Frustrating bank habit triggers probe into home loan pricing

, , ,

You know that infuriating habit the big banks have of failing to pass on the RBA’s cash rate cuts in full? Well, it’s finally triggered the federal government to order an inquiry into home loan pricing.

The inquiry, which is being conducted by the Australian Competition and Consumer Commission (ACCC), comes just weeks after the Reserve Bank of Australia (RBA) slashed the official cash rate by 25 basis points for the third time this year to a record new low of 0.75%.

What really drew the ire of the public and politicians alike, however, was that the big banks only passed on between 0.13% and 0.15% (out of 0.25%) of the latest RBA cut to customers.

This is after they only passed on 0.40% to 0.44% (out of 0.50%) for the previous two RBA cuts.

How much is it costing you?

Treasurer Josh Frydenberg said if the big banks had passed on the recent rate cuts in full, a family with a $400,000 mortgage would be paying around $2,200 a year less in interest payments.

That compares to the $1,680 they’re saving from the 57 basis point rate cut that they are currently getting (on average), he added.

“In other words, families would be $519 better off if the banks had passed on the rate cut in full, not just a part of it,” Treasurer Frydenberg said.

So what will the ACCC probe?

The ACCC will investigate a wide range of issues – on top of why RBA cuts aren’t always passed on in full – including the rates paid by new customers versus existing customers (in other words: the ‘loyalty tax’).

In addition, the inquiry will consider what prevents more consumers from switching to cheaper home loans.

“We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks,” ACCC Chair Rod Sims said.

“It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time-consuming application process.”

Mr Sims added the inquiry will aim to provide answers to the questions that banking customers have long asked.

“For example, there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers,” he said.

The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.

Get in touch

All in all, the ACCC inquiry is aimed at increasing transparency when it comes to how banks price their home loans.

The good news for you is that you’re not alone. If you ever have a question about your home loan that you need clarity on, all you need to do is get in touch with us. We’d be more than happy to look into it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

On the hunt for a new loan provider?

, , , ,

One in 10 consumers have switched credit products in the past year, according to new research, with Millennials and women in particular pouncing on offers from small banks, credit unions and building societies.

The financial landscape is shifting.

Over the past 12 months, 10% of consumers have switched credit providers, according to the Australian Consumer Credit Pulse 2019 report from Equifax, as once-loyal customers increasingly check out what lenders outside the Big Four banks have to offer.

Is now a good time to consider a switch?

With the RBA recently delivering back-to-back rate cuts, there’s no shortage of borrowers who are considering following suit and switching things up.

In fact, a further 11% of consumers intend to apply for credit in the next three months, says Equifax, and of these, half are looking to switch providers when they make their application.

James Forbes, General Manager, Marketing Services at Equifax, says that over the past 12 months the Big Four banks have ceased to be the first preference for many consumers who are switching credit products.

“Instead, they’re increasingly choosing small banks, credit unions and building societies,” Forbes says.

So what credit products are people switching?

Home loans and credit cards. They’re the big two.

Of the one in 10 people who made the switch over the past year, a quarter moved their home loans and nearly half moved their credit cards.

Home loans are also a popular product among the 11% of consumers intending to apply for credit in the coming months, making up half of the intended applications.

Who’s switching things up?

According to the report, the younger you are, the more likely you are to switch lenders.

In fact, out of all consumers who switched credit products in the past year, 43% were aged 18-34, and 32% were aged 35-50.

Women are also more likely to switch three or more of their credit products, while men are likely to switch just one or two.

What’s driving the behaviour?

Unsurprisingly, lower costs – including interest rates and fees – were the major consideration for switching across all credit product types, Equifax says.

However, consumers also cite better customer service and brand reputation as important considerations.

“In the wake of the Royal Commission, consumers are increasingly thinking about more than just cost when applying for credit,” says Forbes.

Keen to pounce?

With the RBA recently delivering back-to-back rate cuts, if you haven’t looked into your refinancing options lately, now might be the time to consider doing so.

Rest assured that we’re following the market closely and will be happy to run you through some mortgage and refinancing options if you’re on the hunt for a new lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Planning ahead: RBA says expect long-term low interest rates

, ,

Good news for mortgage holders this week, with the RBA saying “it’s reasonable to expect an extended period of low interest rates”.

Figures released on Wednesday show that core inflation, the RBA’s preferred measure, is currently at 1.4%.

However, Reserve Bank of Australia (RBA) Governor Philip Lowe says it is highly unlikely the RBA will contemplate higher interest rates until it’s confident that inflation has returned to 2-3%.

“Whether or not further monetary easing (aka further rate cuts) is needed, it is reasonable to expect an extended period of low interest rates,” he said in a speech.

“On current projections, it will be some time before inflation is comfortably back within the target range.”

Will the RBA cut rates further this month?

The RBA will meet again on Tuesday, however it’s appearing increasingly unlikely that it will cut rates for a third consecutive month.

That’s because June quarter inflation figures released on Wednesday narrowly beat out the market’s expectations (+0.5.%) with a rise to 0.6%.

As a result, most experts are predicting that will be enough to postpone a third RBA rate cut to 0.75%, but not enough to prevent it from happening between now and the end of the year.

Get in touch

If you want an update on what the RBA’s latest comments on long-term low-interest rates mean for your current home loan situation, then get in touch.

We’re following the market closely and will be happy to run you through some mortgage and refinancing options.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Breaking up is hard to do

, ,

On top of the emotional impact, there are practical ramifications as well. We look at how to make the transition a little less stressful.
When there’s a separation or divorce, debts you’ve accrued during the relationship unfortunately don’t go away. The longer a couple is together, the harder it can be to unravel all the financial connections.
Here we outline some of the issues facing both de facto and married couples when dealing with what is usually their most significant debt:the mortgage. Used alongside professional legal and financial advice, it’s possible to make this difficult transition a little less stressful.
Get advice from the experts
The end of a relationship is one of life’s most stressful events. You don’t have to handle it alone – there’s emotional, legal and financial support out there.
Counselling: Visit a counselor to work through the emotional weight of breaking up – it’s hard to make decisions when you’re angry or sad. You may want to access a Family Dispute Resolution (FDR)1 mediator to assess whether both parties are emotionally ready to negotiate on money matters, and to help resolve disputes.
Legal advice: Lawyers who specialise in family law can provide legal advice. Initially, they can advise whether you’re eligible for legal aid, and help with timelines and deadlines for your property settlement. Importantly, they should help you to set realistic expectations.
Financial advice: Talk to your lender or broker to understand the current state of your mortgage, and to learn what options are available regarding mortgage repayments. You may be able to defer payments, giving you time to get back on your feet. Your lender or broker can also help you review your finances before you decide whether you can refinance and take on the mortgage yourself. It’s a sad fact, but they’ve probably dealt with this situation before.
Sort out your living arrangements
Some separating couples are able to continue living in the same house, while for others that simply isn’t possible. If one of you needs to move, sort that out first, before turning your attention to the mortgage. Again, financial advisors, lawyers and brokers can help you plan a budget and figure out how your mortgage will be paid until you sell or settle.
Settle your finances
When you divorce or separate, your assets will be divided. To help you understand your financial situation, have all your documentation at hand – bank statements, tax returns, superannuation, and so on. With professional advice, you can figure out your assets and liabilities, what each person is entitled to, and whether one of you can afford to take on the mortgage alone, or if you have to sell.
One option: Sell the property
You might decide to sell your property, divide any assets and move on. The first step is to have your property appraised so you know the market value. From there you can figure out your total equity. For example, if your house is appraised at $800,000 and you owe $200,000 on the mortgage, your equity is $600,000.
Things can become complicated if there’s a disagreement about how and when to split your assets and liabilities. Legal expertise or a mediator may be needed.
Another option: Sell to your partner, or buy them out
If one of you wants to remain in the house, it might be possible for that person to refinance the mortgage and take it on alone, depending on their income and other assets. This is sometimes the preferred option if there are children involved.
Again, agreement must be reached on the value of the property and whether it’s a 50-50 split. Professional property valuers, financial advisors and lawyers are all able to provide advice and information.
It’s difficult figuring out who gets what and when, but getting the right legal and financial advice can help you both break up the mortgage and move on with your lives.
Relationships Australia’s A Fair Share provides a good summary of your options and of the Family Dispute Resolution process. You can also get great information on the legal process from the Family Court of Australia.

Sources:
1 www.ag.gov.au/FamiliesAndMarriage/Families/Family
DisputeResolution/Pages/default.aspx
2 www.relationships.org.au/relationship-advice/publications/
a_fair_share
3 www.familycourt.gov.au/wps/wcm/connect/fcoaweb/home

The Top 5 Reasons Peolpe Refinance Their Home Loan

, , , ,

1.. To save money
By far and away the biggest reason people chose to refinance their home loan is ‘To save money’. Lowering your mortgage payment can also save you hundreds of dollars per month that could be used to pay your home loan off faster, pay for the kids education, update your car.
What would you spend the extra savings on?
2.. To access funds for various personal or financial goals
Other uses for a lump sum in cash are literally endless – you could use your equity to buy your family that long overdue overseas holiday you’ve always wanted or even use it to invest in a business or shares
3.. To release equity for property investment
Property investment is currently one of the most popular ways of building wealth for your future. Whilst saving the deposit to purchase a second property may be difficult for many, rapid rises in property values over the least few years has provided an opportunity for many to refinance and release equity in their home to use as a deposit instead.
4.. To renovate or extend your home
Renovating or extending your current home to meet the needs of your growing family or changing lifestyle is often a better option than purchasing an entirely new home. By renovating or extending, you will be able to create the home that exactly meets your needs and if you’re careful about the improvements you make, perhaps even increase its value at the same time. Even though you will need to access your equity, you may in the end also improve the value of your home to offset this cost.
5.. To consolidate debts
Your home loan interest rate is probably the lowest form of interest you will need to pay on any loan in Australia. Credit card interest rates can be as much as four times higher than your home loan interest rate and this can make credit card debts difficult to pay off. Other expensive debts like car loans or personal loans can also prove to be a drain on your finances.
Click here and let’s see what is possible

Want to see what is possible? Click here