Over the last week I have had several clients ask me what I both think and suggest in the current circumstances.
I have been quiet since my email of 6th Feb when I highlighted what the Corona Virus outbreak might mean for the year ahead.
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Economic flu or just a cold?
Economically they used to say, “when America catches a cold the world catches the flu”.
At the moment because of the literal corona virus in China, the world is at risk of catching the economic flu.
Aside from the presidential election and the post Brexit trade negotiations (both of which are the long game for 2020 -being Nov and Dec respectively), the length of time that the world takes to adjust to the economic impact of the corona virus will be the story of significance in 2020.
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Who’s been Naughty and Who’s been Nice…
Dear Santa,
I’ve been good all year,
Most of the time,
Once in a while,
Never mind,
I’ll buy my own stuff…
All banks offer spectacular deals to new people.
Then under the cloak of darkness (called “out of cycle” rate rises) – they claw margin back.
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11 factors to consider when looking for your best home loan
Before we start, the best tip I can give you is… DO NOT DO IT YOURSELF… It took me years to work out that when friends looked at my home renovations and said, “nice tiling … do it yourself?” it was not a compliment. They were being polite. The fact that they could tell I had done it myself said it all.
I was about to start on this article when a thought appeared – why tell my clients (some of whom have been with me for 10-20 years) what they should look for? When instead I could ask them, what was most important to them, so I did.
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Catch Your Breath – What is Happening.
The scene is now set for the rest of 2019.
I give credit to the Reserve Bank and the Government for pre-empting.
The Reserve Bank cut rates by 0.5% (0.4% of which was passed through) and the Government passed tax cuts through to everyone.
What was the background? The two big ticket items – Brexit and the US China Trade War.
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Tell me about the future..
Anyone can read in the media that The Reserve Bank cut the cash rate yesterday.
I always endeavour to let you know what this means – so that you can plan ahead.
In July 2016 – almost 10 years after the GFC, interest rates had been low for a decade, there was a growing sentiment that they would inevitably rise – which always makes people worry.
I like to take notice of the people who have the RED (rates) button on their desk so back in 2016 I read an article from Janet Yelland (the outgoing chair of the US Federal Reserve) who had just told Congress that rates would stay low for ANOTHER decade – yes until 2025.
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Good News Ahead
The current market mood was caused by negative Government intervention to suppress buyer demand and also the election itself.
Sentiment has changed post-election and now positive Government intervention brings good news again for buyers.
There are 4 key areas that signal this.
- APRA has relaxed its tightening bias, now “encouraging” banks to lower their “assessment rate” (Banks currently assess your loan as if the rate is 7.5%, they will now be able to assess as if the rate is 6.5%) Your borrowing power will now be higher. (APRA answers to the Treasurer. This is clearly a government relaxation). https://www.abc.net.au/news/2019-05-21/australians-could-borrow-more-under-apra-proposal-on-mortgage-l/11133686
How everyone will be better off post-election
We had an election where one of the choices we had to make, in relation to housing, allowed one generation in the population to benefit only at the expense of others.
What we chose instead though is to the benefit of every generation – yes that is possible.
First Home Buyers are the BIGGEST winners.
The cash deposit required has been the largest hurdle for them to overcome. Until now First Home Buyers have needed to find 5% of purchase price PLUS costs to get those keys to the front door. Mortgage Insurance (of around 3.5%) was the biggest cost. On a $500k purchase – this meant they had to find $42,500.
95% Loans…An update.
This is an area of lending that is about to change markedly, and it impacts on how much money you need to buy your first home. (in a good way!!)
This is where we are right now – 95% loans are all about the treatment of Mortgage Insurance. (A one-off premium to protect the lender’s position, approximately 3.5%)
1. Lenders require YOU to pay all of the mortgage insurance (MI) from your money – so their loans are still 95%.
Costs vary from state to state – but let’s look at a $500k purchase in Qld where a first home buyer pays no stamp duty; Costs will then be approx. $2,500 and are inclusive of things like Solicitor, settlement and government fees. (I can explain these all in more detail, for your particular circumstance, if you “Ask Alan”).
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Housing policy dissected
Here are three truths;
1. If you own a house, then you hope prices go up.
2. If you are in the market to buy a house, then you want prices to come down.
3. 5 minutes after you buy that house, you hope prices go up.
Hence – everyone who owns or hopes to own a house hopes that prices go up.
Before I start – let’s make sure we acknowledge the needs of the five main age groups in Australia;
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