Be sure you understand all the implications of home-equity loans.

‘Gwen” was in a predicament. The reverse mortgage she acquired to pay for home maintenance became problematic when her health began to fail.

It reached the point where managing the upkeep of the house was beyond her and she needed to sell. But the mortgage had been eating into her equity and the break fees were significant enough to stop her buying into a retirement village or having the funds for a comfortable life.

Reverse mortgages are equity-release products that borrowers use to access equity in their home, commonly in the form of a lump sum, regular payments, line of credit or a combination.

Gwen had not gone through the reverse-mortgage contract with her solicitor. Instead, the solicitor simply had her sign it without ensuring she understood its implications.

Her best option would have been to downsize in the first place and use the funds for a retirement village property and investments. This would have given her the quality of lifestyle she wanted.

She bitterly regrets her decision.

On the other hand, ”Edith”, a widow, is positive about her reverse mortgage. She initially took one out to fund an overseas holiday and give her house a much-needed facelift. This enabled her to improve living conditions and make the house more suitable for her mentally ill son.

That she could access her equity was a blessing. But she was mindful not to spend too much on the reverse mortgage, since she wanted to leave a decent inheritance.

Figures from the latest SEQUAL/Deloitte Reverse Mortgage Survey state there are 39,000 reverse mortgages on issue in Australia.

And the chief executive of Senior Australians Equity Release Association of Lenders (SEQUAL), Kevin Conlon, says the equity-release concept is gaining traction as an increasing percentage of the population reaches retirement age. But what are the implications for consumers?

Mr Conlon says it might mean more seniors will have more comfortable lives. He says about $350 billion is stored in the homes of the over-65s and the house represents about 70 per cent of their personal wealth.

”As they sit in retirement, that storage of wealth in bricks and mortar becomes quite unsuitable to what they actually need,” he says. ”And that’s where we get this often-quoted phrase, ‘asset rich, cash poor’. We believe there is an inevitable demographic shift that will see the equity-release market grow significantly over the next few years.”

But reverse mortgages have been problematic for some seniors. The Australian Securities and Investments Commission’s (ASIC) 2005 report Equity Release Products highlights how the complexity of reverse-mortgage products has made it challenging for consumers to understand how suited they are to a particular product.

Factors that affect suitability include interest rate and property price prognostics, differing life expectancies (and aged-care and housing needs), compounding interest, pension and tax implications and various terms and conditions.

It’s not that there isn’t a wealth of information and advice available to consumers about reverse mortgages.

Credit providers are obliged under law to meet pre-contractual and continuing disclosure requirements concerning interest rates, fees and charges and other matters; SEQUAL requires members to make sure borrowers seek independent legal advice, recommend they do likewise with financial advice and provide them with SEQUAL’s Key Facts Guideline; and other self-regulatory initiatives and information access points abound.

But the chief executive officer of the National Information Centre on Retirement Investments (NICRI), Wendy Schilg, says disseminating information is not enough.

”They are very complex products and people don’t understand them,” Ms Schilg says. ”The only information they’re getting is from the providers. Obviously, when they get information from the providers, the providers aren’t giving them any other options like downsizing.”

Reverse-mortgage regulation is under review as part of the federal government’s consumer credit reforms.

Forthcoming legislative changes include greater disclosure of the features and fees on reverse-mortgage products, mandatory protection against negative equity (SEQUAL lenders already provide guarantees against negative equity) and making legal advice compulsory for all borrowers of equity-release products (though Ms Schilg says reverse-mortgage providers already make legal advice compulsory to protect themselves and she has lobbied for the mandatory provision of financial literacy information for all borrowers).

National Credit Reform: Enhancing Confidence and Fairness in Australia’s Credit Law, the green paper Treasury released last year, provides an indication of how significantly SEQUAL already affects industry regulation.

It estimates that the nine lenders SEQUAL represents provide 95 per cent of the reverse-mortgage products in Australia. Mr Conlon says he expects the current review will result in self-regulatory initiatives introduced by SEQUAL becoming statutory protections. ”Beyond that, we expect very few surprises and very few new regulations,” he says.

Mr Conlon adds that if the government heavily regulates product design, it could ultimately have a stifling effect on the development of the reverse-mortgage market, which could adversely affect opportunities available for consumers.

”I think the danger would be, if the market became heavily regulated, it would simply dampen down competitors and slow product innovation, in that it would keep other funders out of the market. These are not easy products to bring to the market.”

Fiona Guthrie, executive director of the Australian Financial Counselling and Credit Reform Association (AFCCRA), says there are questions about the impact that improved disclosure around equity-release products will have on consumer understanding.

”Improved disclosure is the weakest form of consumer protection,” she says. ”Nobody ever says, ‘Do you understand what you have just read? Please explain it back to me.’ Nobody checks whether anyone’s read anything.”

According to Mr Conlon, customers of equity-release products have lodged just four complaints with the Financial Ombudsman in the past 20 years (three were decided in favour of the lender and the fourth was settled by negotiation, he says).

”As the Financial Ombudsman said, ‘There are very few industries that can point to that type of track record’,” Mr Conlon says.

But a 2007 ASIC report, All We Have is This House: Consumer Experiences with Reverse Mortgages, shows there are degrees of customer satisfaction. Although 26 of the 29 borrowers interviewed said their product had performed as expected so far, a small number expressed regret about the way they used their reverse mortgage and how quickly they spent the borrowings.

Lenders approved 10 of the borrowers for more credit than requested and half took it. These borrowers were only in the first three years of the loan and very few had plans to accommodate changes to their financial needs in subsequent years.

Ms Schilg says you can categorise reverse-mortgage customer satisfaction in three ways: consumers who say acquiring a reverse mortgage was the best thing they have done; those who acknowledge it gave them a financial freedom but worry they no longer have the capacity to make the financial provisions they intended for their children; and those who view the experience as destructive.

She suggests the majority belong to the first category.

”I’m not saying all those understand what’s going on but I think about 90 per cent would be happy, or reasonably happy, with what they’ve done.”

But the development of the equity-release market raises questions about consumer attitudes to credit, Ms Guthrie says. ”These sorts of products in the marketplace have tapped into that latent desire we all have to live now and pay later.”

Gwen and Edith are case studies sourced from Reverse Mortgages and Older People: Growth Factors and Implications for Retirement Decisions, a 2010 report for the Australian Housing and Urban Research Institute.

Story source: Josh Jennings www.domain.com.au

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Australia is suffering from a housing affordability crisis because of rising interest rates and uncertainty surrounding the Gillard government’s planned carbon tax, the opposition says.

Australian Bureau of Statistics data released today showed the number of new homes approved in April fell by 1.3 per cent from the previous month, and now stand 11.5 per cent lower than a year earlier.

Opposition treasury spokesman Joe Hockey said the data showed that housing construction remains under significant pressures.

Australia is suffering from a housing affordability crisis because of rising interest rates and uncertainty surrounding the Gillard government’s planned carbon tax, the opposition says.

Australian Bureau of Statistics data released today showed the number of new homes approved in April fell by 1.3 per cent from the previous month, and now stand 11.5 per cent lower than a year earlier.

Opposition treasury spokesman Joe Hockey said the data showed that housing construction remains under significant pressures.

“Australia is suffering an affordability crisis in the housing sector, with insufficient houses being built to meet demand,” Mr Hockey said in a statement.

“For many, the Australian dream of owning a home is becoming a nightmare.”

He said housing activity is being squeezed by the seven interest rate rises by the Reserve Bank since 2009, coupled with additional increases by the commercial banks.

The uncertain impact of Labor’s carbon tax is also affecting confidence of the industry and potential buyers.

“This lack of confidence is shown clearly in the slowest growth in housing finance in a generation,” Mr Hockey said.

He said while it is pleasing to see a recovery in approvals in Queensland – jumping by 29.2 per cent in April – as it continues to rebuild from the devastation caused by natural disasters earlier this year, the falling national trend remains of concern.

He again called on the government to wind back its “wasteful and reckless” spending to ease upward pressure on interest rates.

“Failure to do so will only deny more Australians the chance to own their own home,” he said.

AAP

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The issue of exit fees in loans is not new to lenders and brokers. The Australian Securities & Investments Commission spent most of 2010 devising and perfecting a regime that would control the use of exit fees in lending.

This regime came together in November 2010 and was known as the exit fee guidelines, which gave guidance to lenders in terms of complying with the July 1 2010 law changes.

The guidelines didn’t seek to ban or eliminate exit fees: there are considerable costs associated with establishing a mortgage and other types of loan, and if the lender is to waive some or all of these costs, they should be allowed to insist on some longevity in the loan.

ASIC used the words ‘unfair’ and ‘unconscionable’ exit fees. In effect, the guidelines say that a lender may only charge an exit fee for early repayment of a loan where the fee relates directly to the losses incurred by the lender. Under these guidelines, a lender can’t charge an exit fee that covers profit not made, or marketing costs. And the guidelines do not allow double-dipping where the lender charges a borrower for the upfront costs and then tries to charge them again for leaving the loan early.

Importantly, ASIC stated that exit fees could never be used to discourage borrowers going to another lender, or punish them for doing so.

There was a long and wide consultation process for these guidelines… only to be gazumped by the government. When the government announced it would ban mortgage exit fees, to enhance competition, it ran over the top of a very good, very clear regime that would have better served borrowers.

Story Source: http://exitfeesmeancompetition.com

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Homeowners can breathe a sigh of relief as the Reserve Bank today announced it will keep interest rates on hold for another month

The RBA made the decision to keep the cash rate at 4.75 percent after a slowing economy saw an underlying inflation rate of just 2.4 percent, well within the target band.

The decision came after the economy recorded its steepest three-month drop since 1991, brought on in large part by the Queensland floods.

The RBA’s announcement comes as no surprise to economists, with both consumers and business are keeping a tighter hold on their pursestrings.

“CPI inflation has risen over the past year, reflecting the effects of extreme weather and rises in utilities prices, with lower prices for traded goods providing some offset,” Reserve Bank governor Glenn Stevens said in a statement.

“The weather-affected prices should fall back later in the year, though substantial rises in utilities prices are still occurring.

“The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.”

RateCity CEO Damian Smith said while many Australians would be relieved interest rates have stayed on hold, they should expect a rise before the end of the year.

“Signals from the Reserve Bank have been very clear that if economic growth remains on trend following the brief downturn caused by the natural disasters, then interest rates will have to increase,” he said. “Borrowers should prepare for at least one 25 basis point interest rate rise by the end of the year.” GDP fell by 1.2 percent in the March quarter, while a drop in job advertisements for two consecutive months dampened hopes of an autumn rebound.

“Not only has the latest data shown an easing of inflationary pressures but hiring intentions have slumped as businesses join consumers in adopting a conservative posture,” CommSec chief economist Craig James.

“Consumers aren’t spending, the housing market is becalmed and now businesses aren’t taking on more staff.”

Mr James said the Reserve Bank could have an extended stay on the interest rate sidelines if current trends continue.

“As long as the new mood of conservatism continues with Aussie consumers then businesses will continue to discount prices to move stock, keeping inflation low,” he said.

The Reserve Bank last raised rates by 25 basis points in November 2010.

Reported by By Nick Pearson, ninemsn

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When a large bank doubled the official interest rate rise on Melbourne Cup day last year, and passed it on to its mortgage borrowers, the media reacted aggressively.

In the aftermath of the bank’s double rate rise, Treasurer Wayne Sawn announced some good initiatives to ensure that there was competition in the mortgage market: a boost to the status of the lenders outside the big banks was one idea; another good one was using government money to improve liquidity in the sources of funding for mortgage lenders who did not have access to large pools of deposits.

However, the most popular initiative was banning exit fees on mortgages.

This was done, according to Wayne Swan, to boost competition. It sounded logical.

However, in banning exit fees, the government also banned ‘deferred establishment fees’. This device means a lender waives the mortgage establishment fees if the borrower stays in the loan for, say, five years.

The deferred establishment fee helped lenders like Aussie and Wizard to offer interest rates significantly less than the big banks; and the non-banks rose to a 15 per cent market share before the GFC, forcing the banks to reduce their high mortgage lending margins.

In other words, non-bank lenders equal competition. To take away their biggest tool will not give us more competition with mortgages. It may mean more competition between the big banks, who have already dropped their exit fees ahead of regulation, but it will not mean more competition and choice for borrowers across the whole market.

If we lose our greatest sources of competition in mortgages, the consumer will suffer.

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Most economists believe interest rates will remain on hold when the Reserve Bank meets today for the first time since the sharp fall in economic growth.

The official rate is expected to remain at 4.75 per cent, despite the RBA issuing several warnings that rates will soon rise.

It is the first time the bank has met since the release of a raft of weak data, including the March quarter economic growth figures, which plunged to a 20-year low.

NAB’s chief economist of markets, Rob Henderson, believes those figures will make the central bank cautious.

He says it is a close call as to whether rates will rise.

“The Reserve Bank can afford to wait a month or so,” he said.

He says the RBA will have to take into account the uncertainty over the US and European debt as well as economic weakness in Australia.

But RBS chief economist Kieran Davies says the bank will be more focused on the mining boom.

“I think the real focus for them is what’s happening with the resources boom and how little spare capacity there is in the economy, and I think that’s the key influences on whether they decide to raise [rates today],” he said.

A new survey of businesses show an interest rate rise as their number one concern.

Source: ABC News

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You can’t talk about competition in the $1.2 trillion Australian mortgage market without talking about the role of the non-bank lenders, as typified by Aussie and Wizard.

When these companies entered the Australian market in the mid-1990s, the large banks dominated mortgage lending with more than 90 per cent market share, while the credit unions and building societies had about 8 per cent.

All these lenders were deposit-taking institutions (ADIs): they paid for deposits at one rate and created mortgages at a higher rate.

The non-banks had no deposits. They sourced funds from securitisation and lent at a higher rate which was significantly less than the rate charged by banks.

Aussie and Wizard deferred the establishment fees paid on mortgages: they told their customers, ‘if you stay with us for five years, you don’t pay the establishment fee.’

This reduced the cost to the borrower and allowed the non-banks to reduce their margins. It boosted the non-banks to around 15 per cent of the market in 2005, with the banks having dropped to around 77 per cent (the building societies and credit unions remained at around 7 – 8 per cent over the years).

Now, after the GFC, non-banks have 1.2 per cent of the market, banks have 91 per cent, and the margins have been rising since the period when the non banks held a strong share of the market.

In other words, if you want competition, you need not just the right to leave a bank; you need a better deal to go to.

If you hobble the non-banks by banning exit fees (deferred establishment fees), you lose competition and it’s the consumer who loses out.

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The mortgage industry ponders the potential impact of a ban on exit fees.

Stakeholders in the mortgage industry are eagerly awaiting the federal government’s response to recent recommendations made by the Senate economics references committee about the viability of banning mortgage exit fees.

But it raises another question: what impact is the ban likely to have on consumers themselves?

Australian Bankers’ Association chief executive Steven Munchenberg says an exit-fee ban would provide a short-term benefit for a minority of consumers who would be paying the fees but there are concerns about the impact the ban might have on the majority of consumers in the medium term.

“The consumers might not benefit if this just makes it that much harder for the smaller lenders to compete with the major lenders,” he says.

“What this whole debate is premised on is, more competition is good because it delivers benefits to consumers, which we accept. But anything that makes it harder for the smaller players to compete with the big guys is actually going to work against that.”

Mr Munchenberg says because exit fees represent actual costs to lenders, there are three ways they can respond to a ban: they can accept it as a hit to their revenue and absorb it, pass the expense on to consumers, or make up the costs elsewhere in the business.

“They’ll need to take into account the extent to which they’re capable of absorbing these costs and also the extent to which passing them on will affect their competitive position,” he says.

Ingrid Just, spokeswoman for the consumer advocate group Choice, says it’s unknown how the costs borrowers incur through exit fees might compare with those that could emerge out of a blanket exit-fee ban.

“What we do know is that the exit fees are one of the barriers discouraging people to switch to better deals,” she says.

Story by Josh Jennings http://news.domain.com.au

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Arrears on mortgage repayments spiked to a record high in the first three months of 2011, as more Australians struggle with rising costs, Fitch ratings agency says.

Arrears on prime residential mortgage-backed securities (RMBS) of 30 days or more hit a record high of 1.79 per cent in the first quarter, from 1.37 in the final quarter of 2010, the group said, as Christmas spending and the Queensland floods forced more Australians to struggle in repaying their mortgages.

RMBS are home loans which are bundled together and sold to institutional investors by banks and mortgage lenders. Misrated RMBS were at the heart of the subprime crisis in the US which lingers to today.

Fitch ‘‘did not expect arrears to increase to this extent and believes that delinquencies have peaked in the current cycle’’, the Fitch report said.

The increase in arrears for the most fragile band of mortgage borrowers, low-doc loans, with payment delays of 30 days or more hit 6.74 per cent in the first quarter, up from 5.7 per cent in the final quarter of 2010, a higher level than December 2008 quarter, when the financial crisis hit and the Reserve Bank began rapidly lowering rates.

Low-doc mortgages are written for riskier borrower than prime mortgages, which are written for customers who have a reasonably safe ability to borrow.

Delinquencies of three months or more on conforming low-doc mortgages, which are used by people who are self-employed for example, soared past 5 per cent in the March quarter, from about 3 per cent the December 2010 quarter.

“It’s very significant,” said James Zanesi, the primary analyst on the report. “It means they really have problems in terms of serviceability, probably due to loss of income from the flood or the loss of a business.”

However, the bulk of the Australian mortgage market remains healthy as long as there are no drastic rises in interest rates, said Mr Zanesi.

The latest indicator of rising mortgage stress comes as Australian bank stocks have fallen in recent days, driven both by the European debt crisis, and ongoing worries that Australia’s major banks remain over exposed to an overvalued domestic housing market.

This month Commonwealth Bank revealed an 11 per cent increase in delayed payments on mortgages in the March quarter, with ANZ and Westpac reporting similar increases.

At the same time, home price growth has flatlined. The weighted average home price in eight capital cities sank 1.7 per cent in the March quarter, according to the Australian Bureau of Statistics, the largest fall since the September quarter 2008, when the financial crisis hit.

Fitch predicted arrears should fall slightly in the second or third quarter of 2011, as the impact of both the holiday season and the floods subside.

‘‘This could however be offset by the impact of any further interest-rate rise as well as the recent increase in the cost of living,’’ the report said.

The increased scrutiny of Australian banks’ loan books also prompted Fitch last week to downgrade 54 tranches of RMBS from ratings watch “stable” to “negative”, representing approximately $1.5 billion of RMBS transactions. Fitch said the affected tranches were in about half of the agency’s RMBS ratings universe.

Last week, Moody’s downgraded the long-term debt ratings of Australia’s big four banks to Aa2 from Aa1 because of their continuing reliance on overseas funds rather than local deposits to fund their loans books.

Story by Chris Zappone http://news.domain.com.au

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The economy recorded its biggest contraction in 20 years in the March quarter, yet economists say interest rates could rise as early as this week. What gives?

INTEREST rates are going higher, and soon. It could be this week, it might be in a month, or maybe the month after that, but they are going up. You can bank on it, economists say.

Talk to practically anyone paid to predict these things right now and they will tell you to expect at least one interest rate rise before the year is out – most likely two.

Two would take the cash rate from 4.75 per cent to 5.25 per cent, adding 0.5 percentage points to your variable home mortgage rate. Some, such as Deutsche Bank chief economist Adam Boyton, expect the Reserve Bank to move on rates as early as this week after the central bank’s meeting on Tuesday (the news will be announced on Wednesday morning).

ANZ chief economist Warren Hogan doesn’t rule this out but suggests July is more likely.

Commonwealth Bank senior economist John Peters is looking for a move after the August meeting. Either way, all three expect rates are headed higher, and soon.

Incidentally, CommBank’s Mr Peters is looking for two rises before the end of the year and another two in 2012. If he’s right, you need to start factoring the impact of a one percentage point increase in your variable mortgage rate reasonably soon.

Deutsche’s Mr Boyton’s call could be seen as gutsy given last week’s unexpectedly high 1.2 per cent GDP contraction for the March quarter. But he says this news didn’t change the underlying economic story at the macro level. His argument is that while the contraction was sharp, the bounce-back from it will be equally so. ”A lot of people have looked at the economy in an optically different fashion following the 1.2 per cent decline in the GDP, and it does create a bit of a communication challenge for the Reserve Bank. But that’s a communication issue rather than an economic issue – fundamentally the big picture hasn’t changed.”

Mr Boyton says the Reserve has also established a record of moving on rates at unexpected times in recent years.

Remember the rate increase during the election campaign in November 2007 and the lift last November following a low reading on inflation? So while he admits he’s in the minority – a Bloomberg survey of economists says five expect rates to move higher this week, against 23 who don’t – Mr Boyton is sticking with it.

”The Reserve has to set policy for the average and the reality is we have strong business investment at a time when we are at close to full employment, so other parts of the economy will have to grow at below average to accommodate this.”

ANZ’s Warren Hogan agrees. He says this is the key reason why interest rates need to rise even though big parts of the economy are already struggling. ”We need to get one in pretty quickly so we are set for a significant surge in mining investment, building and construction,” he says. ”It’s a problem we have in Australia; we have very little spare capacity, particularly in the labour market, just as we are heading into a big push-up in investment.”

This is not a short-term issue, either, according to Mr Hogan. ”It’s the reality of the Australian economy in the next three to five years – some sectors will do it tough.”

CommBank’s Mr Peters says consumers have done their bit by being cautious and well behaved – using 11.5 per cent of their income to pay down debt, a rate not seen since the early 1970s, controlling spending and putting money into term deposits so that the banking sector doesn’t need as much expensive offshore borrowing for local home mortgages.

”Even in the first quarter, the domestic demand side was still strong, growing 3.3 per cent in annual terms,” Mr Peters says.

”But this mining investment boom is going to keep going, and the rest of the economy has got to make room for it.”

Story by Richard Webb http://www.smh.com.au

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Everyone is jostling for space in the carbon tax debate this week. Cate. Michael. And even Ross Cameron, a former Liberal MP known for campaigning on morals, and then proving, Clinton-style, that he didn’t walk the talk, and losing his Federal seat as a result.

Among those in the ear of the Federal Government is the Housing Industry Association, which has declared its opposition. It argues that a tax on carbon emissions will flow through to adversely affect all building products and all sectors of the construction industry.

“Building product manufacturers and new home buyers across Australia will be the hardest hit by a carbon tax,” says HIA’s chief executive, Graham Wolfe.

“There will be an immediate and inevitable flow through of cost increases across the broad range of building materials, products, fixtures and fittings,” says Wolfe.

Wolfe says at $20 per tonne, a carbon tax will add an extra $6000 or more to the cost of building an average new residence, placing additional affordability pressure on new housing activity, and adding $43 extra per month to family mortgage repayments.

“That adds a further $12,800 in repayments over a 25-year loan,” Wolfe says.

The HIA estimates that constructing the average new home and land package involves the emission of about 240 tonnes of carbon dioxide.

And Wolfe argues that $6000 – or about $12,000 if the price was to be $40 a tonne of carbon – could, for some people, be the straw that breaks the banks’ willingness to lend to someone building a home.

“There are a lot of people who don’t have a house who can’t afford to buy a house who are saving as quickly and mightily as they can but they can’t get across the line because they can’t get the deposit together. I’m not going to dismiss $6000 as being a small amount of money that should not have some consequence on the cost impact of … a new home.”

But Wolfe concedes that the amount of carbon emitted during building could well come down – and is already doing so.

“Some of the steel manufacturers and the aluminium manufacturers, the cement manufacturers are already increasing the efficiencies of their production line,” he says. “That is happening now, whether or not this makes it happen any faster, in time we might see the result of that. Efficiencies in carbon footprints are being improved all the time in any case.”

He also says, should makers of steel, aluminium, cement and other building products be compensated, that could reduce the impact of a carbon tax on people building homes. “If there is a compensation for [manufacturers] … then the cost increases won’t be as significant. So the $6000 might be a little less. “

While the HIA has made up its mind that a carbon tax is a bad idea, pointing out that it could make people look for cheaper non-taxed products from offshore, not everyone in the building industry agrees.

Cameron Rosen, the director of sustainable building consultancy Australian Living, who has recently built four eight-star homes in Sydney’s east, says a carbon tax would not necessarily cost more.

“Sure if you think old school, prices are going to up, but if you think new school, prices should come down,” Rosen says. “I think it opens up the doors for innovation to come alive.”

Rosen says a carbon tax could push builders to investigate more efficient building systems, that reduce waste, and open up the potential to integrate ideas from the commercial building sector.

On his recent build, Rosen used concrete from Boral that has a high recycled content. Doing so saved 13 tonnes of carbon emissions per home.

Rosen also says if a carbon tax pushes up the energy efficiency of new homes, people could save thousands of dollars on electricity and gas.

“About 38 per cent of our energy consumption goes to heating and cooling. It’s the biggest amount of our energy expenditure and, through good design, you can wipe that 38 per cent out [or get close to it].”

Story by Carolyn Boyd www.domain.com.au

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Today’s market conditions favour property investors who are looking to benefit from ongoing seller discounting, healthy rental income growth and longer term capital gains, says Australia’s largest independently-owned mortgage broker, Mortgage Choice.

This may be why the value of housing finance demand for investment lending – fixed loans rose for the first time this year in March, by 2.1% according to the ABS*.

Mortgage Choice spokesperson Kristy Sheppard said, “The latest data suggests greater movement from investors taking advantage of subdued market competition and housing price reductions.”

“There are many more properties on the market than usual and less buyers to purchase them. Australians who are ready financially and keen to crack the market or build on their portfolio may find that some solid hard work sees them snap up opportune purchases while demand is low.

“Other encouraging factors are our healthy population and wage growth and low rental vacancy rates. Rents are rising at a faster pace this year while property values have steadied or dropped in many areas, so rental yields are on the increase. This all bodes well for people who research the market thoroughly, have a long-term strategy and are informed about their finance options.”

Mortgage Choice’s hints and tips for those considering investing are:

Aim long-term: The market moves in cycles; it has highs, lows and steady patches. Always ensure you are comfortable with the possible pros and cons of an investment asset and think hard about how they match your goals. You will need to budget for interest rate rises and property agent fees as well as the usual ownership costs and lost rent if you struggle to find or keep a tenant.

Research the gains: Read property-related and investment articles. Talk to people in the know, eg. experienced investors and property research companies, about areas you are contemplating buying in. Compare suburbs’ rental yields, resident demographics, tenant demand, existing and planned infrastructure, past price growth and predictions and everything in between.

Invest with equity: Tapping into another property’s equity can be a strong launching platform. Say your home is valued at $700,000 and the mortgage is $350,000, you may be able to invest up to 95% of your equity ($332,500) to purchase a property, depending on factors such as your lender’s approval criteria and your ability to afford repayments. Lenders Mortgage Insurance may also be a cost consideration.

Choose a well suited loan: There is most probably a range of property loan products to weigh up against your financial situation and investment portfolio strategy. Interest only or principal and interest loan? Fixed or variable rate or perhaps a split? Which features are needed? Cash deposit and/or equity? A professional mortgage broker can help you compare a range of home loans and guide you through narrowing it down to one suited to your requirements and objectives.

Meet an expert: You may also need to discuss your move with an accountant or financial planner. Make sure your financial situation is improved by the investment.

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The federal government has unveiled its blueprint for the future of the nation’s 18 largest cities with a warning that it’s prepared to “intimidate” opponents if necessary.

The National Urban Policy, released by federal Infrastructure and Transport Minister Anthony Albanese on Wednesday, sets out a broad range of principles designed to underpin long-term urban growth and improve productivity.

Among the problems the policy aims to tackle is traffic congestion, which Mr Albanese said would cost Australian business and families more than $20 billion by 2020 if left unchecked

The policy promotes better infrastructure planning and public transport, reducing carbon footprints and improved urban planning to meet the challenges of a population growth, an ageing population and climate change.

Future federal infrastructure funding will be linked to the policy and other development plans that individual states and territories have been ordered to produce by January 2012.

Mr Albanese on Wednesday insisted the policy was not a federal takeover of existing state and territory responsibility for urban development.

But he indicated that state and territory leaders would have to toe the line.

“What this is, is the commonwealth … putting in place all the levers at our disposal to drive, foster, encourage, and if you like intimidate recalcitrants, if need be, to make sure they do get on board,” he told a Property Council of Australia breakfast in Sydney.

The Council of Capital Cities Lord Mayors (CCCLM) backed the National Urban Policy.

“Today’s policy announcement is highly symbolic and highly anticipated after three years preparation,” CCCLM chair and Lord Mayor of Hobart Rob Valentine said in a statement.

“It is an important recognition of the national and international role our cities play, and the future challenges and opportunities they face.

“What’s needed now are the partnerships between governments, backed by enough dollars to drive real change.”

The nation’s 18 biggest cities are home to three in four Australians, produce 80 per cent of national income and generate 75 per cent of its jobs, the government says.

They include every state and territory capital and large regional centres, such as Newcastle, Toowoomba and Sunshine Coast.

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Hundreds of Sydney homes fitted with solar panels will be the first checked for potentially dangerous flaws in the next few weeks.

NSW Fair Trading Minister Anthony Roberts said on Wednesday at least 500 initial spot checks would be carried out in homes across Sydney to inspect the safety of solar panels installed under state’s solar bonus scheme.

Areas where solar panel technology proved popular will be the first examined under the statewide check, which begins on June 6.

‘Fair Trading is planning this review involving 25 qualified inspectors targeting areas of Sydney where there has been significant uptake of solar panel technology,’ Mr Roberts said in a statement.

‘Fair Trading complaints data and advice from energy suppliers are being used to do this planning.’

Mr Roberts said all residents who paid for solar panels under the scheme should have received a Certificate of Compliance for the installation work.

The cost of the inspections will ‘be met from existing resources’.

The safety review comes after similar spot checks by Fair Trading in February revealed a small number of potentially fatal flaws in some Port Macquarie homes.

Mr Roberts, who flagged the impending inspection at the weekend, stressed he had acted quickly to inform the public of the problem.

‘As I made it clear in my statements over the weekend, I got these facts from Fair Trading last week, late on Thursday night, followed by a briefing on Friday, at which time I made the decision to release information to the public,’ he said.

‘This data was not provided to me or the new NSW government prior to Thursday night.

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Getting your head around what’s happening in the solar industry takes more than a little time.

At one end of the spectrum you’ve got solar companies screaming they are all about to be run out of their various states by governments scaling back generous feed-in tariffs for grid-connected systems, on top of the Federal Government winding back its support for the upfront costs.

At the other end, you’ve got government ministers such as South Australia’s Energy Minister Michael O’Brien claiming that adding $30 a year to the average household power bill would be an unjustifiable cost – even if that was what was needed to keep the solar industry alive and encourage the more sustainable take up of greener power.

Not to mention the furore unravelling in NSW this week after the newly minted Premier, Barry O’Farrell, moved to stamp his credentials as a tough economic manager by announcing plans for retrospective legislation to slash the feed-in tariff for people who have already installed their solar panels.

In the middle are the households. Some are bewildered by the news that a NSW Fair Trading audit of systems in Port Macquarie found potentially fatal flaws in some homes. Five per cent of installations had serious problems. Extrapolate that across NSW, and it adds up to 6000 potential homes with the same issues.

At the same time, the Australian Competition and Consumer Commission has issued a joint warning with state consumer protection agencies that solar power retailers must ensure their claims are true – or risk civil and in some cases criminal sanctions.

I asked the ACCC how many complaints it had received, and what the nature of the complaints were. But was told the ACCC is unable to comment on the number or nature of complaints, because it treats all complaints confidentially and has a policy of not confirming or denying any investigations.

I also put the same question to consumer protection agencies around the country.

In Victoria, Consumer Affairs has been forced to issue a warning about a company who consumers have alleged took deposits for systems and never installed them, having enticed people to buy through door-to-door direct marketing or at advertising stands in suburban shopping centres.

During 2010, Consumer Affairs Victoria received about 350 complaints about solar systems, including “delays, faulty systems, billing and grid connection issues and general customer service complaints due to the growing demand for solar”.

In NSW, since November 22 last year, Fair Trading has received 417 complaints regarding solar. The majority of consumer-related complaints were linked to “unsatisfactory or non-performance of service and supply delay”.

In South Australia, the Office of Consumer and Business Affairs has received 124 complaints in relation to solar systems in the last 16 months. This includes 87 complaints about the installation of solar panels, 33 complaints about solar hot water systems, and 4 complaints about the supply of solar panels.

In Western Australia, Consumer Protection says it has received more than 50 complaints against the solar PV industry this year.

“Some consumers believe they were misled by cost-saving claims, but the majority are concerned about unreasonable delays in installations,” says David Hillyard, director of Industry & Consumer Services at Consumer Protection in Western Australia.

“The delays are caused by a rapid increase in demand with installers battling to keep up. Consumers are concerned that their systems won’t be installed before the Federal Government rebate is reduced in July this year, which is fuelling further demand.

“At this stage there is no evidence to suggest that any operators in WA are systematically breaching legislation. Complaints are being examined on a case-by-case basis.”

Hillyard says consumers need to do their own independent research as to the benefits of the different systems and whether they meet their needs. “They must weigh up the initial cost of between $3000 and $30,000 and determine how long it will take before they break even through savings on their power bills,” he says.

For example, a 1.5 kilowatt system could produce up to 6.6 kilowatt hours (kWh) of electricity per day. Considering the average household consumes 18 kWh per day, this system is only going to supply one-third of electricity needs and will not eliminate power bills.

“The most common complaints are about delayed installation so it is important to get clear and agreed timeframes from the installers in writing,” Hillyard says. “Understand the consequences of missing an installation date, if it is going to affect a rebate qualification date and what the long-term effects might be.”

A former worker in the solar industry contacted me this week, concerned consumers were being given the runaround. He says the business he worked for dissuaded all sales contractors from mentioning the Clean Energy Council’s Solar PV Consumer Guide to prospective clients.

The guide is a must-read for anyone thinking of buying a system.

The former worker also alleged that consumers were signing up for one type of panel but getting another. “[They would] substitute another panel type without obtaining prior consent of the purchaser,” he says.

“Often customers are not knowledgeable enough to check the wattage and type of panel brought to install, and they cannot tell the difference until the installers have departed.”

The former solar worker, who asked not to be named, said consumers were being dazzled by the incentives on offer and not doing the due diligence they normally would for such a big purchase.

It is all a bit reminiscent of the insulation scandal, which, unfairly, sullied the reputation of what is a very good and useful product. The problem lay with the companies paid to put insulation in, not with the product itself.

The issues that have emerged in Port Macquarie, and the complaints to consumer protection agencies, appear to be focused more around the installers than the actual panels.

If you have installed solar panels and are worried that they may not have been put in correctly, you can pay a registered electrician to check them for you. Or contact the electrical authority in your state or territory. There is a list of authorities in the consumer guide from the Clean Energy Council.

If you are thinking of installing solar, you should contact accredited installers that use licensed electricians and supply products that meet Australian standards.  A full list can be found at the Clean Energy Council website.  The website also has useful information on connecting your home system to the grid used by your electricity supplier.
Consumers can find information on rebates, solar credits or other incentives at the following websites – Living Greener; the Office of the Renewable Energy Regulator; and the Department of Climate Change and Energy Efficiency.

Story by Carolyn Boyd www.domain.com.au

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