Homeloans ltd has advised its mortgage broker partners that their commissions will be clawed back for any home loans refinanced within 18 months of settlement.
From 1 July onwards, home loans that are paid out fully within a year will be subject to 100 per cent claw back on upfront commissions, with 50 per cent for loans repaid between 12 and 18 months.
GM for third party sales, Tony Carn believes the Homeloans ltd offer will remain very competitive.
Elimination of Deferred Establishment Fees gets rid of borrower uncertainty, places Homeloans on an equal footing with the banks as a true alternative to the big four.
There is significant competition today in the Australian mortgage market, and numerous lenders are offering very attractive advertised rates. Many loan offers also come with various ongoing fees and it is important to identify the ‘true’ cost of the loans when comparing home loans.
Home loan refinance will remain a significant part of the mortgage broker portfolio in the near future. This is the result of home loan purchase numbers falling as many home owners try to hold on to their homes while they struggle to meet regular home loan repayments and other debt obligations.
As the threat of rising interest rates escalates, brokers will see more of their clients look to refinance into a cheaper home loan, or consolidate other debts into their mortgage.
People are doing their numbers, revising budgets and are making every effort to reduce their loan repayments due to interest rates being higher than they were when they first took out their home loans.
Mortgage brokers are still able to benefit from the number of home loan refinances – while the numbers of new property purchases are now at levels unseen for over a decade.
The investor market is also a prominent source of home loan transactions. While many investors have been sitting back and waiting for property prices to drop – we are likely to see many more of these reenter the market.
In recent months the investor numbers in terms of home loan commitments have been slowly declining. However, they are not as low as they were in 2008 and as rental yields are trending up, investors will be slowly returning.
Older Australians have tripled their home loan amounts to $3 billion in the past five years. Some of the extra funds were taken to meet living costs, consolidate debt and make home renovations.
According to an industry report, retired Australians had $3 billion in “reverse mortgages” to the end of 2010, this amount went by by 22% over the past year.
Reverse mortgages are loans against the equity in a borrowers home, and require no repayment during the life of the borrower. When the borrower dies the loan is repaid out of the proceeds of the sale of their home.
Reverse mortgages are more expensive than a straight home loan with borrowers paying up to 2 percent more than the current standard variable interest rate.
The Deloitte study said borrowers were drawing a $76,000 lump sum at a rate of 9.5 per cent.
After being introduced to the Australian market in 2005, reverse mortgage products grew steadily to be worth almost half a billion a year until the the financial crisis arrived three years ago.
HOME loan defaults are increasing to levels beyond those experienced during the GFC. Borrowers are struggling to maintain monthly home loan and other debt repayments.
During the the first three months of 2011, Mortgage arrears escalated by 30%. This was due to a combination of interest rate increases announced by most lenders at end of 2010 as well as growing costs of living.
Fitch, which measures the risk level of mortgages that have been packaged and sold as securities, said the proportion of borrowers at least 30 days late was 1.79 per cent, compared with 1.37 per cent three months earlier.
Fitch associate director James Zanesi said the increase pushed delinquencies in Australia’s mortgage-back securities market to the highest level on record.
Low doc home loans have also experienced a very significant increase in home loan arrears and defaults.
Low-doc defaults of 30 days or more went up to 6.74 per cent at the end of March. This was higher than 6.7 per cent in the midst of the GFC.
Many borrowers were significantly impacted by the Queensland floods, while others went overboard on their Christmas shopping and were unable to catch up.
According to Fitch, the arrears figures are worse than expected.
Financial Counselling Australia chief executive Fiona Guthrie is worried that the situation may worsen.
This may not be a once off spike but the beginning of a more serious trend.
Consumer Action Law Centre chief executive Carolyn Bond said mortgage stress went hand in hand with credit card and personal loan defaults and debts.
CBA has not gone unpunished for their 40 basis points rate increase last November. While many borrowers refinanced their home loans from the lender earlier, CBA is reported as having the worst customer satisfaction rating amongst consumers.
Commonwealth Bank appears to be the only major Australian bank to have suffered a decline in customer satisfaction in the latest monthly survey by pollster Roy Morgan.
The research indicates the CBA continues to pay a heavy price foraggressively lifting interest rates in November last year – almost doubling the RBA’s official increase, with the group rating the second worst among personal customers out of the 15 banks in the survey.
CBA recorded a satisfaction rating of 71.5 per cent, ahead of Citibank on 62.9 per cent. Overall satisfaction for the four major banks improved marginally from March to April by 0.1 percentage points to 72.9 per cent.
While the CBA’s 0.2 percentage point decrease was a fraction of the 3.8 percentage point slide recorded at the time of the rate rise, the bank is now behind its peers.
The decline in satisfaction was recorded despite the bank offering various incentives including cheaper home loans to attract customers from other lenders.
The move was in reaction to NAB’s “Breaking Up” campaign in February when it offered to pay the mortgage exit fees of Commonwealth Bank and Westpac customers.
CBA responded by offering up to $1200 in cash to NAB customers for refinancing their loans to CBA. At the same time CBA also targeted NAB business banking customers while Westpac offered a range of discounts across new mortgages.
ANZ is reported to have the highest level of customer satisfaction – along with a 0.8 percentage point rise in the April survey – followed by Westpac and the National Australia Bank.
With all the talk in the media about prospective interest rates continuing to go up, home loan holders should take some time to consider methods by which they may be able to save money on their home loans.
While the RBA decided to keep its official cash rate unchanged in May, some economists say the RBA could move higher four times in the next 12 months and in the longer term add up to one percent to the current cash rate.
On a $250,000 variable home loan with a 30-year term, a rise from 7 per cent to 8 per cent would add about $170 to monthly repayments.
Over the full term of your mortgage, that would add nearly $60,000 to its costs. On a $400,000 loan, that 1 percentage point rise would mean an extra $275 a month and nearly $100,000 more in total interest.
So what can you do to stay ahead of the RBA and the escalating costs of living.
There are some very well priced fixed home loans available today. While they may be a little more expensive than the discounted variable rates, the marginally higher rate is your insurance against future rate rises.
HSBC, for example offers a home loan with a fixed rate of 6.89 per cent, which is below some variable rates.
There is a significant fluctuation in the costs of home loans on the market. Make sure that you research what is available, then compare and select the mortgage that is best priced with all the features that you require.
If so, it’s time to negotiate with your lender or start shopping around. Aussie Home Loans says the average of the big four banks’ advertised standard variable rates is 7.78 per cent, about 0.8 of a percentage point above its new Optimizer home loan rate of 6.99 per cent while NAB’s UBank this week announced a 6.59 per cent rate available until June 30 and by online application only.
Make extra repayments
Increase the amount you pay towards your mortgage and the interest savings could outweigh the damage from future rate rises. There are a few ways to do this. One is to increase the frequency of you repayments from monthly to fortnightly, for example.
Another way is to make extra repayments in addition to the monthly set repayments.
By consolidating your more expensive unsecured debt into your mortgage (ie. credit cards, personal loans etc) – you may be able to reduce your monthly repayments overall and bank the difference into your mortgage.
According to recent research by a finance comparison website, lenders will be making more of an effort to identify and market to potential home loan holders looking to refinance their mortgages. Based on data from the ABS, refinanced home loans numbers have increased by 5% this March over the volume same time last year.
However the numbers of new home loans are at a ten year low.
There were 658 more borrowers who refinanced their home loans in March compared to 12 months prior.
Across Australia, Victoria has seen the highest proportion of refinanced home loans out of all home loans taken out in March (34% as per Ratecity records), followed by Queensland and Western Australia both with 30 per cent. New South Wales saw 29 per cent of home loans towards refinancing in March, while Tasmania, Northern Territory and Australian Capital Territory had the least number of refinancing activity with 26 per cent.
Lenders have began to realize that while the property market is down, the only way to maintain loan volume is to attract existing borrowers.
It will be interesting to see how the home loans market changes in the coming months and we’ll be watching it closely as we expect competition to heat up.
It seems that mortgage stress is not only the domain of the low income earners – the wealthy are also affected.
The chief executive of Resi Mortgage Corporation, Lisa Montgomery, says that the wealthier borrowers are also impacted by the rising rates and falling property values – however they are making their own arrangements to deal with these issues by disposing of investments and reducing their debt levels.
“High-income earners who are financially overstretched are quietly making lifestyle changes, deleveraging (cutting debt) and selling investments in their bid to reduce loans and other debt, and avoid unwanted public attention of a mortgagee auction,” Montgomery says.
Statistics released in recent weeks highlight the problems facing borrowers. Most lenders are reporting that home loan arrears have increased, real estate data shows a more significant decline in property values in the wealthier suburbs than the rest of the country. Furthermore the hole loan market reports that the numbers of new home loans have significantly declined.
It seems that irrespective of wealth, borrowers with large home loans are also impacted when rates go up by 2%.
Montgomery says these borrowers are finding their incomes have not kept pace with rises in repayments and they now need to take action.
However it is proving difficult to sell quickly properties that are outside the price range of potential first home buyers.
CommSec chief economist Craig James says Australian Bureau of Statistics data released last week showed the number of new owner-occupier home loans was 5 per cent lower than a year ago.
The housing sector is certainly no longer overheated. Home prices have been declining, while the number of new home loans have fallen to the lowest level in a decade. Clearly, buying interest has dried up.
If RBA were to increase interest rates again in the short term, mortgage stress will affect most borrowers.
According to statistics from the ABS, market share of non-bank lenders has fallen by more than 50% during the March quarter.
Home Loan lending statistics released by the ABS show that during the March quarter banks had 91.5% of the home loan lending market in Australia – that is an increase of another 1.5%. At the same time non-banks’ share of the home loan market declined from an already small 2.7% to 1.2%. Credit Unions and other Mutuals has seen a drop in their home loan business also, declining from 8.3% to 7.4% of the market.
MFAA CEO Phil Naylor has voiced his concerns with respect to non-banks loosing their already small share of the home loan market.
The non-banks brought a lot of competition to the mortgage market. They were responsible in the early days for introducing competition into the Australian mortgage market. It was due to the likes of Aussie and Wizard that mortgage margins across the entire market fell. To see the non-banks market share decreasing to almost 1% of the home loan market is worrying to say the least.
Historically speaking we know that having a strong non-bank lender sector will lead to lower-cost mortgages.
ECONOMISTS are concerned that a cash rate increase next month may push households “over the edge” . Borrowers with substantial home loans are already struggling to meet all the monthly payment obligations with rates where they are.
This concern was voiced as the ratings agency Moody’s downgraded the credit-worthiness of Australia’s big four banks, sparking debate that higher loan costs would force force banks to announce out of cycle rate increases.
AMP chief economist Shane Oliver believes it would be “dangerous” for the RBA to announce a cash rate increase when it meets on June 7 given Australia’s overvalued property market and high levels of household debt.
Property prices have already began to soften. This, along with a drop in consumer spending and low levels of confidence regarding family finances, suggests households are already struggling and are good reasons for the RBA to tread cautiously.
If RBA moves on rates before allowing the economy to recover, this may lead to a serious collapse of the market as well as huge increase in home repossessions.
The Westpac-Melbourne Institute index of consumer sentiment showed yesterday that household confidence is at its lowest level since June last year – the month following three consecutive interest rate hikes from the RBA – suggesting that the Federal Budget’s roll-back on middle-class welfare is worrying families.
The mood of extreme caution among consumers continues to damage retail sales results, with Commonwealth Bank’s business sales indicator for April revealing that retail sales experienced the biggest sales slump of any industry in Australia during the month.
Westpac chief economist Bill Evans said that despite the soft economic data he still expected the Reserve Bank to raise interest rates next month.
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05 31st, 2011| 
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