Hilton Parkes Real Estate
15th December 2018

Banks Don’t Reward Loyalty: ACC

Most banks don’t reward loyalty so customers need to haggle for a better mortgage rate or miss out on $850 a year in savings, the ACCC’s latest inquiry has found. The ACCC Residential Price Inquiry has found that “only 11% of borrowers with variable rate mortgages had the price of their current residential mortgage reduced by one of the five banks under review in FY2018”. It found banks were generally not rewarding loyal customers but instead offering bigger discounts to new customers coming on board. “An existing borrower with an average-sized mortgage could initially save up to $850 a year in interest if they negotiated to pay the same interest rate as the average new borrower,” the ACCC report says. “For many borrowers, the gain will be much larger.” And it found that part of the reason for such a small take-up — and why banks have not moved to reward existing customers as much — was that it was hard to get information on better rates, let alone change deals.

Soft Landing Most Likely, Says OECD

The Organisation for Economic Co-operation and Development says Australia’s long span of economic growth, 27 consecutive years, is likely to continue – and that the Sydney and Melbourne housing markets are “on track for a soft landing”. In its latest Australian economic survey, the OECD says: “Life is good, with high levels of well-being, including health and education. Robust economic growth is set to continue. “New capacity coming on stream in the resources sector will support exports and business investment will pick up. The growth of wages and prices will rise gradually, while the unemployment rate will edge lower.” The OECD says the most likely outcome for the housing market in the biggest cities is a soft landing and that a housing crash is unlikely. But it says the housing market could pose a risk to the nation’s economic growth going forward. “Financial supervisors and bank regulators should be prepared in the event of a hard landing in the housing market,” the report says. “High indebtedness of households remains a risk.”

Banks Ease Squeeze-On Lending 

The banks are easing their squeeze on new mortgages with new loans to investors rising in October for the first time since February, alongside an increase in loans to owner-occupiers. The proportion of first-home buyers in the home loan market rose to 18.1%, a six-year high. There was a 2.3% rise in new mortgage approvals in October, following falls in the previous two months. The October rise was the strongest growth rate since July 2017. Westpac senior economist Matthew Hassan says the previous weakness in loan approvals may have related to processing delays as lenders apply more rigorous assessments. Loan approvals rose in all states except WA, which suggests an easing in new mortgage supply bottlenecks. In annual terms, loans in total are down 4.8%, mainly due to the investor drop-off. But CommSec senior economist Ryan Felsman says first-home buyers continue to be very active. “The average home-loan size lifted in October, suggesting some buyers are still gaining access to sizeable loans, despite tighter lending standards,” he says.

Renovation Boom Hits Historic High

Home renovations have hit a record high, sealing 2018 as the Year of the Reno for Aussie families. Latest ABS data shows that private investment in alterations and additions reached to a historic high of $9.896 billion in the September Quarter, 11% higher than a year ago. “Australia’s home renovations sector enjoyed its busiest quarter in 14 years during the three months to September 2018,” says MBA Chief Economist Shane Garrett. He says all signs are pointing to this figure rising further, with many families deciding to renovate their existing home rather than relocate to new ones. “Australia’s home renovations industry may be an unintended beneficiary of the tougher lending policies,” he says. “Looking further out, we are almost certain to see further gains for home renovations. More detached houses were built in late 1980s Australia than at any time before or since. More and more of these will be begging for major renovations work in the coming years.”

RBA Paves Way for Rate Cuts

The Reserve Bank has paved the way for further cuts to the official interest rate. In a major speech this week, RBA deputy governor Guy Debelle said the RBA was prepared to “go fast, go hard and not die wondering” by stimulating the economy. He also said that a lending slowdown could hurt the economy, commenting: “There is a risk that a reduced appetite to lend will overly curtail borrowing with consequent effects for the Australian economy.” Noting the Reserve Bank had “repeatedly” said the next move in interest rates was more likely up than down, Debelle said there was “still scope for further reductions in the policy rate”.
“It is the level of interest rates that matters and they can still move lower,” he said, in remark¬s that could foreshadow a reappraisal of the outlook by the Reserve Bank board when it next meets in February. The official interest rate has been unchanged since August 2016, when former governor Glenn Stevens reduced the cash rate to a record low of 1.5% – the final in a series of cuts that has seen the rate fall from a 10-year peak of 4.75 per cent in late 2011.

Quote Of The Week

“The average home-loan size lifted in October, suggesting some buyers are still gaining access to sizeable loans, despite tighter lending standards by banks and a slowdown in approval-processing times.”

CommSec senior economist Ryan Felsman