial goals, House prices, Inflation, Interest rate, Wealth | Comments Off

Property taxes send $30bn to government

Friday, April 20th, 2012

More than $33 billion was added to local and state government coffers over the last year from property related taxes, despite a deterioration in property market conditions. New research from RP Data, property related taxes amassed a healthy 47.3 per cent in tax revenue for state and local governments.  Total property-related tax revenue increased by 4.6 per cent over the year – following a record increase of 14.3 per cent over the 2009-10 financial year.

Despite this, the total value of residential property transactions in 2010-11 fell by 17 per cent compared with the previous financial year. Over the financial year capital city home values fell by 1.4 per cent and transaction volumes for homes were 20 per cent lower than over the previous year.

Considering that since the end of the 2010-11 financial year property values and transaction volumes have continued to fall, I would expect that in order to grow tax revenue state and local governments may be looking to again increase land tax and municipal rates as there is likely to be limited (if any) growth in stamp duty revenue.

Property tax is clearly one of the most important sources of revenue for state and local governments and as a result it is likely that these governments will look to make adjustments to grow revenue. Most notably, we already know that rates have increased over the year and some changes have been made to land tax calculations.

With the soft market conditions over the financial year to date, I expect that state and local governments will begin to look for other ways to compensate the falls in property related taxes. Potentially this means higher rates of stamp duty or charging a greater amount of land tax / municipal rates.

Posted in Budget, Enconomy, Financial goals, Government banking reform, House prices, Wealth | Comments Off

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