Forget PR-friendly ‘discounts’ from the banks. Better mortgage deals are out there for those who look.

Even with the whole country against them, the banks can still pull a swifty.

Magnanimous in defeat, ANZ’s decision to end exit fees, never a big money-spinner for the banks anyway, and offer a discounted three-year fixed rate is chutzpah writ large.

The truth is the banks don’t make a quid on a mortgage for the first two years, so if they can lock you in for three years, it’s money for jam.

However, when a bank suggests you fix, don’t. Not with it, anyway.

Notice, incidentally, no bank is cutting the much higher exit fees on fixed rates.

There are ways around these, though, if you know where to look, which isn’t at a bank.

Credit Union Australia, for example, lets you repay a fixed-term loan up to the last dollar anytime with no penalty, so if rates drop, you can all but pay it off by taking out a new, lower one.

Its three-year fixed rate is a smidgin above ANZ and fellow traveller Westpac’s “discounted” 7.1 per cent and at five years the 7.69 per cent is under their 7.88/7.89 per cent.

Either way its rates are well below the new bank standard variable, so you can’t lose. Stay fixed if rates rise; refinance if they drop.

Unless, that is, you can get an even cheaper variable rate but I’m coming to that.

Have you noticed the banks’ fixed rates haven’t budged? Even the two serial rate offenders haven’t moved in weeks and two banks even lowered theirs on three years.

So, for all their whingeing about rising costs, the banks expect rates to drop down the track.

Happily, one doesn’t need to get off one’s butt to find a better variable rate. Just phone a mortgage broker.

Brokers don’t charge because the lender pays them a commission upfront.

Some, such as Mates Rates (matesratesmortgages.com.au) even pay you the annual commission they get. It’s like getting a rate cut every year.

On a Homesideloan – cheap to begin with and, incidentally, owned by NAB – the broker’s rebate runs to 0.35 per cent once you reach the fifth year. Mates Rates rebates commissions on fixed loans, too, so you can get three years for 6.69 per cent or five years for 7.08 per cent.

True, a mortgage broker may try to overload your mortgage to get a bigger commission upfront but I’m sure you’ll be awake to that.

Also, Resi, usually one of the cheapest lenders, won’t deal with brokers, so maybe you need two quotes.

Story by David Potts – www.domain.com.au

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Start-ups will benefit from a significant leap in wages via increased consumer spending, according to a leading economist.

CommSec economist Savanth Sebastian says workers’ wages are growing faster than prices, which will have a direct impact on consumer spending.

The Labour Price Index reached 1.1% in the September quarter, and the private sector index jumped to 1.2%; the biggest increase in the 13-year history of the index.

“’It looks as if wage growth bottomed in December last year. Weakness in wage growth over the past year has been one of the reasons consumer spending has been depressed,” Sebastian says.

“The pickup in the latest wage is largely due to the fact there was a rise in the minimum wage, which came through on July 1. It affected about 1.5 million workers in Australia.”

The minimum wage jumped 4.8% in July after Fair Work Australia awarded the first increase in two years.

“The latest [index] results are probably a win-win situation as it will help to alleviate the stress on the household budget, especially given the rate hikes that have taken place and the increase in utility charges,” Sebastian says.

“Going forward, I expect that wage growth will play a significant part in helping to drive consumer activity.”

“Retail spending has been relatively depressed and effectively, over the next year, I’d expect wage gains and rising welfare levels to be the key drivers for an improvement in spending and activity in general.”

Wages are growing fastest in the electricity, gas, water and waste sector, up 4.4%, and in education, also up 4.4%.

The financial and insurance services sector is up 4.2%, professional services is up 4.1%, and mining is up 3.8%.

The slowest growing wages are in media and telecommunications, which is only up 2.3%, wholesale trade and real estate services.

Queensland and Western Australia have the fastest growing wages, up 3.9% and 3.8% respectively.

Victoria and New South Wales are up 3.5%, while South Australia and Tasmania are up 3.2%.

Story by Michelle Hammond – http://www.startupsmart.com.au/

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“Is this the right house?” It was a simple enough question. Innocent even. “Yes” I responded to sales agent enquiring. “Oh good,” came the reply. And then the knife stroke: “It’s just that it looks a little too established”.

At first I smiled politely. The enquirer, you see, was a sales agent coming to check out the house that we rent in order to put it on the market (for the landlord).

Established is a loaded word. Did she mean because we rent, the house should look like a tip? Ten cars should be parked on the bare earth that was once lawn let go by the uncaring tenants? Or on the flipside, that rental houses usually, by nature of the landlord’s choice of property and their tight purse strings when it comes to maintenance, look like dumps whatever the tenant tries to do with them?

Whichever way the statement was meant, it just didn’t come out sounding like a compliment.

The only thing I could think to say was “well it is our home”. Yep we might pay rent, but for two years we’ve watered the garden, seen that the lawn was mowed and kept it in similar order to any house we’ve ever lived in, whether the bank owns a share of it on our behalf or someone else’s.

Now this is not a blog about how mean real estate agents are – the woman in question turned out to be quite nice in the end, despite getting off on the wrong foot. And when it comes to the agency that has handled our tenancy for the last two years, we’ve been treated with nothing but respect and I’d recommend them to anyone.

But this blog is a bit of a rant about THOSE perceptions of renters as perhaps being a little less than homeowners. The view seems to permeate society to the point that even the people spouting it out don’t realise what they are saying.

Perhaps it’s got to do with the mantra that renting is “wasted money” and only fools would do it. But that view ignores the reasons people rent – maybe they’re new to the city (like us), have moved temporarily for work, have fallen on hard times, opt to invest in other assets and rent, or just plain don’t believe the oft-repeated story that buying a property is the way to go.

With interest rates heading north there’s sure to be more people renting. Some will do it out of choice, preferring to be earning money on their savings and other investments, than paying off a property at higher rates to a lender, especially if financial institutions keep jumping so far ahead of official interest rate rises. Others will be forced to rent because, very sadly, people already feeling the pinch financially will be put under further pressure, especially if they are in an area where the golden glow of the resources boom isn’t about to rub off on them. Some households will decide that it’s just not worth fighting to keep their name on a mortgage for four walls and a roof.

With that trend headed our way, perhaps it’s time we gave renters a break? And realised that even though they don’t live in their “forever” home, in many cases, they see the property as their sanctuary, just as much as the neighbour who is a bona-fide owner.

Story by Carolyn Boyd, a property journalist and keen follower of Australia’s housing market. www.domain.com.au

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Price growth has softened and demand is weaker but buyers shouldn’t sit on their hands. The market is full of opportunity for investors. Look for the highest yields at the lower end of the market; now that most of the government assistance has dried up, you won’t find too much competition from first-home owners.

The best-performing Sydney regions for house rental yields include the south-west, at 5.3 per cent, and the west, at 5.1 per cent. These also present the best rental yields for units, at 6.8 per cent and 6.1 per cent.

Although finance costs are increasing because of rising interest rates, the housing investment climate is improving and should continue to do so into 2011.

The next rise in official interest rates is unlikely until February or March and will be driven by the predicted acceleration of Australia’s economic growth. The time might be right to consider a fixed-rate loan, which would enable investors to maintain stable financing costs.

Price growth for both houses and units is expected to remain benign over the next six months, as the recent rate rise and the holiday slowdown period affect buyer demand from owner-occupiers.

But ongoing housing stock shortages and population growth will ensure constant demand for rental properties, exacerbated by ongoing affordability barriers for first home owners. This will result in yields rising as rents increase.

Dr Andrew Wilson is the senior economist for the Fairfax-owned Australian Property Monitors.

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A clause of mortgage contracts may be unenforceable.

A Sydney lawyer considering a class action has obtained a senior counsel’s opinion that suggests the interest clause in the typical Australian variable rate contract is potentially invalid because it leaves the interest rate completely uncertain.

”I have concluded that it is not possible for a bank to reserve to itself a right to vary the interest rate on a loan so as to set whatever interest rate the bank chooses,” writes Christopher Birch, SC, in the opinion dated December 23 last year. ‘

‘I have further concluded that an attempt by a bank to reserve to itself an entitlement to vary an interest rate by whatever means it pleases would be contractually void.”

John Mahony of Mahony Dominic Lawyers commissioned the opinion after Westpac last year trumped a Reserve Bank increase to the cash rate by lifting its standard variable mortgage rate 45 basis points.

He has shown the opinion to the Herald as each of the big four banks has once again increased its standard variable rate without deferring to the Reserve and as the Greens leader, Bob Brown, announced plans to legislate for a 24-month freeze on rate rises exceeding those of the Reserve.

Australian variable rate contracts are unusual in that unlike those in other nations they purport to allow the lender to adjust rates as it likes.

Asked by Mr Mahony whether there was an implied understanding in the Westpac contract that it would move its rate in lockstep with the Reserve, Mr Birch found there was not, but that that very uncertainty created the possibility the interest clause was invalid.

”I cannot suggest that such a finding would clearly be made,” his advice says. ”I have however expressed the view that in light of the determinations that have previously been made by Australian courts on interest variation terms, coupled with the general principles expressed by the High Court … this is the better view.”

The Westpac contract examined by Mr Birch allowed it to vary ”without your consent” the interest rate charged, the loan term, the credit limit, the amount of credit, the amount and frequency of repayments, the fees charged and the time for their payments and the penalty for a default.

The only constraint on Westpac was the requirement to publish its intention to make the changes in an advertisement in The Australian Financial Review every second Monday.

Mr Birch notes that if the High Court did find the interest clause invalid by reason of uncertainty much of the loan contract would still be valid.

Yesterday Senator Brown challenged Labor and the Coalition to back him in stopping the banks lifting interest rates beyond official rate rises for two years.

”Sound and fury is not good enough. This is hurting people. We are now putting both the big parties on notice,” he said.

The Treasurer, Wayne Swan, said he understood the frustration with the banks.

Story by Peter Martin – www.domain.com.au

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Though changing mortgage lenders may be getting easier, there is a negative to a quick exit.

If extortionate exit fees have had you trapped in an expensive mortgage, you are hostage no more.

Two massive advances within hours last week should see these fall dramatically, freeing you to reap the huge savings on offer from cheaper, better products.

So what happened? And is it really so good?

Firstly, in a bid to avoid the public backlash the Commonwealth copped when it raised rates by more than the Reserve Bank, ANZ accompanied its higher hike – 0.39 per cent versus the CBA’s 0.45 per cent – with fee cuts.

The cuts are designed to both appease existing customers (its $700 early exit fee is gone) – and entice new ones. Fee waivers and subsidies worth $1600 will apply to loans taken out before Christmas.

What’s beautiful is that this puts pressure on other big players to revisit fees and nab, when it lifted rates 0.43 per cent on Friday, also scrapped its exit penalty.

But while ANZ seized the moral high ground on the contentious issue, it’s not actually this flat type of fee that’s the problem. The problem is the percentage-of-the-debt kind.

Applying for as many as the first five years, this can be up to 2 per cent of what you initially borrowed, so a huge $5000 on a $250,000 loan.

We here at AFR Investor have been waging a campaign against such fees since 2005. And our sister publication AFR Smart Investor penalises offending institutions in the judging of our coveted Blue Ribbon Awards.

Which brings me to the second development: ASIC’s dictum that exit fees must reflect actual losses as a result of a broken contract. And to date, not into the future.

This clarifies how broader consumer protection laws in place since July will apply to mortgages and the regulator seems raring to test them in court. It’s happy days. Except for one small detail: it’s not big banks but non-bank lenders that mostly levy these fees.

In fact, non-bank lenders invented them so they could undercut their better-resourced competitors on interest rates. Loading costs not in the front but in the back of the loan, if you leave early, means they aren’t reflected in the comparison rate.

Naughty but natty. And if you stay put, you do get a great deal. The danger now is that ASIC’s crackdown will force these players, whose arrival in the market broke the big banks’ dominance and drove prices down across the board, to also lift rates by more than the Reserve.

Not really the enhanced competition everyone had in mind, is it?

For you, yes, it has never been cheaper to switch loans – and mortgage brokers report an unprecedented spike in inquiries. But it’s also never been more important to know the pedigree of the provider to which you switch.

You need one that is competitive – see page 9 for the top deals – but it’s prudent to choose one that has also historically charged low exit fees. Such a provider is unlikely to have to reprice in future to recoup lost fee revenue.

That pretty much counts out non-bank lenders, which were the cheapest before the rate rise with an InfoChoice-calculated average standard variable rate of 6.93 per cent. The highest fees on its database are from Ratebusters, QuickDirect and HomeStar.

Banks as a group had the heftiest variable rate, 7.32 per cent, while the big four stood at 7.79 per cent on Friday. Banks typically charge flat exit fees of less than $1000.

Your best remortgaging bet might come from an unexpected place: credit unions and building societies. Run for the sole benefit of members rather than shareholders, their average rate pre-rise was a competitive 7.18 per cent.

Better still, they are model citizens on early exit fees. Not only are they almost always flat but they are the lowest of the lot.

Story by Nicole Pedersen-McKinnon – www.domain.com.au

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Real Estate Institute of Victoria chief executive Enzo Raimondo urged political parties to outline how they would address Melbourne’s housing affordability in the lead-up to the state election. “According to the Australian Bureau of Statistics, 10 years ago first-home buyers represented 28per cent of the market,” Mr Raimondo said.

“A year ago it was 27per cent and in August this year it had dropped to 17per cent.”

He said reduced housing affordability was due to rising property prices, shortage of stock and higher state government taxes.

“Ten years ago a first-home buyer in Broadmeadows who received the $7000 grant had nearly $5000 remaining after stamp duty; now they have to pay an extra $6600. Stamp duty revenue has more than trebled in 10 years and is adding significant financial burdens at a time when buyers can least afford it.”

“At the moment, Victoria has the highest stamp duty in Australia and it would be nice if it was reduced to be the same as the other states.”

Based on the median price of a home in the September quarter of 2000, Sunshine residents were left with $2670 of the $7000 grant after paying stamp duty, while St Albans residents were left with $3840.

Story by Zoe Lewis and Tara Murray http://www.brimbankweekly.com.au

Tags: banks, finance, marketing, news, property, rates, stamp duty

Posted in News, Research

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An urban planning expert says town planners can learn a lot from the slums of Rio de Janeiro when it comes to building our future cities.

John Norquist, the president of the United States Congress for New Urbanism, is in Brisbane for the City of the Future Conference.

The former mayor of Milwaukee says population growth means high-density living will be the way of the future in Australian cities like Brisbane, Sydney and Melbourne.

Mr Norquist points to Rio’s favalas as examples of functional communities and says the informal arrangements made in slums are a good model for how councils can improve zoning laws.

“To give you an example of where you have a very strict plan like the capital of Brazil, Brasilia, where most of the streets are grade separated and everything is use separated and it’s planned on the utopian model that was predominant in the 1950s,” he said.

“The capital of Brazil is one of the most lifeless places on earth. The restaurants and the nightclubs and so forth that you find in Rio you don’t find that in Brasilia – you find it in the slums around Brasilia.

“So planners need to learn from the way human beings arrange their lives informally when there’s not a plan.”

Mr Norquist says planning cities with transportation and sustainability in mind is the “convenient remedy, the inconvenient truth”.

He says Australian cities had it right before World War II, but since then, planning has led to urban sprawl, which means people are forced to rely on cars more.

“The pre-World War II development was built compactly and around transit,” he said.

“In the post-war period there was a time in Australia – not quite as long and as devastating as what happened in the US – where you experienced a lot of sprawl.”

Mr Norquist says urbanism does not mean the end of owning a car and having a backyard barbeque.

“There is an understanding in the real estate market in the US more and more that urbanism has a value, that urbanism creates a lot of variety of choices,” he said.

“Even in our most suburban areas on the edge of metropolitan areas there’s talk about building village centres that are walkable, where people can enjoy life, where they can meet their friends and have a social function and also market function, retail.

“The idea of just having a community built around cars with the main feature being giant roads and parking lots, that’s not enough to people anymore. They want more than that.”

In the United States there are between 35 and 40 million new homes expected to be built in the next 30 years and Australia is set to follow a similar path.

Mr Norquist says Vancouver in Canada – a city of boulevards and good transit – is a perfect model for Australia’s major cities.

“It has no expressways at all and it’s quite successful.

“It’s been the most successful city in Canada in terms of property value growth, it’s gained in population but the population seems very satisfied with the growing density of the city.

“It’s a great tourist city, it’s a great economic city, it has manufacturing, it has all kinds of things that makes for a great city.”

Story by Brigid Andersen – www.abc.net.au

Tags: community, government, news, planning, property, research, slums

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IT’S not just the Christmas spirit that greedy bank bosses have ruined – Melbourne’s property market is also suffering from super-sized interest rate rises.

The weekend auction clearance rate limped to 61 per cent as rain and more home loan pain thinned crowds and cautious buyers refused to pay inflated prices.

The sluggish results followed NAB and Westpac joining the Commonwealth and ANZ’s giant rate hikes above the Reserve Bank’s Melbourne Cup move.

Real Estate Institute of Victoria spokesman Robert Larocca said the banks had gatecrashed the normally buoyant spring season.

“Their action has reduced confidence with home buyers and created uncertainty at the busiest time of year,” Mr Larocca said.

The Commonwealth lifted standard variable rates by 0.45 percentage points, the NAB (0.43), ANZ (0.39), and Westpac (0.35) compared with the RBA’s 0.25 per cent rise, adding $70-$90 a month to a typical $300,000 loan.

Mr Larocca said confused buyers and vendors no longer knew when rates would rise and by how much, as banks increasingly moved out of step with Reserve Bank changes.

The Greens will try to force the banks to limit rate hikes to official adjustments for two years under proposed legislation to be introduced into Parliament this week.

Greens Leader Bob Brown said he hoped to get Opposition support from Joe Hockey.

Mr Hockey said he was “not about any controls” on the banks themselves and would instead introduce legislation this week to stop banks telegraphing rate shifts to rivals through the media.

Auction clearances were marginally up compared with 59 per cent the weekend earlier. Most of the 328 properties that passed in did so on vendor bids.

The results follow four months of clearances around 68 per cent.

Story by Karen Collier, Ben Packham – www.heraldsun.com.au

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The Reserve Bank of Australia said Tuesday that although the argument for its recent decision to hike its key cash rate was “finely balanced,” it decided in the end that a modest tightening would be prudent.

Australia’s central bank lifted its key cash rate by a quarter point to 4.75% at the start of the month, surprising many economists who had expected the central bank to remain on hold.

The RBA minutes released Tuesday showed a central bank focusing on the economy and the outlook for inflation.

“With the flow of information over the past month generally suggesting that the medium-term economic outlook remained one of strengthening economic activity and gradually rising inflation, the board judged that the balance of risks had shifted to the point where a modest tightening of monetary policy was prudent,” the RBA said. The policy making committee of the central bank also said that it took the fact that lending rates were likely to rise into account before making the decision to increase the rate.

“Members noted that lending rates might increase by more than the cash rate, but this tendency would not be lessened by delaying a change in the cash rate,” they said.

The RBA committee added that it would continue to take account of any changes in margins in its decisions in the period ahead.

After the RBA hiked rates, Australian retail banks followed suit, with all lenders lifting their mortgage rates by more than the central bank’s quarter point move.

The Australian dollar traded up 0.1% at 98.46 U.S. cents after the minutes. The S&P/ASX 200 index edged down 0.2%.

Story by Sarah Turner, Sarah is MarketWatch’s bureau chief in Sydney.

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The already weakened property market has taken another hit with auction clearance rates dropping into the 50s in key capital cities, as buyers continue to hold back due to rising interest rates.

The result comes as new research figures demonstrate Australian property owners are coming under mortgage stress, with 75% saying they will be at least “a little” concerned if interest rates rise another 100 basis points over the next year, and another 5% saying they will be forced to sell.

This week’s results show Melbourne’s clearance rate at 61%, according to the Real Estate Institute of Victoria – a slight increase from last week’s 59%, but still quite low. SQM Research director Louis Christopher says these results are indicative of a market in pain.

“Absolutely, there has been a kick down in demand since the last interest rate increase. That was partly expected, but it also means the market is going to remain very soft for the foreseeable future. There is going to be a lot of stock hanging from the Spring campaigns.”

“This indicates that prices are likely to continue to weaken for quite a number of capital cities, with most of the weakness to occur in coastal areas such as the Gold Coast. That south-east area of Queensland is currently the weakest area of the market.”

And with the holiday season coming, Christopher suggests such low levels of demand will continue into at least the first few months of next year.

“I expect this will continue until at least the first few months of next year. It will be interesting to see how long this plays out, because there are only a couple of things that can stop this trend: a resurging economy, and interest rates going down.”

“I’m not seeing either. Downturns in housing are generally stopped when interest rates are lowered. So there is every chance here that we’ll continue to see weakness for quite awhile.”

This weakness could be exacerbated if interest rates continue to rise, according to a new survey by research group RaboDirect. The company’s figures, based on an online survey of over 2,200 people, show that if interest rates were to rise by over 100 basis points over the next year, 5% of mortgage holders would be forced to sell their homes.

The figures show 21% would be “very concerned”, but still able to make payments, while 17% would be somewhat concerned and 32% would be “a little” concerned. Another 15% say they would be “not really” concerned, and 10% say interest rate rises wouldn’t change their outlook.

However, Christopher points out these figures aren’t so bad, and a 5% sale rate wouldn’t have too much of an impact on the overall market.

“That isn’t too bad at all. You wouldn’t want to see that 5% hit all at once, but it’s something the market could cope with at the time.”

“To be honest, I think the market has already spoken for itself. We’ve seen the drop in clearance rates, we’re probably going to see a drop in housing finance approvals and we’ve seen prices fall for houses. The indicators suggest national weakness for some time.”

The Real Estate Institute of Victoria said it recorded a 61% clearance rate out of 836 auctions reported. Chief executive Enzo Raimondo agreed with Christopher, saying the figures show demand is set to remain subdued for some time.

“This current level of demand is likely to continue as stock levels will remain high with over 1,000 auctions expected for each of the next three weekends and buyers are more cautious in light of the banks decisions to increase rates above the decision of the RBA.”

Meanwhile, Australian Property Monitors reported a 53.8% clearance rate for Sydney, with 572 auctions reported and a total sales value of $199.7 million.

Adelaide recorded a 45.2% clearance rate, based on 51 auctions, while Brisbane, by far the weakest market in the country, recorded a clearance rate of just 7.1%, with 71 auctions and just two sales, with a total value of $900,000.

Story by Patrick Stafford www.smartcompany.com.au

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The Reserve Bank of Australia unexpectedly increased its benchmark interest rate on concern stronger growth will cause inflation to accelerate, driving the nation’s currency toward parity with the U.S. dollar.

Governor Glenn Stevens raised the overnight cash rate target a quarter point to 4.75 percent in Sydney, saying the economy has “relatively modest amounts of spare capacity” and citing risk of “inflation rising again over the medium term.” It was the RBA’s first move in six months.

The move signals Stevens wants to avoid a repeat of 2007, when he held off raising rates for months as slowing inflation masked a build up in price pressures. Growth in Australia, which skirted a recession during the crisis, may strengthen as energy companies such as BG Group Plc add construction jobs.

“They’re trying to nip inflation in the bud,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said on Bloomberg Television. “Back in 2007 they were behind the curve” in raising rates and “I don’t think they want to make the same mistake this time around.”

The Australian dollar climbed to 99.71 U.S. cents as of 3:31 p.m. in Sydney from 98.82 cents before the announcement. The S&P/ASX 200 Index of stocks was little changed at 4,702.70.

Economists’ Forecasts

The decision, predicted by seven of 24 economists surveyed by Bloomberg News, was the second straight in which Stevens defied the majority of economists’ forecasts.

Stevens’s move comes a day before the U.S. Federal Reserve meets to consider pumping additional stimulus into the world’s largest economy. The divergence in monetary policies has stoked the Australian dollar, which has gained about 11 percent this year against the U.S. currency.

Australia’s jobless rate, at 5.1 percent in September, is about half the level of unemployment in the U.S. and euro zone. The International Monetary Fund predicts Australia’s growth will advance to 3.5 percent next year from 3 percent this year as resources investment intensifies.

“While the labor market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies,” the central bank said in today’s statement. “After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.”

End of ‘Moderation’

A “moderation” of inflation for the past two years “is probably now close to ending,” the RBA said.

Two days ago, BG Group said it will begin building a $15 billion liquefied natural gas venture in Queensland state, generating 5,000 construction jobs. Investment there and in Western Australia, including Chevron Corp.’s A$43 billion ($42.5 billion) Gorgon liquefied natural gas project, is growing because of stronger Chinese demand for raw materials.

“The bank still sees Australian interest rates as likely to continue to rise as the mining boom progresses,” said Ivan Colhoun, head of Australian economics at Australia & New Zealand Banking Group Ltd. “This likely reflects the need to move nominal rates higher to match any rise in inflation and, at some stage, to also raise real interest rates too.”

Today’s increase was announced half an hour before the running of the Melbourne Cup, dubbed “the race that stops the nation,” and means the central bank has moved borrowing costs in the past five meetings on the day of Australia’s richest horse race.

Banks’ Response

Borrowing costs at ANZ, Commonwealth Bank of Australia and Westpac Banking Corp. are under review, according to spokesmen at the lenders. National Australia Bank Ltd. spokesman George Wright said no decision has been made “at this stage.”

Treasurer Wayne Swan has urged banks not to boost borrowing costs by more than any central bank increases. Australia lawmakers are sensitive about the RBA’s rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations.

Australia’s central bank signaled after its Oct. 5 meeting that the decision to leave borrowing costs unchanged was “finely balanced” with the case for an increase, as a rising currency helped ease inflation concerns. Most economists had forecast a quarter percentage-point increase at that meeting.

Job Market

While the government’s consumer price index rose 0.7 percent from the second quarter, less than the 0.8 percent median estimate in a Bloomberg News survey, that may be shrouding intensifying price pressures. An Oct. 7 report showed the biggest back-to-back monthly job increases since 1988.

The central bank’s measures of core inflation showed annual price increases also slowed last quarter. The bank aims to keep inflation in a range of 2 percent to 3 percent on average.

Stevens had paused after boosting borrowing costs in six quarter-point steps from October 2009 to May this year, the most aggressive round of rate increases among Group of 20 members.

Companies such as BHP Billiton Ltd., Rio Tinto Group and BG, the U.K.’s third-largest oil and gas producer, have helped spur a hiring surge as they increase shipments of iron ore, coal and energy to China.

The growth in mining investment was a reason IMF staff last week said Australia is starting to exhibit “early signs” of inflation pressures.

“With inflation projected to remain close to the top of the 2-3 percent target band, the RBA needs to guard against inflation expectations becoming anchored at too high a level,” the IMF staff said in an Oct. 29 report.

Among 33 members of the Paris-based Organization for Economic Cooperation and Development, Australia last year was the only advanced economy to avoid two consecutive quarters of contraction — a standard definition of a recession — along with developing economies Slovakia and Poland.

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net;

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

India’s richest man, Mukesh Ambani, has moved into his new home — a 27-storey mansion worth $1 billion.

The enormous Mumbai palace has three helipads, a dance studio, a ball room, a 50-seat theatre and an underground car park for 160 cars, according to media reports.

The 37,000 square metre home is believed to be the world’s most expensive and took seven years to build.

Mr Ambani, 53, is a major shareholder at Reliance Industries — an oil, retail and biotechnology conglomerate.

Forbes magazine has ranked Mr Ambani the fourth-richest man in the world and values his net worth at $29 billion.

The tycoon’s mother, wife and three children will live with him inside the 173m tall monolith, alongside 600 staff members.

The building has been named Antila, after a mythical island, and has views over Mumbai and the Arabian Sea.

Shiny Varghese, an Indian design magazine editor, said Antilia was "obscenely lavish".

"But we are heading into the sort of culture where money is not a question when setting up a home," Mr Varghese told The Guardian.

But an associate of Mr Ambani told the newspaper there was nothing obscene about Antilia, and that the businessman had simply "built a house to his requirements".

"He can’t just walk into a cinema and watch a film like you or me," the unnamed associate said.

"So he has built a house to his requirements like anyone else would. It’s a question of convenience and requirements. It’s only a family home, just a big one.

"It’s just another home that someone is living in. It’s no big event."

Story from ninemsn staff reporters

Interest rates remaining unchanged for a fifth month.

The central bank left its key cash rate at 4.5 per cent, defying widespread expectations that it would increase it to 4.75 per cent.

"It’s a bit of a surprise," said Macquarie senior economist Brian Redican. "The press release (accompanying the RBA decision) looked consistent with an interest rate increase".

"The present uncertainty in the financial markets is keeping the RBA on the sidelines," Mr Redican said, adding ”that higher interest rates will be required."

Holders of a typical $300,000 mortgage are already paying $300 a month more than they were a year ago, when the RBA began the first of six rate rises to return borrowing costs to their long-term levels as the economy bounced back.

The reprieve for borrowers may be short-lived, though, with the big commercial banks flagging their intention to pass on rising funding costs in the form of higher interest rates.

There was speculation such an increase may come as early as today, but National Australia Bank, Westpac and ANZ said no change to their mortgage rates is imminent.
"We have not made any announcements regarding any changes to our standard variable interest rate at this time," said a spokesperson for NAB.

Westpac also ruled out a rate rise until after next month’s Reserve Bank meeting scheduled for November 2.

”Our standard variable rate remains unchanged in line with today’s RBA decision,” said a spokesperson for Westpac.
”We have no current plans to change our standard variable rate ahead of next months’ RBA meeting.”

The Commonwealth Bank said its rates are under review and declined to comment on its likely decision.

Rates outlook

And the prospect of an official rate rise still looms after the RBA hinted strongly last month it will use rate rises to combat inflation pressures from the booming commodity export sector – a suggestion repeated today by RBA governor Glenn Stevens.

”The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being,” Mr Stevens said, in a statement accompanying the RBA decision.

”If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target,” Mr Steven said.

Inflation figures for the September quarter are due on October 27, just days before the central bank’s next interest rate meeting on Melbourne Cup Day.

Financial markets were pricing in an increase of 41 basis points in 12 months’ time – implying at least one more rate rise by the RBA by then – down from 53 basis points prior to today’s RBA decision.

Stocks pared their day’s losses after the announcement, ending about 0.4 per cent lower for the day after being off more than 1.4 per cent earlier.

RBA view

The RBA signalled that continuing doubts about the health of the international economy contributed significantly to its decision to stay put on interest rates this month.

”Financial markets are still characterised by a degree of uncertainty, and are responding both to differences in growth outlooks between regions and evident strains on public finances and banking systems in several smaller countries in Europe,” Mr Stevens said in his statement.

Greece, Spain and Ireland are among European economies struggling to cope with soaring budget deficits and slowing growth.

By contrast, Australia’s economy is showing ”growth around trend over the past year,” with prices for the country’s commodity exports ”very high,” the RBA governor said.

Indeed, Australia’s key economic measures are mostly improving, with the government’s fiscal stimulus spending easing back just as private spending perks up to take up the slack.

Importantly, the quickening growth is yet to stoke a pick-up in inflation, with prices growth moderating from ”the excessive pace of 2008,” the statement said. ”The effects of the rise in tobacco taxes aside, CPI inflation has been running at around 2.75 per cent over the past year. That looks likely to continue in the near term,” he said.

The Reserve Bank aims to keep inflation between a band of between 2 and 3 per cent over the medium term.

Patchy economy

One reason why inflation has been held back so far is that the growth of the overall economy – excluding the booming mining sector – remains patchy.

Data out today on the services industry showed the sector has contracted for the past five months, while retail sales rose 0.3 per cent in August – less than the 0.4 per cent pace expected.

Housing has also been under a cloud with price growth flattening out in major cities while new building approvals have fallen for six of the last eight months.

Other areas of weakness include slow lending growth, implying that banks are holding back on loans to businesses.

Mr Scutt noted that the RBA focused also on subdued credit growth.
"This has been getting little or no coverage in recent times but this will be closely watched in the months ahead…Credit has been weak despite the strong domestic labour market," said Arab Bank Australia trader dealer David Scutt.

"With households unwilling or unable to borrow more at present, it offers a strong indication that household finances are struggling with rates at present levels."

Other economists pointed to the brevity of Mr Stevens’ comments.

”What’s notable is that it is quite a short statement,” said RBC Capital Markets senior economist Su-Lin Ong.  ”There’s virtually nothing about housing or consumption” on the statement, she said.

"It does suggest maybe the RBA is paying a little more attention to what’s happening in Europe and some of the strains in the banking system there," she said.

Even so, "a rate hike before the end of the year is more likely than not," she said.

czappone@fairfax.com.au  BusinessDay

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