Mortgage Loans, Home Loans, Bad Credit Home Loans

Significant changes to the the borrowing ability of older Australians with changes to lending rules with reverse mortgage market in tandem with the recent NCCP introduction is leaving many older borrowers with heaps of equity and no access to funds.

Seniors First managing director Darren Moffatt said that since the global financial crisis, reverse mortgage lender numbers have contracted drastically, down from 21 prior to the crisis, to four major lenders at present, including St. George, CBA and Bankwest.

Pre GFC, the minimum age for equity release was 55, it has now also increased to 63, but mostly 65.

Consequently many older investors who were relying on retiring with access to funds through property equity are left out in the cold.

The NCCP is really making it difficult for borrowers aged 55-65 to qualify for home loans.

“The NCCP is definitely causing lenders to be very, very careful or reluctant to lend to people in their late 50s to early 60s with forward home loans.  if they don’t have an exit strategy – for example a large super fund, or a second property – it can be difficult for these borrowers to get funds,” Moffatt said.

“The point is, this very significant change across the industry has happened, and is affecting a huge amount of people that have no idea that the change has occurred,” he said.

Moffatt argues the result is a “massive market opportunity” for banks and other lenders in the pre-retiree space, due to huge demand for access to existing equity as the community ages.

Home buyer confidence is all time low  and this is having an impact across the economy with the purchase of new properties being right down as is the overall interest in home loans.

Housing Industry Association figures released yesterday show the total number of new homes sold across Australia in July dropped by 8 per cent to 6428 – the lowest level since January 2000.

The new property market overall had contracted 8.7 per cent in June, and has over the past two months gone through the most significant slide since mid 2006. New South Wales, Queensland and Western Australia suffered the biggest falls.

HIA chief economist Harley Dale said the construction industry is bleeding and requires urgent attention. Government needs to consider introducing additional concessions for First Home Buyers to stimulate demand or there will be dire consequences across the economy overall.

“We can expect further weakness over the coming months, but Reserve Bank Governor Glenn Stevens’ indication that rates will stay on hold should help the sector,” Mr Dale said.

“But more is needed to kick-start the economy.”

The worst performing state was WA, where new detached house sales fell 12.7 per cent to a 10-year low.

One strategy the government should consider is additional subsidies to encourage people to invest in new properties.

Unless this is done, we have not seen the worst and repercussions will be felt across all economic sectors in Australia.

It is no longer just retailers that are affected by the internet shopping revolution. Now it is the banks.

While online savings accounts have long been popular, now many more borrowers are looking at online lenders for cheap home loans and mortgage refinance deals. Even debt consolidation is in demand.

Small online operations such as  Loans.com.au, MyRate.com.au, BestHomeLoansAU.com.au and StateCustodians.com.au are among those offering standard variable home loans at rates a full percentage point below those offered by the big banks.

On average web home loans offered by the big four banks on August 24 were priced at 7.78 per cent, while the average of the four online-only lenders -  not affiliated with the established banks were offering home loans at  6.77 per cent, 101 basis points less.

The Australian Bankers’ Association said that although it doesn’t represent the online-online lenders, it welcomes the competition.

‘‘The home loan market in Australia continues to be a very competitive sector and banks welcome competition from all players in that market – banks, building societies, credit unions and other lenders,’’ said ABA chief executive Steven Münchenberg.

Online lenders are better placed to offer one of the cheapest rates and make money because they have lower running costs than a traditional shopfront lender.

Comparing home loans

Potential borrowers really like using comparison websites such as  RateCity.com.au,Mozo.com.au, Canstar Cannex (www.canstar.com.au), and InfoChoice (www.infochoice.com.au) to select a best value product.

And, it seems, more consumers are taking advantage of those offerings. InfoChoice, the largest rate comparison site by web traffic, said revenue for lead referral to lenders jumped 89 per cent in the six months to June 2011, helping lift its revenue 35 per cent to $2.7 million for the half.

Despite the increase in the popularity of web home loans, RBS Equities banks analyst John Buonaccorsi believes online lenders will only increase competition “at the margins” of the home loan market.

One reason is that smaller online lenders still face higher costs for wholesale funding, he said. In addition, the headline rates gap narrows when additional discounts are won by customers tapping loans from the major banks.

Back in the 1990s RAMS and Aussie Home Loans could access funding cheaply on global markets and offer loans 1.5 to 2 percentage points lower than the major banks, he said.

Those non-bank lenders, though, mostly disappeared in the global financial crisis as the cost of their funds made them uncompetitive with the major banks.

Global economic problems combined with a drop in consumer confidence in Australia has resulted in property price decline and an overall improvement

The HIA Commonwealth Bank Housing Affordability Index,has shown an improvement of 0.8 per cent in the June 2011 quarter.

This effectively makes housing in Australia more affordable today by  7.2 per cent above the recorded affordability level of June 2010 .

The level of individual income has increased while the interest rates for home loans have dropped as did property prices. This has to improve housing affordability over the June 2011 quarter.

Unfortunately it has taken a world economic disaster for Australia’s First Home Buyers to have a better chance at home ownership.

Housing affordability in the June 2011 quarter improved in Australia’s capital cities with the exception of Brisbane. Sydney improved by 2.0 per cent, Melbourne by 1.9 per cent, Adelaide by 0.2 per cent, Perth by 3.2 per cent, Hobart by 1.5 per cent, and Canberra by 1.0 per cent.

Citibank is considering cutting fixed home loan rates further over the next couple of days.

There is significant competition in the Australian mortgage market today and Citibank would like to ensure that their offer is both relevant and competitive in terms of offers from the other banks.

Earlier this week, Citibank announced it would reduced the interest rates on its fixed home loans by up to 34 basis points , taking its three year rate to just 6.45 per cent.

The bank has has also cut more than 75 basis points from its fixed rate products so far this month and, by all accounts, the bank is not afraid to cut more in order to stay ahead of the competition.

But while Citibank continues to aggressively compete for market share, Mr Wood said the lender remains realistic in its expectations.

“Citibank will never have a 5 or 6 per cent share of the market. But, we would like to have a 1 per cent slice and then grow from there.  We are working hard at the moment to grow our share and are actively listening to our broker partners.”

In recent weeks fixed interest rates have come down significantly. It seems that every day another lender joins the fixed home loans bandwagon by announcing rate discounts. But is fixing your home loan in the current environment a good idea?

Certainly many experts believe that RBA will need to cut rates significantly to improve consumer confidence and aide businesses shedding staff.

If RBA starts moving on rates next week, as majority of economists believe that they will, those who have decided to fix now, may miss on fixing later at a lower rate still. However it is difficult to pick the bottom of a market just as it is difficult to pick the bottom of the rate cycle.

Consumers are a little uncertain. There has been a lot of media hype around the fact that the RBA could still make reductions to the cash rate.

However if RBA decides to keep rates where they are for the next month or two at least, more refinances are bound to occur to fixed rate home loans.

Yesterday, Citibank slashed 34 basis points from its three year fixed rate, taking it to just 6.45 per cent.

However, Citibank is not the only lender to trim its fixed rates.

Today, both Firstfolio and Australian First Mortgage cut their rates.

Firstfolio trimmed its three year fixed rate by 30basis points, taking it to just 6.29 per cent. This is probably one of the lowest fixed rates in the market today.

Similarly, AFM cut 30 basis points from its three year fixed rate Flexible Option product, taking it to 6.54 per cent.

This is an inquiry that we receive several times a day. While in the past no deposit home loans were a possibility for the very few with a high stable income and a spanking clean credit history – ie. premium borrowers, today no deposit home loans simply do not exist in Australia.

Some players in the finance industry continue to attract new customers by promoting no deposit home loans. However when you contact them the best that they are able to do are loans with a small deposit of 3%-5%. In some cases this still means a deposit of at least $20,000.

Home loan deposit requirements changed with the coming of the Global Financial Crisis. Many lenders had left the market during that time. Those that remained had to implement more prudent lending practices. Lending 100% or more of the purchase price is simply not going to happen. At least not unless you will be offering an additional security property for the home loan.

While this news may destroy many home ownership dreams, these dreams were never really meant to be.

In today’s times of uncertainty with property prices heading south, you cant really blame the banks for not wanting to lend more than 95% of your purchase price. They need to have a margin of security in the even that you default on your home loan.

Borrowers with some history of bad credit can only count on a loan of between 80%-90% and in some cases even lower. The balance of deposit funds must unfortunately come from the borrower.

ATO has issued a warning to mortgage brokers against recommending split home loans as a tax avoidance strategy to home buyers. Split home loans were popular a decade or so ago when one home loan would combine home and investment properties  with borrowers directing all cash flow into the home portion while keeping the investment portion unpaid.

ATO perceives such a mortgage structure as tax avoidance.

They allowed home owners to divert all cash inflows to the home loan or an offset account, while using a credit facility to pay interest on an investment loan, effectively ‘capitalising’ that interest.

These loans were later quashed in 2004 when the Tax Office finally won a landmark case in the High Court.

It seems that despite the historical tax ruling borrowers are again resorting to this loan structure.

ATO has issued a warning to brokers that recommendations of such loan structuring places both the borrower and the broker in potential danger.

Mortgage Brokers that offer this particular loan structure could also find themselves in hot water.

If the ATO decides they are going to challenge this structure, that could be an issue for the broker or lender.

It seems that so far the bid for group buying in the field of home loans has hit some snags.

Firstly ASIC is watching the developments of this refinance campaign very closely to ensure that Choice is not breaching the National Credit Code in any way. Secondly according to feedback from the big four banks there has been little if any contact with them to try and extract a strong refinance offer for the 40,000 strong who have registered as interested in receiving the refinance deal negotiated.

Two weeks ago, consumer advocate CHOICE joined hands with One Big Switch to help borrowers into a better mortgage rate. Since that time, more than 40,000 mortgage holders have registered their interest in the joint campaign, commonly referred to as Big Bank Switch.

Despite  significant borrower interest, CBA, NAB, ANZ and Westpac all said they they have not to date had the opportunity to hold any meaningful “conversations” with One Big Switch owner and founder Lachlan Harris.

An ANZ spokesperson told the paper that while Mr Harris had been in contact with the bank, he had only spoken to some junior employees at the bank.

And the story was much the same for the other lenders.

ASIC was currently investigating the Big Bank Switch campaign to see if it met all the legislative requirements outlined under the NCCP Act