When it comes to planning for retirement, paying off a mortgage should be the cornerstone of security.

Question

I am a 49-year-old single female earning $61,317 a year. I pay a compulsory members contribution of 2 per cent to the Public Servants Superannuation Fund.

I have $96,000 in super and another $11,000 in a rollover fund. I have a $232,000 mortgage on a house in the outer suburbs of Melbourne with repayments of $910 a fortnight.

My preservation age is 58 and my Centrelink age pension age is 67. I was hoping to retire well before 67 as I am barely capable of working full time now.

I realise my super balance is inadequate to enable early retirement. In one year I will attain 10 years service and my employer will match my personal super contributions up to 10 per cent.

I receive $911 a fortnight net wages after mortgage, tax and super deductions, so I struggle financially.

If I increase my super contributions it will create even more hardship.

Should I increase my mortgage repayments instead of increasing the super, or a combination of both?

Should I get income-protection insurance and trauma insurance (reducing my net income further), to avoid calamity if I were to get sick? S.M.

Answer

Yes, you can’t go past the offer to match contributions up to 10 per cent and you need to take this up to the full.

However, you also have to put priority on being able to retire in a mortgage-free home and thus avoid a drain on your retirement income. At least you can then rely on the full-age pension to meet your daily needs.

At your current rate of repayment, it will take you some 17 years to pay off your mortgage, assuming an interest rate of 7.3 per cent. Alternatively, you could pay off a loan of about $155,000 over nine years or $130,000 over seven years.

You need to decide whether you can afford this property or whether you are better off relocating to a smaller unit. Or wait until retirement to sell and then buy what you can then afford without a mortgage, but you’ll pay bigger repayments into a bigger mortgage until then.

For now, open a mortgage offset and use it as your main deposit account so that, by using a 55-day credit card, you can keep as much money in there for as long as possible. It’s the most tax-efficient way to handle your money.

Some people suggest salary sacrificing to the maximum and thus getting a tax deduction, then withdrawing a lump sum at retirement and paying off the mortgage.

This may suit those in high tax brackets, depending on whether their super investments make or lose money, but you are already struggling and will be struggling more.

Rollover the benefit from your rollover fund into, say, the AGEST super fund and buy salary continuance insurance through super so as not to reduce the amount you can put into your mortgage offset account.

That, plus your sick pay entitlements will, hopefully, insure against any trauma.

If you have a question for George Cochrane, send it to
Personal Investment
PO Box 3001
Tamarama, NSW, 2026

Helplines

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Story source: www.domain.com.au, story by George Cochrane

It’s now easier to get a job, but owning your own home is expected to become much more difficult.

As the nation moves into a period of higher house prices, rising interest rates and falling unemployment, economic commentators are pointing to declining housing affordability over the next few years.

Housing surveys released this week show residential property prices could climb by as much as 20 per cent over the next three years in Sydney, Perth and Adelaide, while other capitals are anticipating more modest growth.

At the same time, some economists predict unemployment could fall as low as four per cent and variable interest rates could soar past nine per cent as the resources boom kicks in.

BIS Shrapnel managing director Rob Mellor says steady residential property growth is expected over the next three years thanks to a strong economy, firm employment and income growth.

"The big risk is affordability," Mr Mellor said.

"That’s the part of the equation that certainly suggests over the next three years affordability will become a major issue."

While tight housing supply and strong migration were driving growth in Sydney, the imminent resources boom was set to keep dwelling prices firm in Perth, Mr Mellor said during the launch this week of the BIS Shrapnel/QBE Housing Outlook for 2010-13.

"Affordability will deteriorate as we go to a higher interest rate environment by 2013," he said.

"It will deteriorate back to the sort of poor affordability that we had during 2008, when interest rates got to 9.5 per cent.

"So it’s certainly a negative."

In terms of mortgage repayments as a percentage of income, affordability remains a serious issue.

"It will be a critical issue over a three year period," Mr Mellor said.

"We do expect interest rates to rise in 2011/12.

"They’ll probably be back at around 8.3 per cent or so by June 2012 and more like 9.1 per cent by June 2013."

Almost 50,000 full time jobs were created last month, keeping Australia’s unemployment rate at 5.1 per cent for September, the latest Australian Bureau of Statistics (ABS) data shows.

Meanwhile, National Australia Bank is less bullish in its housing forecasts, saying annual price rises would average just 1.5 per cent.

The bank expects Canberra prices to rise 5.0 per cent, Adelaide to post a 3.3 per cent increase, just 2.7 per cent in Sydney, while Perth should grow by 1.6 per cent.

After record growth, Melbourne is expected to record an increase of 1.3 per cent and Brisbane should remain flat.

The survey found properties selling for less than $500,000 were expected to post the biggest price gains.

While Australia is nowhere near the dark days of 2003 when many mortgage holders had to part with a large chunk of their weekly wage, economists say we are just six interest rate rises away from that critical point.

The Reserve Bank of Australia (RBA) has lifted the cash rate six times in the past year, bringing the cash rate to 4.5 per cent in May.

Commonwealth Bank chief economist Michael Blythe said household incomes were still constrained, while interest rates and house prices were tipped to rise.

"So there’s a whole set of factors that have acted to reduce housing affordability from a cash flow perspective," Mr Blythe said.

However, he said there was a "way to go" until housing affordability reached the crisis point of 2003 when debt servicing ratios hit a peak while the cash rate sat around five per cent.

"We’re obviously a fair way from that point and there’s the sense that a drop in affordability has taken some of the steam out of the housing market," Mr Blythe said.

Home owners who bought just before the financial crisis in 2008 will remember the cash rate reaching 7.25 per cent.

He said first home buyers would slowly return to the market, simply because that demographic "requires a certain level of housing stock".

"We’ve had this period of rapid housing growth and that has generated a big demand for housing," he said.

© 2010 AAP
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Many Australian homeowners can’t be bothered switching lenders even to save more than a thousand dollars, according to mortgage broker Loan Market.

A national survey by Loan Market found 58 per cent of respondents said they would need to save at least $1500 a year to be motivated to refinance with another lender.

Loan Market chief operating officer Dean Rushton said the survey results showed that lenders and brokers needed to communicate more effectively about the potential savings from moving mortgages.

“The differences between lenders and the interest rates and conditions they offer has never been wider,” Rushton said.

“But our survey shows that people can’t be bothered switching banks even if they were able to save $1000 to $1500 a year.

Rushton said homeowners were often hesitant to refinance because they believed it would be too much trouble due to the fees and paperwork involved. “The fact is people can achieve significant annual savings by shopping around and getting a better deal on a mortgage with a much more competitive package,” he said.

“If you’re borrowing more than $250,000, then the savings can be even greater.”

The online poll of 380 people found 42 per cent of those surveyed would need to see potential savings of more than $2000 a year before considering switching loans.

Ten per cent said they would refinance to save $500 a year, 14 per cent to save $500 to $1000, 18 per cent to save $1001 to $1500 and 16 per cent to save $1501 to $2000.

Rushton said a mortgage broker was well placed to review an existing home loan and determine whether a borrower could obtain a better deal from a rival lender.

“Mortgage holders might have to accept some exit fees from their original lender but it can be worth it if they can negotiate a significant reduction on their interest rate,” he said.

Benefits of refinancing included the chance to reduce debt on credit cards, which often had interest rates triple that of an average variable home loan.

Source: Australian Property Investor

Have we become overly obsessed with housing affordability?

There’s been a government summit into what is shaping up as a huge election issue. Even Aussie Home Loans’ John Symond — who lives in a house estimate to cost more than $70million — is worried about affordability and wants tax breaks for first home buyers. Annoying people like myself keep writing about it.

Is anyone over it yet?

Demographer Bernard Salt says "no-one gave a toss about housing affordability until four years ago", which coincided with a housing boom and a time when Generation Y finally left home aged in their mid-20s. "Generation Y woke up and realised it was cold out there and how expensive houses were. They are the Gimme generation saying ‘I have got my Gameboy and iPod — where’s my house? I am entitled to it without putting in those boring years of saving’."

Salt says affordability is a genuine economic problem – especially in Sydney – but it has become a cultural fault line that sharpens generational and social divisions. "Sydney people especially like to exclude people who can’t afford to live in their city," he says. And we all love booming house prices if we are lucky enough to already own a house. It’s not so hot for a first home buyer trying to get into the market or renting from a landlord intent on hiking up prices.

Perhaps the frenzy of debate about affordability is concern that the wealthy, or those that saved money or had a leg-up from parents, unfairly "get ahead" of the market? In the meantime, mere mortals on the average wage are relegated to poor locations, long commute times and a life less ordinary.

"Generation Y expect an affordable house, ideally with a plasma television," Salt says."They have high expectations about jobs and lifestyle."

Basic economic theory says rents and house prices are dictated by supply and demand. Theoretically, houses can’t price themselves out of the market or become "unaffordable", as there would be no-one to buy them. Unfortunately government land release policies, immigration and finance availability affect affordability, creating housing winners and losers.

With immigration at record highs — net overseas migration was 147,700 in 2006, according to the ABS — and developers building less new dwellings than population growth dictates, some regions in Australia are on a hiding to more severe housing affordability problems. BIS Shrapnel estimates demand for new dwellings will be 169,300 per annum over the next five years, but only 150,000 will be built this year.

Macquarie Bank’s Rod Cornish argues that affordability will balance out over time, but it is a serious issue for people living in the middle and outer ring suburbs of major capital cities. "This is where affordability has deteriorated the most and where the impact of interest rates is the largest," he says.

"It will take a long period of wages rising faster than mortgage payments for affordability issues to go away." In the meantime, he says housing affordability hurts the economy by dampening retail spending and potentially harm future economic growth.

So what do you think? Is affordability an issue to worry about — or is it a load of hot air and Gen Y whinging?

Original story by Alex May

Housing affordability in Australia has continued to decline over the June quarter, according to a Real Estate Institute of Australia (REIA) report.

The Deposit Power Housing Affordability Report shows that the decline in the June quarter was the sixth consecutive quarterly decline in housing affordability.

REIA president David Airey says what’s of great concern is that the percentage of income required to meet loan repayments is approaching 35 per cent, a level not seen since the third quarter of 1990, when the quarterly average banks’ variable mortgage rates were at approximately 16.4 per cent.

“With the exception of Tasmania and the Northern Territory, housing affordability decreased across all Australian states and territories, with the proportion of income required to meet loan repayments increasing two percentage points nationally,” he says.

Average monthly loan repayments have increased $446 over the year to June 2010 and the average loan is up $26,208 over the same period, according to the REIA report.

National manager of Deposit Power Keith Levy says housing affordability remains an ongoing issue for many Australian homeowners and prospective buyers.

“There is still a shortage of homes for sale and it appears that new development and construction isn’t keeping pace with demand in some areas,” he says.

“As a result the cost of entering the market remains high and the dream of owning a home still appears to be far from reality for many Australians.”

The Australian Capital Territory is still the most affordable state or territory in which to own a home, with the proportion of income required to meet loan repayments increasing to 18 per cent.

Meanwhile, New South Wales remains the least affordable state or territory in which to own a home with the proportion of income required to meet loan repayments increasing to 38 per cent.

Airey says the evidence for action on affordability is clear.

“There should be no further increases in interest rates as well as action from the new government on the supply side factors and an increase in the First Home Owners Grant with indexing to median house prices,” he says.

Story from Australian Property Investor Magazine

Like some carnival mystic, before the last election I wrote some predictions in an envelope and sealed it, with instructions only to open it after the election was over. Lo and behold, when I opened the envelope afterwards my prediction proved right: ”That neither party will do anything about making housing more affordable.”

They say that neither of the major parties can agree about anything, but they have certainly continued their conspiracy of silence about the ruinous price of housing in this country. Large parts of New South Wales and the rest of the country are desperately crying out for action on both reducing the price of housing and freeing up more land for residential development, but the reply during the election has been a deafening silence.
We’ve been distracted by a wide variety of carnival tricks, with politicians from both sides busy dancing around marginal electorates in NSW, Victoria, Queensland and elsewhere, but yet no action on one of the most pressing issues of our times.

Neither party is willing to touch the negative gearing issue, perhaps in fear of offending their backers in the business community (although New Zealand seems to have the courage to). The NSW state government still remains addicted to stamp duty. Wage increases in the past 10 years have come nowhere near close to matching the stratospheric rise in house prices. Houses in NSW are at least 10 times the average wage (which is in itself a ridiculous way of measuring affordability — that assumes that the average person on $60,000 has no expenses as they pay off their house, perhaps existing on thin air and hope. A more accurate figure would be 20 times the average wage, taking into account minimum expenses of $30,000.)

Relaxed Foreign Investment Review Board rules of home availability means that Australians are competing with the rest of the world for their local resource. The Liberal Party says it will ”reduce the debt”, but it neglects to say that our public debt is tiny compared to other countries — instead, the nation is hocked to the gills on private debt, partly credit card debt but mostly housing debt.

We’ve reached the point where people are actively praying for that long-awaited major collapse in the housing bubble so they can possibly afford a home, something akin to planning one’s retirement strategy on a win at lotto or a punt on the dogs. Sydney and Melbourne’s western suburbs, traditionally the working-class heartland of Labor, might have gone aspirational but they still want affordable homes, something state Labor seems unable to provide.

Meanwhile, the housing affordability time bomb ticks away — a growing population and a shortage of land promises a price explosion in the future, locking out yet another generation from home ownership. Soon we will reach a point where only the richest of Australians — and cashed-up investors from overseas — will be able to own a house. And with our banks finding it harder and harder to compete for capital overseas, money for home lending may become harder to obtain.

There are many models we could follow around the world — the German model for long-term renters signing a contract with their landlords, reducing housing speculation; or the Denmark model where tax benefits are given mainly to purchasers of residential property who intend to live in their home – but we refuse to do so, because they aren’t enough votes in it, and because it’s the sweetest racket for the rich apart from mining.

Perhaps millions of us will just have to settle on being renters in our own country. That is, until a leader or a political party comes along with the guts to do something about it.

Charles Purcell is a Fairfax writer. Story from the Sydney Morning herald

Here’s a challenge. How fast could you pay your mortgage off? The sad realisation hit me earlier in the year that I’m not likely to get rich anytime soon. I know – why did I even think that would happen?

The only path to financial freedom is going to be to make sacrifices – some pretty big ones – and slash the mortgage as soon as possible. Then compound interest and investing will be able to actually earn us money. The sooner the mortgage is gone, or at least significantly reduced (given the size of mortgages these days!), the more money we will have to enjoy life.

Yes, it can be a little boring trying to pay a slab off the mortgage. But once you owe a lot less you’ll be able to use that spare money to do things that you want, instead of feeding it to the bank all the time. If you’re in deposit saving mode, the tips below will also be helpful.

#1 Stop Spending. Sounds simple, but do you find yourself wondering where all your money went? Does it leak out of your wallet like a bucket with a hole in the bottom? We’ve tried budgeting before but it just seemed too complicated. After a couple of weeks we’d get bored and the whole thing would go out the window. So now we’ve just decided to stop spending on pretty much everything – except the essentials, and a couple of luxuries we just can’t live without.

#2 No new clothes. In fact no new anything. Terrifying for some, I know. But we’ve decided to put a ban on buying any new clothes for two years, and most other goods too. I already have enough threads to dress the people of a smallish nation so it really shouldn’t be too much of a challenge. It’s just the boredom factor, really. Second-hand op-shop bargains are allowed and it has become surprising to see what you can actually find, if you have the time to look. And given we’re not heading out to pubs and cafes anymore, we have to do something with our time.

We’ve got little kids so obviously they can’t wear the same clothes for two years, unless we put bricks on their heads. But we’ve made it known that we welcome all hand-me-downs, and have also made a habit of perusing the op shops and second kids’ clothing markets. It’s amazing how many near-new clothes you find for just a few dollars, or items that even have the tags still attached.

#3: Lose the pay TV. It’s a luxury that is costing you a pretty penny. With the growing number of channels on free to air, there’s a lot more choice for nix on the box these days. And if you do the sums, you’ll probably find that even hiring a few DVDs a month is a lot cheaper than pay-TV. If there is something you must watch – sport for example – try to arrange to see it at a friend’s house who has got pay TV. As a last resort head out to the pub to see it – but be careful your beer bill doesn’t cost you more than your monthly pay-TV would have!

#4: Join the library. Now that you’re not watching as much pay TV you might have more time to read books – and you can do it for free from your local library. Check out their DVDs and CDs too. If your library doesn’t have what you want you can ask them to bring it in from another public library. In many areas this is free. In others they’ll charge about $2 or $3 to do it. Recently my three-year-old wanted me to get him a Gruffalo audio book. Instead of buying it, we asked at the library, and they got it from another library for us. We had to wait about two weeks, but it provided some great anticipation for my son, and cost us nothing.

#5 Quit the gym. Go for a walk/run/ cycle/swim instead. Now we are coming into spring, there should be ample chance to get out and about and exercise without having to pay for it. If you need motivation, try to arrange with a friend to exercise with. Make a date for something active, such as tennis, swimming or walking.

#6: Ditch the car. Get a bike, or opt for two feet and a heartbeat. I don’t mean sell the car, I just mean avoid using it when possible. Of course if you have two cars and think you can survive with just one, it might be worth offloading your second. Otherwise keep your fuel costs down by jumping on a bike when you can or for very short trips, walk. We have a Christiana trike, which is great for carting the kids around and also for heading to the markets on a weekend. If you live in an area where there are organised car pooling groups, it might be worth checking them out as an alternative to owning your own car.

#7: Entertain at home. Going out can be pricey, especially if you are buying alcohol too. Entertaining at home can be just as much fun, and stress-free (and cheap) if you ask everyone to bring a little something to contribute. If you do head out for a meal, look for cheaper restaurants where you can BYO alcohol for a low corkage fee.

#8: Home brew is a go-go. Since my hubby started home brewing a year ago, I reckon we’ve saved a small fortune in beer. If you’ve got a green bent, it’s potentially better for the environment too, because you’re reusing the bottles and not paying for all that heavy ready-made beer to be shipped about. If you are a wine drinker, try to save money by buying wine in bulk.

#9: Holiday close to home. Look for cheap options, such as camping, staying in caravan parks, or house-sitting for friends and family. Try to get something with kitchen facilities where you can make most of your meals – eating out can be a significant cost of holidays.

#10: Grow a few vegies. It can be pretty simple to grow some herbs in the garden (or pots) and a few basics such as spinach, lettuce and tomatoes. Pottering about watering and weeding them can also be relaxing after a stressful day at work.

#11: Babysitting circle. If you’ve got young kids, considering swapping babysitting services with friends. We have a magnet system where we use magnets as payment. Each family starts with four magnets. We often babysit the kids in their own home, in the evening. So one parent stays at home with their own children, while the other minds the second family’s children. It works a treat. You can arrange for the circle to work with several families or you could have your own arrangements with a couple of different families, as we do.

#12: Limit your mobile phone calls. If you’re bursting out of your mobile phone plan each month it might be time to examine your habits. Can you limit your conversations or cut down your texting to save money? Or could you email or skype someone instead?

#13:  Pre-made is pre-paid. Go for fresh with food where you can. Don’t get caught out buying pre-made things such as soup. It’s pretty easy to chuck a few vegies in a saucepan along with some stock powder and boil it up. Pre-made sauces (the add meat and vegies variety) can also be an expensive choice that could be replaced with a few basics such as stock powder, cornflour and garlic. It’s always good to make sure you’ve got a few basics in the fridge or cupboard so you’re not tempted to get take-away – even if it’s as simple as tinned fish, a cheap packet of pasta and sauce, or baked beans on toast as a stopgap.

#14: Buy a water bottle – and use it. Buying bottled water is crazy when you can refill from a tap. And resisting soft drinks, juice and flavoured milk will also save you plenty of money over time. Drink some water and eat an orange instead. It’s a lot cheaper, and better for your waistline too.

#15: Pack your own. Whether it’s work or an outing, there’s no doubt that food brought from home is going to be cheaper than lunch on-the run. It can get a bit tedious at times, so allow yourself to go really wild on occasion and buy takeaway. Otherwise bring your own and watch your mortgage start to be whittled away.

Original story by Carolyn Boyd, a property journalist and keen follower of Australia’s housing market.

The level of household debt in Australia has risen over the past three decades from less than 50 per cent of household disposable income to about 150 per cent.

Ric Battellino, the Reserve Bank of Australia deputy governor, has sought to allay concerns that this indebtedness means we face a risky unsustainable outlook. He said that 75 per cent of household debt was held by the upper 40 per cent of income-earners.

The bank’s governor, Glenn Stevens, had earlier given the RBA’s estimate of Australia’s dwelling price-to-income ratio, which found that dwelling prices in capital cities were typically 4.8 times disposable household incomes – about half the ratio put by the doomsaying international survey Demographia.

The Commonwealth Bank chief executive, Ralph Norris, was asked after the bank announced a $6 billion profit last week whether the housing doomsayers were nuts.

”I wouldn’t go as far as to say they’re nuts but I think that it’s very easy to make assertions based on averages,” he said. ”You come to a different view when you look at the fact that the incomes based around averages are not relevant to the average person that has a mortgage.

”So you know, we’re in a situation here where, in my view, the housing market in Australia is healthy.

”There will obviously be variations in price and we shouldn’t be surprised if there are, you know, drops of 5 per cent or 10 per cent, as there are obviously increases in value.

”But I think the range of value is not going to be anything that suggests a bubble and a collapse of the housing market in Australia.”

Deutsche Bank issued a research paper last week suggesting Australia’s house prices were not as vulnerable as doomsayers argue.

While acknowledging that on many comparisons Australia had a high house price-to-income ratio and high levels of household debt, the Deutsche Bank economists Phil O’Donaghoe and Adam Boyton argued the vulnerability of Australian housing was ”overblown”.

”The housing market is perhaps the most common vulnerability we are asked about in the Australian economy,” the said.

”Combined with the role played by the US housing market in the financial crisis, investor awareness and suspicion of this key asset class is perhaps understandable.

”But we have long held the view that a broader assessment of the Australian housing market offers a more sanguine conclusion.”

The Deutsche Bank report noted that mortgage debt obligations in Australia were fully recourse loans and borrowers’ mortgage obligations extend beyond the mortgaged property, therefore providing a greater incentive for repayment relative to the United States.

Battellino suggests the strongest evidence on the sustainability of household debt was the low level of arrears. This was evident again this week in housing repossession data.

Repossession actions lodged in the NSW Supreme Court for the first six months of 2010 totalled 1198.

There were 3800 last year and 4000 during 2008. The peak year was 5300 in 2006.

Foreclosures in the US rose 4 per cent from June to July, exceeding 300,000 for the 17th month in a row, according to RealtyTrac.

The number of foreclosure activities, which incorporates all phases of foreclosure including default notices, scheduled auctions and bank repossessions, totalled 325,229 in July.

Lenders seized 92,858 properties last month, the second highest monthly total since RealtyTrac began tracking repossessions in 2005. Total foreclosure activities reached 1.65 million in the first six months of 2010.

Deutsche Bank noted that Australian house price concerns were ebbing. ”The pulse in housing finance has moderated in line with rises in the cash rate. The housing cycle points to a steady moderation in price pressures.

”Elements of the market which had been described by the RBA earlier this year as demonstrating elements of ‘considerable buoyancy’ have moderated. Auction clearance rates have also slowed.” From a peak of 72 per cent at the end of last year, auction clearance rates had fallen by last month to 61 per cent, Deutsche said.

Story by Jonathan Chancellor www.domain.com.au

Standard variable loan popularity hits 18-month high

Despite the cost difference between fixed and variable interest rates dropping, June saw a higher percentage of Australians turning their backs on locking in their home loan rate.

According to the latest loan approval data from Mortgage Choice, Australia?s largest independently-owned mortgage broker, only 2.6% of new borrowers chose a fixed interest rate for their home loan. This compared to 3.3% in May and 1.8% in April.

“Many people in the industry were expecting a rise in fixed rate demand last month but that hasn’t happened with our customers. Instead we’ve seen this product’s popularity reduce by one fifth,” said Mortgage Choice senior corporate affairs manager, Kristy Sheppard.

“Further, our June data shows fixed rate loans have represented less than 5% of all new approvals for the past 10 months and less than 10% of approvals for two years now.

“It was interesting to note the proportion of fixed loans to new borrowers dropped in all states apart from Western Australia, which was a complete reversal of last month’s trend.

“So, although we’ve seen a swift rise in rates from October through to March and the cost of fixing a loan continues to decrease, demand for variable interest rates remains at near-record highs. Perhaps the price tag is still too high when potential borrowers weigh up the advantages and disadvantages of fixed versus variable.

“Or perhaps whispers of a much steadier cash rate are seeping through and wielding influence over borrowers? decision processes.”

Standard variable loan demand reached 50.1% of June loan approvals, which was an increase on 47.8% in the month prior and the highest level reached since October 2008.

One of the key reasons for the popularity of standard over basic variable loans is the plethora of quality professional packages’ on offer with these products, which attract customers with benefits such as rate discounts, ‘Gold’ credit cards and other special features.

Other key home loan choice trends for the first month of winter were:

• Basic variable: fell to 41.9% from 43.5%.
• Line of credit (often popular with investors): fell to 5.3% of approvals from 5.4%.
• Bridging (for those selling property while purchasing another): remained well below 1%.

Note: Mortgage Choice’s annual loan approvals are approximately 40,000 nationally and therefore provide a clear insight into the product preferences of housing loan borrowers generally.

Story from www.australianhousehunters.com.au

S&P credit ratings expert confirms the strength of the housing sector but questions the benefit of high home prices for society

A managing director of a credit ratings agency responsible for scoring the quality of Australia’s mortgage debt has questioned the social impact of the nation’s soaring house prices, even while she confirms the strength of the sector.

Standard & Poor’s managing director of rating services Fabienne Michaux said the strength of Australia’s mortgage quality is a success on the capital markets but the high valuation of homes underlying the debt presents a long-term risk to the basic fairness in society.

"The social implication of house prices in the longer term is a key issue," she said. "One of the things people were proud of was that (Australia) was fairly egalitarian and even and everybody had basic rights to housing and basic education and good healthcare."
"Those are the sorts of things that start to chip away when you’ve got people who can’t afford to actually to find somewhere to put a roof over their head."

The median national city median home price was $468,000 in May, according to RP Data-Rismark, following years of nearly uninterrupted increases in value, driven by a shortage of available new land, a cumbersome building approvals process and tax incentives that reward owners to purchase and hold second homes.

There is an estimated 200,000 home shortage in the nation, expected to worsen as a recovery in building stalls. Ratings agencies such as Standard & Poor’s grade the quality of the mortgage debt that is repackaged and on-sold by local lenders to institutional investors.

While confirming the strength of assets underlying Australia’s residential mortgage backed securities market, which has issued $352 billion since 2000, Ms Michaux noted home owners are unwise to take too much satisfaction in becoming property millionaires.

"Ultimately the utility of the house is still that you’re living in it," she said. "When you pass it on, it’s still one house. If you’ve got two kids you’ve got half a house each."

Story by Chris Zappone Fairfax Digital

When yours truly was on Seven’s Sunrise back in May it was acknowledged by both David Koch and myself that the Reserve Bank of Australia (RBA) would be unlikely to lift rates that day, with the knowledge that things were looking worse in Europe and there were already signs of a slowdown on housing here. We were wrong.

The RBA lifted rates that day by yet another quarter point to 4.5 per cent. At the time it was largely expected by economists.

However, I believe it was a serious mistake to lift cash rates; similar to the mistake made in 2008 when the RBA thought lifting rates was a prudent idea in the first half of that year.

Now, sure, the RBA board members do not have a crystal ball and can only go on present information at hand. So it was not to know of the events on Wall Street and in Europe later in the week (the so-called "flash crash").

However, Europe had been simmering for some time before May and as each week had gone by in March, and then in April, the situation was becoming worse and worse.

Yet the RBA moved rates higher in May largely on the belief the housing market was still surging ahead. This belief was due to, among other factors, auction clearance rates.

But, as I have stated before, there has been an increasing number of passed-in auctions failing to make it into the official results and clearance rates.

The problem with this is that the RBA has been relying on auction clearance rates to get an indicator of the market. Naturally, to think that it may have lifted interest rates in May partly based on incorrect data is a disturbing thought.

Now, not much more than a month later, the banks are starting to cut their fixed rates. And banks only tend to do that when they are sure cash rates have peaked.

Even the real estate spruikers have been stating the housing market is slowing. You know the market is seriously slowing when they do that.

The positive news in all this is that the probability of further interest rate rises this year has all but been eliminated. And I believe the next move is actually going to be down.

That is because the RBA was lifting rates to stop a potential housing bubble. Now that risk has gone and, indeed, the risk has increased for house price falls, the RBA can accommodate a cut and will likely make a cut if Europe drags us down and/or house prices retreat.

The RBA will never admit it, but it made a mistake in May. And that’s why I believe the probabilities have risen that the next move will be down.

Louis Christopher is the managing director of SQM Research and the head of property at Adviser Edge.

The Reserve Bank has opted to keep interest rates steady at its board meeting today.
It was a widely expected move and will give mortgage holders another welcome breather from the six rate hikes they have endured since September last year.

"It looks as though the earlier interest rate hikes are already biting," says Domain.com.au blogger Carolyn Boyd. "Auction clearance rates are down and house price growth is cooling. Real estate agents are also reporting there are less people looking to buy."

Each 0.25 per cent interest rate rise adds another $50 to the monthly cost of an average mortgage. Australian mortgage holders are already paying about $300 more per month in repayments than they were in September last year.
Mortgage holders on variable interest rates are currently being charged about 7.4 per cent by their lenders.

Australia must do better in the supply of housing – a supply gap that could grow to 600,000 by 2028/29, Treasurer Wayne Swan has warned.

Mr Swan told a Property Council conference in Canberra that the National Housing Supply Council estimates the country’s housing stock is currently short of 178,400 dwellings.

"It seems that the supply of housing in Australia is not as responsive as it could be, and this has been the case for some time now," Mr Swan said in a prepared speech on Monday.

He said reasons for this supply shortage were impediments created by various regulations, slow planning and zoning processes, and complex, uncertain and time-consuming systems for charging developers for infrastructure.

"In the worst-case scenario, it can take as long as 15 years to proceed from the identification of suitable land to a completed house," Mr Swan said.

"We can do better than this."

He said commonwealth and state treasuries and premiers’ departments were now fully engaged in the process of designing reforms to improve the operation of the housing market.

"I’m determined to see the Australian government play a role in reforming the housing market for the long term, embedding better practices in planning and zoning and developer charging," he said.

Mr Swan reeled off a number of initiatives undertaken by the federal government in its efforts to improve the functioning of the housing market.

These included a $6.2 billion national affordable housing agreement with the states, $5.2 million of stimulus money to build more than 19,300 in public housing stock, and a $512 million housing affordability fund.

This is on top of a national rental affordability scheme that encourages institutional investors to deliver low-cost rental housing, the first-home saver account and a more generous first-home owners grant during the global financial crisis.

The government is also committed to $27.7 billion in urban and regional road infrastructure that will help support housing.

"These are all important steps and they will all contribute to improving the functioning of the Australian housing market and, in particular, the supply of low-cost housing," he said.