Ongoing discount rate loans still leading the pack

The popularity of fixed interest rate home loans hit its highest level in five months in June 2011, reaching 12.3% of all approvals for Australia’s largest independently-owned mortgage broker, Mortgage Choice.

Every state apart from SA saw a rise in appetite for fixed rate loans. The largest increase in interest came from WA, where demand rose from 9.4% in May to 14.2% in June.

However, ongoing discount home loans – where the interest rate is discounted over the entire loan term usually in return for an annual fee – remains the clear favourite at 32.2% of approvals, dropping less than half a percentage point over the month.

Company spokesperson Kristy Sheppard said, “Perhaps the constant speculation about interest rate rises in the latter half of 2011 and beyond convinced a higher number of borrowers to simply lock in their rate rather than feel their stomach churn with each piece of speculation.”

“July’s figures will be interesting because over the past month we’ve seen several lenders reduce their fixed rates on home loans. Now, there’s one tenth of a percentage point between the average three-year fixed rate, traditionally the most popular with borrowers, and the average basic variable rate. We haven’t seen that close a comparison in some time.

“Of course, there’s still a range of good ongoing discount rate home loan deals on the table at present, hence the overriding popularity of that more flexible product type.”

The second most popular loan type for June was standard variable rate, at 24.6%, closely followed by basic variable rate, at 20.8%. Demand for line of credit home loans, often more popular with investors, rose slightly to 5.1% of approvals as did introductory rate loans to 4.9%.

Note: Mortgage Choice currently writes one in 25 new home loans in Australia, equating to over $10 billion in approvals per year, hence it provides a clear insight into borrower preferences. The 18+ year old mortgage broker has a loan book of over $40 billion.

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In these times of lower auction results, and tales abounding of property bargains galore it might seem a bit unbelievable to be talking about a housing supply issue.

Many vendors are probably thinking that the only supply issue they have right now is that there’s too many properties on the market. But behind the scenes there’s still plenty of talk about how we’re not building enough houses by number crunchers who are taking a long-term view. They argue that if we don’t get building soon, it’s really going to bite down the track when a lack of supply will keep prices artificially high.

For now, though, says Robert Mellor, managing director at BIS Shrapnel, there’s a very real chance we’ve temporarily “thought” ourselves out of the problem by changing the way we live. As any parents of Gen Ys or even some Xs will tell you, there’s been a huge surge in young people staying at home for longer. The trend started in Melbourne and Sydney and has been taking hold in Brisbane over the last two years.

“Once you’ve got that tight market for such a significant period of time, people then … start to stay at home for longer, or they live in larger group households,” says Mellor. “That’s just the way people behave in [the] future.”

Nevertheless with immigration predicted to climb to more than 200,000 people arriving annually in a few years’ time, the mental powers of the young can only go so far and Mellor says underlying unmet demand for extra houses won’t go away.

“We estimate underlying demand is probably just under 183,000 dwellings per annum for the next five years,” he says.

“If interest rates rise as we expect over a two-year, two-and-a-half year period, then we won’t go anywhere near averaging 183,000 dwellings over the next three to four years and there’ll be further significant shortages in the marketplace.”

This year it’s expected we will build fewer than 150,000 dwellings.

When the National Housing Supply Council last released a report, in 2010, it said Australia was 178,400 dwellings short. That’s a tad below where BIS Shrapnel puts the shortage.

The supply council predicted the country would gain 3.2 million more households by 2029, and would need to build 160,000 dwellings every year to keep up with demand. But in 2008-09 we managed to put up about only 127,000.

The Housing Supply Council is due to report again later this year.

Respected economist Saul Eslake, who sits on the supply council and is also with Melbourne think tank The Grattan Institute, suspects the problem could actually have gotten “a bit worse because the level of dwelling completions, I suspect, would have been lower than was assumed in compiling [the most recent] report”.

To make matters worse, Eslake’s Grattan Institute colleagues have just released a study that shows the houses we are building aren’t necessarily what people want. Many people would settle for a semi or an apartment in the middle or outer ring suburbs, but these are hard to come by, the report found.

Tackling a housing shortage – even if it doesn’t feel like there is one at the moment while we are wallowing in properties for sale – would require a multi-faceted approach.

About 70 per cent of new housing stock is expected to be medium or high-density properties in infill developments, but community opposition is a significant barrier because people don’t necessarily want tower blocks in their backyards. In many cases they are also opposed to lower density townhouses and apartments.

Other factors are the higher costs of building in existing areas, banks that are not so keen to lend for development, and investors giving property a wide berth.

Eslake says the best way forward is for governments to abolish any financial help for home buyers – such as stamp duty concessions and first home buyer grants, because they just increase the price of properties. “All that happens is that the same people end up paying more for the housing that they would have bought anyway,” he notes.

Eslake says that money should then be used to increase the supply of affordable housing by governments funding new homes for people on low incomes, possibly through community housing organisations.

“The money is there to do something if they want to but they keep wasting it by giving cash away,” he insists.

Eslake’s sentiments echo the official finding of the supply councils’ last report: “Even if the market responds to demand by increasing supply over time, it is unlikely to provide sufficient housing for people whose incomes are towards the bottom of the house income distribution … a substantial part of the response to this gaps needs to lie with government policy.”

Story source: www.domain.com.au

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It’s the great generational debate. Who pays more for their housing?

Did the boomers have it easy in 1986 when house price to income ratios were a little over 2.5? As opposed to today’s ratio of 4.2, which is where HIA Economics put it as of December last year. (Other commentators say the ratio is higher though, putting it as much as 6-7 times family income in our capital cities.)

“Of course it was easier a few decades ago,” I hear you say. But there’s plenty of experts willing to argue that, when you take into account lower interest rates and higher household incomes, mortgage holders these days are no worse off than their parents

“The correct summary of the situation is that the rise in house prices between 1986 and 2011 can be mostly explained by the growth in incomes and the reduction in income rates,” says Christopher Joye, managing director of Rismark International.

But I can’t help feeling, as a working mother, that around the time that credit became cheap, child-care more widely available, unemployment started to head south and women were more willing and able to stay in the workforce, that we all got a bit too excited about the ability to fork out more bucks for a house.

And now we find ourselves locked into a situation where one income just isn’t enough, removing the choices families once had for mum to stay at home with the offspring. (… or dad, or the other mum, depending on your family situation).

In effect, when complaining about high house prices, you have to ask – do we only have ourselves to blame?

I’m not having a go at working mums here. I’m one, and I love that, as mothers, we have the right and ability to work. I’m just wondering if it’s a case of the more you get, the more the spend.

In 1978 43.5 per cent of women participated in the labour force, versus nearly 60 per cent in 2011.

Lifespan of workforce participation rate, 1980 and 2005. Source: ABS; Productivity Commission

Interestingly, at the same time, men dropped back from 79.4 per cent in 1978 to 72.3 per cent in 2011. But overall we have seen an increase in the number of people in the labour force, rising from 61.2 per cent in 1978 to 65.6 per cent this year.

More of the people participating in the labour force are actually working, not just looking, with unemployment at just 4.9 per cent.

Source: ABS

The main breadwinner is also working longer hours. Weekly hours worked per household head was about 43 in 1983 and climbed to about 55 in 2008.

Source: ABS

Low interest rates have encouraged households to take on much more debt. In the late ’80s, household debt equated to less than 50 per cent of household disposable income, now it is three times that, at more than 150 per cent, and we are devoting a higher percentage of our disposable income to servicing that debt.

Source: ABS; RBA

While the house price-to-income ratio may have been steadily rising, interest rates have been falling (from a general trend perspective) from double digits in the ’80s to single digits now.

Source: ABS; RBA; REIA

According to an RBA analysis of the Median Housing Price Affordability Index, the least affordable time to buy a house since 1980 was in 1989 / 1990 when interest rates reached 17 per cent, and then in the lead-up to the GFC when debt was much higher and interest rates were climbing towards 10 per cent.

Which just goes to show that it doesn’t take many interest rate hikes for us to push back into costly territory thanks to such high debt levels. (And nearly puts paid to the boomers’ argument that Gen Xers have never had to struggle under the weight of high mortgage repayments like they did.)

Source: ABS; RBA; REIA

But as Joye says: “There has been in a long-term sense … a quite profound reduction in the cost of mortgage debt.”

So people have been able to afford to take on much more debt for a given level of income, and splash out on much more expensive homes. “House prices have risen to reflect that, and that’s why we’ve had the big run up in prices, which won’t happen again in the future,” says Joye.

On Joye’s figures, house prices have risen on average by about 7% per annum since 1980, which he labels “a significant rate of increase”.

However, on the whole, despite borrowing up big, Australia’s rate of non-performing loans remains very low.

Source RBA

We might be coping with servicing our debts quite well but, as Joye says: “What that debt level does is it makes it difficult then for females to reverse out of that pattern [of working]. It’s hard for them to then withdraw from the workforce if they have to service debt.”

And remember housing debt is very long term. It could be 25 years.  “So once you take out a loan, absent of sort of selling your home and renting, you’re kind of locked into that commitment for a long time,” Joye notes.

Paul Braddick, head of property and financial system research for ANZ, says thanks to lower interest rates the cost of servicing a loan on a median-priced house hasn’t changed dramatically when you view it in terms of overall household income.

However, it’s undisputedly more difficult for people to save the required deposit now compared to before the early 1990s, he says. “When you are saving for a deposit you don’t have the additional benefit that comes from falling interest rates, whereas when you are servicing the loan that is a very important factor,” Braddick says.

But for first home buyers there is a ray of hope – in the form of a slowing housing market. Home buyers seem to be saying, at least for now, that they want to wind back debt and a slowing market is evidence of that.

So too are the rising levels of household savings. In terms of holding onto our cash, we are now back to levels not seen since 1990.

Household savings rate. Source: ABS, ANZ Research

Women may not have left the workforce en masse and aren’t likely too either. (And I’m not suggesting they should). But households are realising that cheap debt can’t last forever.

House prices have definitely, for now, come off the boil. It may not be the crash that many pundits in blogosphere are eagerly predicting, but it might just give us all a bit more breathing space when it comes to affording a home.

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

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If you are one of over 1.69 million* Australian property investors preparing to lodge their annual tax return, are you aware of what to declare and how to make the most of your investment strategy?

Ahead of the next financial year, thoroughly research your tax obligations and claimable expenses to find out how to use these to your advantage for this tax return and for the future.

Mortgage Choice company spokesperson Kristy Sheppard said, “If you haven’t already, now is an ideal time to assess your financial position, re-examine suitable investment strategies and explore ways to better use these to benefit your tax situation and property goals.”

“There can be numerous tax and other benefits associated with owning an investment property. The trick is to know what they are and how to make the most of them over the short and long term.

“Negative gearing entices some investors to property. This occurs when the combination of annual home loan interest repayments plus any deductible expenses is higher than the rental return. The loss is offset against an investor’s gross income, meaning they are taxed on the reduced amount. On the other hand, positive gearing – where rental income exceeds the deductible expenses and loan interest – is preferred by others. It is an individual decision to make with care.

“Despite the tax benefits and potential for long-term capital growth, it may be tricky to eventually profit from a property that runs at a loss. It is a good move to consult a professional tax adviser and mortgage broker before choosing a loan and buying property, to learn about the tax deductions available on your potential investment and what home loans suit your plans. You may also want to glean knowledge from property research companies, buyers’ agents and financial advisers.”

Mortgage Choice suggests investors review the following aspects of their strategy:

Know what to claim

As an investor you may be able to claim tax deductions for your rental property/ies on expenses such as: travel to collect rent or inspect the property, advertising to attract a tenant, property agent and/or management fees, body corporate fees, council rates, gardening, cleaning, pest control, building insurance, repairs and maintenance, water, home loan fees and loan interest. Check the Australian Taxation Office for a list of claimable rental expenses and/or consult a tax professional.

Don’t forget capital gains tax

Unless there is a capital gains tax exemption when selling your property (ie. it is your principal place of residence), you pay tax on profit made above the original purchase price. Keep in mind capital losses (ie. no profit is gained upon selling it) are not deductible against your ordinary taxable income but they are used to reduce any other capital gains you make from assets during the financial year or any gains in subsequent years. Consult a tax professional for advice.

Pay your interest-in-advance

Interest-in-advance loans are similar to standard fixed-rate interest-only loans but you pre-pay the next year’s interest before 30 June and claim it as a tax deduction in the current year. This means that upon lodging a tax return, eligible investors can effectively receive a portion of their interest back via a tax refund. Keep in mind individual circumstances differ so it’s always clever to seek expert advice from your tax accountant and a mortgage broker.

For home loan tips, trends, facts, data and other information, visit MortgageChoice.com.au,

* Number of Australians who claimed rental property deductions in 2008-2009, according to the latest figures from the Australian Taxation Office.

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Nearly 11 years on since it was first introduced the federal grant for first-home owners still stands at $7000, even though the average house price has more than doubled in that time.

That’s led one leading mortgage broker to suggest it is time the scheme was upgraded.

The residential housing market had changed significantly since 2000 and the $7000 grant was no longer adequate, Loan Market said.

“The economics that drove the original payment are outdated and need to be reviewed as per any government grant,” said the broker’s chief operating officer Dean Rushton on Wednesday.

The First-Home Owners Grant (FHOG) was introduced by the Howard government to help offset the impact of the GST on home ownership.

“For the FHOG to continue to help buyers, it needs to reflect the conditions they face in 2011, not 2000,” Mr Rushton said.

Most recent Australian Bureau of Statistics (ABS) data shows the size of an average home loan taken out by a first-time buyers was $285,400.

Back in June 2000 it was just $137,400.

Mr Rushton said the $7000 grant had been effectively halved.

Other ABS data shows the proportion of first-home buyers taking out a loan in April was 15.8 per cent, slightly more than the near seven-year low of 14.9 per cent seen in February.

But this was still well shy of the record 28.5 per cent set in May 2009 when the Labor government temporarily increased the grant as part of its economic stimulus measures to fend off the global financial crisis.

At that time the grant was $14,000 for existing homes and $21,000 for newly-built homes.

Mr Rushton said first-time home buyers had dropped out of the market during the past 18 months due to a combination of cost-of-living pressures and higher interest rates.

They also face the challenge of paying high rents and saving for a deposit.

The federal government’s $1.2 billion First-Home Saver Accounts scheme, which was introduced in October 2008, had done little to encourage first-time buyers, Mr Rushton said.

“The scheme aimed to assist more than 700,000 people within the first four years but it has attracted nowhere near the amount of the interest anticipated,” Mr Rushton said.

While legislation was passed recently to improve the flexibility of the scheme, it still had a four-year qualifying period, which made it unattractive for many first-time buyers, he said.

Colin Brinsden, AAP Economics Correspondent www.domain.com.au

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Go behind the scenes of the fourth season of reality TV’s renovation show The Block.

It’s a cacophony of construction noise: drilling, sanding, sawing, banging. Trees are hurried along hallways, which are lined with drop cloths and paint tins.

Some rooms are furnished, others look a long way from done. There’s scaffolding and tarpaulins and tools. And there’s tension in the air.

There are 60 tradesmen on site and, it seems, almost as many camera crew.

Somewhere in the organised chaos are the four contestant couples, who have less than 48 hours now to finalise full renovations on the four houses that are part of the latest season of reality TV renovation show The Block.

By the time season four goes to air on Monday night, the four free-standing houses – two Victorians and two Edwardians on Cameron Street in Richmond – will be completely finished.

”The contestants only get two months to make over the whole house,” explains executive producer and co-creator of the series Julian Cress while on-site.

”So they have to, in eight weeks, make over three bedrooms, two bathrooms, hallway, living, dining, kitchen, backyard, front yard and facade, from scratch.”

Purchased at the end of November last year for ”about three and half mil” from a family who owned all four, they were, Mr Cress says, ”in an astonishing state of disrepair; they were like slums”.

The competing couples have been given a budget of $100,000 each to transform the properties.

”There was no heritage overlay here so anybody could have just demolished them and put up a block of flats. We didn’t want to do that. We were just really excited by the possibility of taking these four beautiful old homes and restoring them to their former glory and using them for the show. Because they were side by side, it was just the perfect opportunity,” he says.

Three are single-fronted and one is double-fronted. ”To create an even playing field, we decided to put a second storey addition on the single-fronted houses so they’d all be three bedrooms, two bathrooms,” Cress says.

The back of each house, which faces north, was demolished. Host Scott Cam and his building team created new framing and floors. The contestants have then had to build everything else themselves.

”They’re not just renovating rooms, they’re actually building houses this time,” Cress says of the show that first premiered in 2003 and previously featured contestants renovating apartments.

The houses will be sold, fully furnished, at auction at the end of the season, with that final episode being filmed then.

So as not to spoil the on-air reveal, the auctions will not be held on the street but in private, with interested buyers having to register to attend.

The winner of the series is then determined by whose house sells for the highest price. They will win whatever the difference is above the reserve they set plus an additional $100,000. Last year’s winners pocketed $305,000.

The Block screens every weeknight at 7pm on the Nine Network, from June 20.

Story by Joanne Brookfield www.domain.com.au

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A threat by the Coalition to overturn the Gillard government’s ban on bank mortgage exit fees has prompted an angry response from consumer group Choice.

The ban is due to take effect from July 1, but can still be reversed by a majority vote in federal Parliament.

The Coalition would need the votes of two crossbench senators to overturn the ban under the current numbers in the upper house.

But the task would be more difficult after July 1, when the Greens alone will hold the balance of power. The Greens have in the past strongly advocated a ban on exit fees.

Nationals Senator John Williams said he had always opposed exit fees as they stifled competition. He said the ban should apply only to larger lenders, and smaller lenders should remain free to charge the fees.

Under Senator Williams’s plan, the ban would apply to ”authorised deposit-taking institutions,” the larger lenders regulated by the Australian Prudential Regulation Authority, but would not cover smaller lenders which come under the remit of the Australian Securities and Investment Commission.

Independent Senator Nick Xenophon said he would support the Coalition move, as he believed a blanket ban on exit fees would disadvantage smaller lenders the most. ”If you adversely impact on the smaller lenders, it will hurt consumers, and the big four banks will be laughing all the way back to themselves,” he said. ”We need to go back to the drawing board.”

But Matt Levey, the head of campaigns for Choice said such arguments were misguided.

”Business models based around trapping consumers in uncompetitive deals through complex and costly fees have no place in a reformed banking sector,” Mr Levey said.

”This is no time to retreat from genuine reform,” he said.

”Removing exit fees will pressure lenders to compete on up-front price and customer service, or else face the risk of customers moving their money to get a better deal.”

Treasurer Wayne Swan said there was no justification for exit fees and hit out at shadow treasurer Joe Hockey.

”I am just gobsmacked that Mr Hockey and the Liberal Party could talk about bringing back unfair mortgage exit fees as high as $7000. I think it just shows it’s another cheap political stunt from the Liberal Party who are completely out of touch with the needs of bank customers.”

The fate of the ban will depend on how Family First Senator Steve Fielding and Greens senators vote. Neither Senator Fielding nor Greens banking spokesman Adam Bandt could be contacted yesterday.

Story by Dan Harrison www.domain.com.au

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Hopes by some mortgage brokers and non-bank lenders that the Government would not garner sufficient numbers in the Parliament to maintain a ban on mortgage exit fees appear to have been dashed, with the Australian Greens indicating their strong support.

The Greens’ only member in the House of Representatives and the party’s banking spokesman, Adam Bandt, said today the Greens would vote to keep in place the ban on mortgage exit fees due to come into force on 1 July.

Bandt said that while the Greens understood that mortgage brokers and some non-bank lenders were concerned about the ban, they had not mounted a convincing argument about why it should not remain in place.

“Consumer advocacy groups such as CHOICE, the credit unions and mutual societies and even the National Australia Bank have all said overturning this ban is not the way to go,” he said.

“Instead of focusing on exit fees, those advocating greater competition in the lending market should focus on how to get the cost of wholesale finance for smaller lenders down so they can compete with the big four banks instead of penalising consumers,” Bandt said.

He said the Greens would seek further reforms from the Government to improve non-bank lenders’ access to finance.

Story source: http://www.moneymanagement.com.au

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The central bank has again signalled that interest rates will increase “at some point” but says it will wait for more news on the state of the international economy and on Australia’s domestic demand.

The minutes of the Reserve Bank of Australia’s (RBA) June 7 board meeting, show the bank believes inflation is being moderated by a high Australian dollar and recent lowering labour costs.

But the bank warned that growth in the resources sector may cause a gradual pick-up in inflation.

“This outlook suggested that further tightening in monetary policy would be necessary at some point,” the minutes said.

“Members considered, however, that the flow of data over the past month had not added any urgency to the need for an adjustment to policy.”

While there had been additional evidence of the coming strong pick-up in investment in the resources sector, activity remained quite subdued in some other important parts of the economy, partly as a result of previous cash rate hikes and also due to the high exchange rate, the RBA said.

“Credit growth remained quite moderate and asset prices had softened.

“In addition, the global activity data had been somewhat softer and downside risks to the international economy had become a little more prominent over the past month, especially in the case of sovereign debt problems in Europe,” said the minutes.

The Bank said it would leave the cash rate unchanged and would wait for further data on international developments and on the strength of domestic demand and inflationary pressures.

The past month had brought further evidence of the expected strength in mining investment, the central bank said.

However, investment intentions were considerably weaker, with the capital expenditure survey suggesting a significant downward revision to planned spending and structures in 2011/12, the RBA said.

Households continued to be cautious in their borrowing and spending, it said.

“With household income growth strong in the March quarter and consumption increasing more moderately, the household saving ration was estimated to have risen.

“Members observed that the saving ratio was now back to levels seen in the mid 1980s and that the increase from earlier unsustainably low levels was a positive development.”

The RBA noted that the housing market had remained soft, consistent with ongoing consumer caution.

The central bank last increased the overnight cash rate in November 2010 to 4.75 per cent.

It has kept it unchanged since then, as it assesses whether the boost from the resources boom is outweighing the slowdown in much of the rest of the economy.

AAP

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Australian home owners are among the most indebted in the world, but most had no trouble meeting monthly repayments on their mortgage in the last year, new research shows.

A survey of home owners and aspiring first-home buyers in eight countries by mortgage insurance provider Genworth has shown one in five Australian home owners spend more than half of their after-tax income on debt repayments.

On average, 45 per cent of home owners’ after-tax income goes to paying off debts, well above the average of 38 per cent in the other countries surveyed – Canada, India, Ireland, Italy, Mexico, the United Kingdom and the United States.

‘‘Whether for financial or cultural reasons, Australians are the most relaxed about being highly leveraged, with one in three comfortable borrowing more than 80 per cent of their home’s value, the highest proportion of the eight countries surveyed,’’ Genworth Australia chief executive Ellie Comerford said in a statement.

Four out of five of the Australian homeowners interviewed said they had no trouble meeting their mortgage repayments in the last 12 months.

As well, 45 per cent overpaid on their repayments, well above the average of 26 per cent in the other surveyed markets.

The level of confidence in the domestic economy among Australians was also higher than the total survey average, with 37 per cent expressing confidence in Australia’s prospects, compared to 30 per cent in the remaining countries.

The research showed the average age of first home buyers in Australia was 28.6 as of March, and had increased at a faster rate than the average age in the other countries surveyed.

AAP

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In many new areas, power lines are going underground. But if you live in an older area, would you fork out for the privilege?

A paper released last year by the Crawford School of Economics and Government at the Australian National University found that underground power lines could increase a home’s value by 3 per cent. That doesn’t sound much, but on a $500,000 property, it equates to $15,000.

It’s not really an issue I’d considered until I moved house recently where a hedge had been inconveniently planted under some low-hanging power lines. After getting the tree trimmers in for a fairly decent sum, it occurred to me that in the long run, it would be easier to either rip out the hedge and plant something more appropriate, or get the power lines buried underground.

In many new areas, power lines are going underground. But if you live in an older area, would you fork out for the privilege?

A paper released last year by the Crawford School of Economics and Government at the Australian National University found that underground power lines could increase a home’s value by 3 per cent. That doesn’t sound much, but on a $500,000 property, it equates to $15,000.

It’s not really an issue I’d considered until I moved house recently where a hedge had been inconveniently planted under some low-hanging power lines. After getting the tree trimmers in for a fairly decent sum, it occurred to me that in the long run, it would be easier to either rip out the hedge and plant something more appropriate, or get the power lines buried underground.

Given how long hedges take to grow, it seems more sensible to opt for the underground option.

At the same time, the local council is planning to tear up the existing footpath and lay a new one, so I wondered, would it be possible to lay the power lines underground at the same time? That would reduce fears in storms of live wires coming down, and also cut down on the need to butcher street trees growing around power lines.

Many new areas now have everything underground, and it’s easy to see why councils are forcing developers to go down that path. Although overhead set ups are seven times cheaper to install than the sub-ground option, they are also a lot more susceptible to storm damage in high winds. Or even just a tree branch coming down in normal weather and taking out half a suburb’s power.

On the downside, as Energex found out in the recent Queensland downpour, underground wires don’t much like floods. “Underground cables are laid in pipes, in conduits, and they really act more as a funnel for flood waters,” a spokeswoman says.

If something goes wrong, it can take a lot longer to find and fix the fault. “You have to dig up the earth to be able to repair anything, so it’s go its inherent issues. It was definitely more difficult for us to restore power to those underground areas [during the floods],” the Energex spokeswoman says.

Perth has been putting existing power lines underground since 1996 and is somewhat of a world leader. About half of the city’s homes now have underground power, helped along by a policy for all new estates to have underground infrastructure, as happens in many other parts of Australia too.

The impetus was some terrible storms back in 1994 that brought power lines down and left many people without power for more than a week.

Tony Moore, a spokesman from energy supplier Western Power, says putting existing cables underground costs between $10,500 and $11,500 per home. In south-west Western Australia, local councils foot 50 per cent of that cost, while the power company and the state government each cough up one-quarter.

Western Power works on a per lot basis, but some of the lots are strata title, which means councils can collect one, two or more rates for that “lot”.

By the time councils take that into account, and sometimes inject a bit of extra funding, undergrounding existing wiring usually costs ratepayers about $4500 per property, Moore says.

Because the maintenance costs of underground power lines over their nominal 40-year life are about 20 per cent of their initial installation cost, that split makes it equitable for Western Power to support the project.

But if Western Power had to pay for all of the undergrounding costs, the return on investment wouldn’t make sense, Moore says.

“In Perth we’ve been able to build a program that has encouraged people to be accepting of the fact they’ve got to pay $4000 – $4500 to get underground power. But I can tell you that when they get it, they love it. They support it in droves,” Moore says.

Surveys at the end of each project show satisfaction levels in the high 80s to early 90s, which means people often change their attitude once they see what a difference the underground wires make.

“You might have done a survey during the project to see whether they’re prepared to pay for it or not and in some cases you don’t even get 50 per cent, so we can’t do a project,” Moore notes. “It’s never forced on people, it’s always given to them as an option but if they’re not prepared to pay the money then we won’t go ahead and put Western Power and government money into areas that are not prepared to support it.”

Nevertheless, the hope is that one day, all of Perth’s power will be underground.

“The reliability levels are markedly improved where we have converted them from overhead to underground,” says Moore.

The work is done through drilling, not trenching, so while there’s still a bit of mess, it doesn’t make the street look like Armageddon. And at the end there are no poles or lines visible.

Story by Carolyn Boyd www.domain.com.au

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The issue of the government’s ban on exit fees is one that has crept up unnoticed on the Australian public.

Some people have asked me, what the issue is and who cares?

Well, the issue is that banning exit fees in the mortgage market will reduce competition by making it very hard for the most competitive players – non-bank lenders – to stay relevant in the market.

That’s the real issue.

As for who cares, try this list: the Mortgage and Finance Association of Australia (MFAA), Aussie Home Loans, Australian First Mortgage, Smartline, Mortgage EZY, Loan Market, Mortgage Choice, AFG, National Mortgage Company and Better Mortgage Management.

We all signed-on to an advertising campaign this week, aimed asking the government to drop its exit fee ban, or to at least adhere to the recommendation of the Senate Economics committee’s inquiry into banking, and exempt non-bank lenders from the exit fee regulations.

The MFAA – an industry body of mortgage and finance brokers – represents 41 per cent of mortgages written each year in Australia through organisations such as those listed above.

The Senate Economics Committee released its report into banking last month and it made comments that all Australians should note: it called for the Australian Securities and Investments Commission (ASIC) exit fee guidelines to be evaluated before any bans were implemented or that small lenders should be exempted from the Federal government’s ban on mortgage exit fees. The ASIC guidelines had been released only three weeks before Mr Swan announced the ban.

There is yet to be a government response to the Senate Committee report, but it should be noted that allowing the ASIC guidelines to operate, or exempting non-bank lenders from the ban on exit fees, would both have the effect of promoting competition in mortgages by allowing non-bank lenders – the real competitive factor in mortgages – to operate in the best interest of consumers.

Source: http://exitfeesmeancompetition.com

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DO you renovate before you sell, or just shove it on the market? Unfortunately, the answer is not simple.

There are a few tasks that cost little or nothing that should be undertaken without question. The big clean, the touch-up of paintwork, storing the clutter and fixing anything obvious.

Tidy that yard and make sure everything looks good from the street. Straight away, you have a clean and tidy home to list, but what if you feel that is not enough?

Consistently, the two most saleable homes in any market booming or busting, or location urban, or 100km down an unsealed road are either the “renovator” or the “move-in”.

The renovator offers buyers a chance to secure a home at a low figure for the area, relish the challenge and love the deal.

The well-presented home, with great decor and fittings -  the home that has the ready-to-move into feel, where sometimes the price can be a little steep sees the seller do well.

However, so many homes just fit the “in-between” category.

So, your first point of reference should be to ask yourself if it is a genuine renovator?

If it is, unless you are going to do the lot, it probably is better to leave as is.

Tidy and do the essentials, of course, but recognise that this is an entry-level home that may even have buyers fighting over it.

Likewise, if you are that fastidious homeowner who knows how to present their home as a display home, yet retaining that “lived-in, yet-we-love-living-here-even-though-we-are-selling feel”, you need to do nothing other than make sure your price expectations are 2011 and you have a good agent on board.

For the rest of us, we need to estimate how much your home is worth now as it is, versus what could it be worth with improved presentation and updated fittings?

Ask yourself what that work will cost and will it be more than the value gain? Answering these questions should help you determine the answer.

Any substantial investment runs the risk of not gaining sufficient value increase to warrant the investment in time and money.

On Selling Houses Australia we often get viewers asking: “How did you do all that work for that?”

The truth is and this is the same for homeowners everywhere the more labour you can undertake, the more bargains you can buy to aid your makeover, the tighter the budget is maintained, the less risk there is to your over-capitalising.

In our show we get all hands on deck in a few days, but the free labour is usually working on jobs many of us can undertake ourselves. (Well, some of us. My family don’t let me do anything other than painting, or clearing up as they figure they only end up having to pay a professional to complete anything properly).

So, like most things in property, knowing how much you should or shouldn’t spend is all about research.

You need to know what your home is worth now and if real improvements add enough value to warrant the work. If so, set a budget and stick to it.

Remember, if you are renovating to sell, it’s a business decision – don’t renovate with your heart or personal taste in mind.

Finally, always avoid the half-done project if your home needs a new kitchen and bathroom, overhaul both to a decent standard.

Do not spend all the money on a fantastic kitchen alone.

It is about the whole picture and finding decorative short cuts.

Remember, with these sorts of renovations, think selling, not your personal desires.

* Andrew Winter is a real estate consumer champion and the host of Selling Houses Australia on Lifestyle Channel.

Source: http://www.perthnow.com.au

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Mortgage delinquencies in the north- eastern Australian state of Queensland have risen to the highest in more than three years as floods and higher interest rates pushed up arrears, Fitch Ratings said.

Some 2 percent of mortgages in Queensland were in arrears in the six months to March 31, compared with 1.54 percent six months earlier, the highest since the ratings company starting publishing the reports in November 2007, Fitch said in an e- mailed report. Across Australia, 1.76 percent of loan repayments were late by 30 days or more as of March 31, according to the data, which represents about 17 percent of mortgages in the country.

“The Queensland floods have partially contributed to the increase in arrears,” analysts led by James Zanesi, associate director at Fitch, wrote in the report. The variable performance is a reminder to investors in residential mortgage backed securities “that the geographic diversity of the portfolio is an important attribute to be considered.”

Queensland’s capital city Brisbane saw home prices fall 3.1 percent in the three months to April, compared with a national drop of 1.2 percent, according to figures from real estate researcher RP Data. Almost two months of flooding at the start of 2011 inundated about 40,000 homes in Brisbane.

Victoria was the best-performing state, with delinquencies at 1.34 percent, and New South Wales saw arrears rise to 1.93 percent, Fitch said. Arrears rose in all six Australian states.

To contact the reporter on this story: Nichola Saminather in Sydney on nsaminather1@bloomberg.net

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AUSTRALIAN institutional investors, worth hundreds of billions of dollars, are trailing their European counterparts in funding projects to tackle climate change because of delays getting a carbon price established.

In a global survey of 90 firms – owning and managing assets of $12 trillion – Australian respondents said they were eager to develop an approach to climate change in their investment decisions but the uncertainty around domestic policy was an impediment.

Chief executive of the Australian-based Investor Group on Climate Change (IGCC), Nathan Fabian, said yesterday that his members were ”actively preparing to invest [in climate projects]. But there is no doubt a lack of clarity over a carbon price is impeding investment.”

Of the total assets managed or owned by the firms surveyed for the report, on average 0.3 per cent were invested in climate change projects such as renewable energy and clean technologies. European firms led the way, investing 0.5 per cent of assets in climate change-related projects, with Australian firms following on 0.3 per cent and US firms lagging behind on 0.1 per cent.

The survey – conducted by three international climate change investor networks, including the IGCC – also found that Australian firms had a growing recognition of the physical impacts of climate change exacerbated by the recent droughts and flooding, especially in real estate and major infrastructure investments.

The investor report follows last week’s Productivity Commission review showing Australia falling behind Germany and Britain in investing in carbon abatement from the power sector, but roughly in line with China and the US.

A domestic carbon price is being negotiated between the government, Greens and independents, with more meetings between the groups expected this week.

The government will also hold a meeting with its business roundtable on climate change on Friday as it hammers out a compensation package for industry under a carbon tax.

The Gillard government will today release a snapshot of potential climate change impacts in Victoria.

The snapshot warns that climate change could drive days over 35 degrees in Melbourne from the current nine a year to up to 26 by 2070.

In Mildura, days over 35 degrees may increase from 32 days currently to 76.

The extra hot days could drive up heat-related deaths but would decrease deaths related to cold weather, more prevalent in Victoria.

Rising temperatures could also drive more days of high and extreme bushfire risks, the snapshot shows.

Story by Tom Arup www.theage.com.au

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