There seems to be a lot of hype in the media at the moment about rising interest rates. Personally, I’m not sure why. Australia has had the lowest cash rate in decades and all of a sudden they are shifted slightly and everyone gets nervous. Through all the recent property booms across the country, they have all occurred when interest rates have been higher than they are now.

In 2008 when the term ‘GFC’ was part of nearly every conversation & headline, the RBA responded accordingly dropping interest rates faster than they had ever done before and lower than they had done for the last 40 or so years. This to me was a true sign of an active board that should be applauded for their swift movements, leading Australia almost unscathed out of what was a turmoil period for the world economy. There is no doubt Australia did suffer, however to a lesser extent than that of other developed countries around the world. The GFC is not over, although journalists are calling an end to it although I do believe the effects of it will linger for some time. In particular, I think every new and existing investor will make their decisions with the GFC in the back of their minds as a very real possibility to consider in both the short term and beyond.

So now we have seen what could happen and how it can be managed. The share market is up over 50% from its lows in March, the property market has pushed up over 8% this year alone and unemployment levels are nowhere near the levels that were once expected at the start of the GFC.

So what does rising interest rates actually mean? Well, for starters, I think we should be happy about them. Rising interest rates are evidence that our economy has survived AND is showing signs of growth. So, in order to slow down inflation, which the RBA is very wary of, interest rates are required to rise.

My concern though is not that interest rates are rising but more importantly that interest rates may rise too quickly. Everyone seems to think that we are over the worst and that there is only positive news to come, but, with such a fragile world economy at the moment the slightest hint of bad news could bring the economy crashing down (again, although I don’t believe it will be anywhere near the levels we saw in March 09).

The NAB has suggested that there will be an interest rate rise of 25 basis points in every board meeting until March 2010. This means the cash rate should hit 4.25% within months. NAB’s chief economist Alan Oster said growing consumer confidence and an improvement in business conditions had increased the likelihood of further rises. The business conditions index surged nine points over the last month to a reading of +12, which is substantially above the long run average reading of +3 index points.

“While confidence has surged in recent times, business conditions have remained significantly below long term averages. That has now changed. In many ways, very high business confidence readings appear to be bearing fruit,” Mr Oster said.

Now although the business conditions index is reading +12, much higher than the long term average of +3, it doesn’t take into account the fact that we have just been through one of the most serious financial downturns in history, so human psychology will tell us that any glimmer of hope to escape the negative sentiment in the world would be exaggerated. So although there is a reading of +12, it needs to be taken into context against the backdrop of the reading as I do think its hard to agree that business is 4 times better at the moment than our past average years.

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Last night I spent the evening with John Symond. What an amazing story!

John starts off by telling us that he went to 11 different schools and 2 universities. His education was not about learning what was taught in the class room but about learning to change….something we all seem to fear doing. He spent his childhood either at school or working for his parents in their fruit shops. He never went on holidays. John and his 6 siblings had a very simple upbringing.

After school, John studied law and went on to set up his own consultancy firm specialising in property and finance. He had about 10 staff and was living the good life. A joint venture with the State bank of South Australia was what John thought was going to propel him to the next stage of his business career. At this time John was happily married with 2 kids and he couldn’t ask for anything more.

By the early 90’s, the joint venture had collapsed and John was left with nothing. He was left with massive debt and the stress of business crept over into his family life which ultimately ended in a divorce with his wife.

With millions of dollars in debt and a strong will to not call himself bankrupt, John made it his mission to create Australia’s largest non-bank lender… and so Aussie Home Loans was born.

John spoke about doing business when times were tough. Back in 1992 Interest rates were up at 18%. Banks were making huge profits and he saw an opportunity. And this he says is what we should all take away from tonight… the fact than when the economy is doing it tough, opportunities are created… it’s just a matter of seeing them and more importantly acting on them.

Johns interest rate tips for the night were that there was too big a gap between fixed and variable rates so he was more inclined to stick with variable. He also stated he has never been a huge fan of fixed interest rates and mentioned not so long ago people were locking themselves into 8% + fixed rates for 5 years… and thus were now paying 2% about market rates. He thinks that the economy may get worse before it gets better and that interest rates should remain fairly stable or even possible drop. Another point he made was that everyone always talks about the high unemployment of say 8-10%… but more importantly we will still have 90% employed. He states though that the problem is not the issue of unemployment but it is the lack of confidence within the market and the fact that people are worried about their job security. This lack of job security leads to many saving rather than spending just encase they lose their job.

So there you have it – straight from Aussie John himself… a fascinating person who has definitely had many ups and downs in both his personal and business life and many lessons can be learnt from this.

For those that are interested in learning more about John Symond, I suggest you go buy his book “Aussie John: John Symond” . The book is all about how John Symond lost everything, built Aussie Home Loans, took on the banks – and won! It is the story of John Symond’s life, from his happy childhood in Brisbane and Sydney’s west and his financial failure after the 1987 crash, to his emergence as one of Australia’s inspiring businessmen. Bit more than this, this book is a manual for how to succeed in business.

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Home Buyers Show Brisbane

Brisbane Property Expo on 13th and 14th June 2009 at the Brisbane Exhibition Centre. Perfect for property investors and home buyers.

Find Investment Property is excited to announce that we will be participating at the upcoming Home Buyer Show at the Brisbane Exhibition Centre on Saturday 13 and Sunday 13 June. It is the only major event in Australia dedicated to helping people actually buy or sell a new or established home or apartment whether as a primary residence or investment property.

The dream of home ownership is alive and well in Australia, and with interest rates at record lows, property prices cooling, substantial Government grants still available and a strong rental market, home buyers and property investors are returning to the market in large numbers.

Now more than ever, home buyers and investors need to do their research, understand market conditions, and have access to all the right independent advice from reliable sources to make informed buying decisions to enable them to get on the right path to the right property.

The Home Buyer Show will provide first, second and third time property buyers with all the information they need to help discover the smart way to finance, find and buy a home or investment property – direct from the experts.

Some of the major show highlights include:

• Free seminars from Australia’s leading property and finance experts in government and industry associations
• Master Builders Zone – Master Builders members, Queensland’s leading building services companies, will be showcasing a wide range of new homes, display villages and house & land packages.
• Property Investor Zone (sponsored by Find Investment Property)- educating property investors of all levels including all the latest investment properties for sale on the market today with loads of experts on hand to provide independent, impartial advice.
• Apartment Living Zone – showcasing some of the latest apartment, unit and townhouse developments in SE Queensland

As part of a special promotion, we are pleased to offer all of our clients, partners and friends unlimited $5 tickets to the Home Buyer Show which are normally $15. Simply visit the website www.homebuyershow.com.au and when purchasing tickets quote the special promotional code FIP.

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The Reserve Bank of Australia has stated that Australia’s recession could be over by Christmas. A recovery may be on the agenda as confidence and economic activy returns to the market on both a globa scale and locally in Australia. They aslo believe that the worst of the global gloom may then be behind us aswell.
Backed by strong signs of improvement in China, the local economy could show signs of recovery as Australia is China’s larget trading partner. This backed up with certain local stimulas packages has resulted in consumer confidence increasing slightly too.
The RBA have stated that “In the case of the Australian economy, members observed that there were signs that the economic stimulus that had been applied was supporting demand. Nonetheless, substantial growth was not expected to resume until around the end of the year.”
So if the Reserve Bank of Australia is eyeing any sort of recovery in the pipeline the likley hood of any furture interest rate cuts in the short term will be relatively low. That being said, if the economy doesn’t start to improve or remains weighed down, then the RBA will be forced to cut rates further in the second half of the year.

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The RBA meets tomorrow to dicuss another possible rate in Australia. With one in four economists prediciting a cut, the more important question on everyones mind is that if a rate cut does occur, will the banks pass it on.

House values have fallen according to RP Data stats, however the recent month of March showed strong signs of a recovery with low interest rates and the governments boosted first home buyers grants.

With the sharemarket climbing to its highest point in 2009, a false sense of recovery looms.

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An overhaul of consumer credit rules will make it easier for people who lose their job to envoke a “hardship” clause to seek relief from demands to meet mortgage and other loan replayments. The threshold for people to qualify for financial hardship will be increased from $312,400 to $500,000.

The aim by the government is to help people to keep their home even if they have lost their job. The four main banks have signed up to the scheme. This is a great step forward by the government and the banks so long as it is not to dificult for those that are in hardship to secure the payment break tht they may require.

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The Commonwealth Bank and Westpac Bank both upped their fixed-rate mortgage rates today due to higher funding costs.

CBA’s four-year fixed rate home loans rose 20 basis points, while their five-year home loan increased by 45 basis points.

Westpac has raised its one-year fixed mortgage 20 basis points and its two-year fixed rate mortgage has risen 30 basis points.

There is much speculation that interest rates offered by the banks could be as low as they will go, even if the RBA decides to futher reduce official cash rates to all time lows.

Only time will tell, but many ‘experts’ are torn between fixing rates now or waiting to see what the banks may offer over the coming months.

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Lenders, Banks and Non Banks, are struggling to keep pace with an unexpected increase in applications from first-home buyers due to the first home buyers grant deadline at the end of June this year. Some banks are taking as long as a month to approve loans. This is resulting in some buyers missing their settlement dates.

The banks new lending policies and the poorly organised applications by new borrowers is hampering the banks efforts to approve and allocate loans ontime.

Banks are now hiring more staff to cope with the demand… a reversal from 6 months ago when banks were letting go staff in their home loan lending divisions.

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The Government is considering the move to stop banks charging exit fees on their home loans to help increase competition. The recent RBA rate cut of .25%, while the banks either passed on 0.1% or nothing has angered the Government, thus pushing it to consider other options to help those with a home loan. 

Some people are confused and think this is referring to those that wish to break their fixed home loan rates, however this is incorrect. Those with fixed interest rate home loans will still be required to pay the break costs should they decide to move banks or change from a fixed to lower variable loan.

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With so many options available to home buyers and property investors, how do you know where to go to find the right home loan. Should you speak to the banks directly, is it worth using a mortgage broker, talking to a non-bank lender or using an online electonic home loan provider. So many options to find a home loan and everyone is going to tell you something different. It will also depend on your personal situation.

No matter who you decide to obtain a home loan through, make sure you look for comparison rates, what fees need to be paid upfront and ongoing and ask for a further interest rate discount… something that may seem very small such as an additional .01% off the home loan can save you thousands of dollars over the love of the home loan.

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