After three consecutive rate rises earlier in the year, the RBA today decided to leave rates on hold in July.

“The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. Pending further information about international and local conditions for demand and prices, the Board views this setting of monetary policy as appropriate,” governor Glenn Stevens said earlier today.

The RBA has raised official interest rates six times since last October, taking the official cash rate from the historic lows of 3 per cent to what the central bank considers a more normal rate of 4.5 per cent.

But while interest rates are largely considered to be back at ‘neutral levels’, a spray of new data suggests future rate increases remain on the cards.

The monthly TD-Securities-Melbourne Institute inflation gauge rose 0.3 per cent in June for an annual reading of 3.6 per cent – well above the RBA’s 2 to 3 per cent inflation target band.

In addition, ANZ’s latest Job Advertisements Series found job ads are currently growing at the fastest rate since November 2007.

The total number of jobs advertised rose by 2.7 per cent in June, to an average of 169,690 per week.

But ANZ’s chief economist Warren Hogan said the recent strength in job advertisement numbers is not broadly-based.

In fact, the rise in job advertisements was driven entirely by a 3 per cent rise in internet advertising.

“The mixed result for the Job Series only added to the RBA’s case for keeping policy rates unchanged for now,” Mr Hogan said.

(Written by The Adviser)

The point the journalist was trying to explain was that if you have a house & it goes up in value; you’re really no better off. This theory has been thrown around by both property skeptics and property lovers (like Dolf Deroos) for many years, and if I take the skeptics side for just a moment, I agree that if you had a house worth $400,000 and it increased to $500,000 within any timeframe, then logic suggests that if you sell to upgrade, you’ll need to spend say $600,000 for the house that was worth $500,000 back when you bought your last purchase (for $400,000).  So the real loser in this instance is the renter who is forced to enter the market at a higher price.

BUT, the true winner is he or she who has multiple properties, the astute property investor.

Let’s say you had 4 properties (3 rentals & 1 you live in) and you paid $400,000 per property on the same day. Now let’s say the Reserve Bank is right (and we hope they are) and the price increases in the next 2 years to $500,000. Now we’ve just had an increase of $400,000 (4 x $100,000) and yes, if we were to sell the home we live in, replacement value would be $500,000, but if we sold the other 3 because we want to cash up our investments, we’ve just pocketed $100,000 per property (less any expenses – this is a very simplistic and hypothetical explanation for illustration purposes).

So if this is the case, it shows that there is a loser, a status quo and a winner in this circumstance. It’s not a secret, never has been, but you invariably will be in one of these 3 categories. My old boss told me a saying many years ago “The difference between a rort and a perk is that a rort is just a perk you’re not in on!”

There’s many things to learn along the journey of multiple property ownership one of the most important is to realise than investing in property is a journey not just an event or series of events (one of the many things we do and teach as part of our property sourcing model through our property coaches and support evenings), so choose to be the right person in this story.

The last point in the report on the radio by the journalist said this “there is one group of people who are going to gain from this, landlords [aka the person with 4 properties], but unfortunately usually it’s the wealthy upperclassman who have investment properties so we now see a divide between the upper and lower class.” Last point, if you do research (which the RBA has) you’ll find the majority of investment property owners are ‘middle class’ at best, average Australians not the elitists, but more on this in  another blog. Opportunity knocks, the time is now.

However, most economists and forecasters now appear to think an interest rate rise is likely before Christmas.

According to Herald Sun economic commentator Terry McCrann, it would take something dramatic for the RBA to lift rates as early as October.

But the longer it holds off, the more likely the individual banks will increase rates independently, he says.

“If they could be confident the RBA would hike in October or even November, they would wait – aiming to slip in, say, a 35-40 point hike on the back of an official 25-point move,” McCrann says.

“But if the clock ticks by and there’s no official hike, who will be first?”

According to statistics, the Australian economy is doing well but there are still many households that can’t afford to make higher debt repayments.

The good news is that Australia is weathering the global downturn really well. It is the only major developed country to record economic growth last financial year.

Aussie households and companies are still spending and expanding despite the financial crisis and recession in other countries.

The spend-now attitude has been encouraged by the Federal Government’s $60 billion stimulus package of cash handouts. Unfortunately all that fun has a downside.

There is concern that spending and economic growth will get out of control, inflation will start up again and interest rates will rise.

When people spend a lot, prices increase, which causes inflation to go up. When people don’t have money to spend, prices and inflation can go down or at least stay steady.

The RBA uses interest rates to control inflation. Ideally the RBA wants inflation to be between 2 and 3 per cent, which it believes is the right level for the normal forces of supply and demand.

When economic growth – spending and expansion – is in danger of going up too fast, the RBA increases interest rates to reduce spending and to slow down growth in the economy.

When the economy looks like it might slow down too much, the RBA cuts rates, to free up or create some spare money and keep spending ticking along.

Its guiding measure, however, is inflation. However, these decisions are made in advance of the growth or the slowdown actually taking place so RBA board members must constantly estimate what will or won’t happen in the future.

So the great news is our economy is in a strong position and will only continue to go from strength to strength. The down side, interest rates need to increase in line with this.

Now is the time to make sure your portfolio is stable and can withstand the increase. Implement those strategies that are going to see you through the market ups and downs coming through with a portfolio that will enable you to realise your future dreams.

The question on many people’s lips is if I extend my debt position now will I be able to hold my portfolio when the market returns to its ‘normal level’?

It is in response to this question that some people make the decision to fix in their debt, at least now knowing that their repayments won’t be changing for a set period of time. History does however show that those that ride the waves of variable are better off in the long run. This is where a redraw or offset facility could come in handy. You could simply calculate your payments based on an interest rate you are comfortable with long term, say 8.5%. Putting this amount into your loan or offset facility each month would allow a surplus to build up during the lower times and give you somewhere to dip into during the higher times.

You need to also realise that when a bank lends you money they assess your ability to repay the debt. As we know banks are generally quite conservative and therefore they use sensitivity when establishing what you can afford. When assessing your loan repayments they will often do this at 1.5% above what you are actually paying. When taking your rental income into consideration they generally only use 75% of what you are currently being paid. So as you can see the bank is ensuring that when there is a change in the market for the worst you can still make your repayments.

It’s also important that you understand the position you are in now and where you want to be in the future. Unfortunately we can’t predict all of life’s twists and turns however we can take the steps to ensure that we are making educated decisions at the time and thinking down the track.

One thing I always recommend to my clients is to have a ‘buffer’. This is a surplus of cash or borrowed money put away for a rainy day. Many of our clients use the strategy of unlocking equity to fund that next investment, all we do is ensure that we borrow that little bit extra to tuck away. This is where you go if the council rates all come in at once and you haven’t put enough money away, or if you’re having to pay for repairs whilst waiting on reimbursement from the insurance company. This ‘buffer’ will bring life’s surprises back into your control and save an adverse effect.

So as you can see with a little forward thought and planning it is possible to reduce your risk in property investing. This is where a Finance Strategist brings value to the table over your every day mortgage broker. They can ensure you are considering every aspect of your investment journey. If you haven’t already, take the time to talk to one of our Strategists you will soon discover if they have something different to add.

What I have observed to be the case in many instances, is that it is your smaller lending institutions like credit unions, community banks and the like, at face value tend to carry some of your most competative interest rates.

So where’s the issue with chasing the greatest rate? If your single goal in life is to own your own home and pay off that mortgage as quickly as possible, then nothing. However if you’re considering going beyond that then there is so much more you need to consider.

Many of the smaller lenders choose not to carry as higher level of risk as other lenders, they tend to put the brakes on much sooner. This means that based on your income, assets and liabilities you won’t be able to borrow as much money into the future, therefore limiting the number of properties you can accumulate.

This can particularly be the case if you choose to fix with these lenders as you will inevitably be faced with the decision of paying high fees to break out of your loan to buy that next property or wait out the term of your loan and lose that great buy.

So as you can see there really are so many more questions that need to be considered when funding your property. We don’t have a crystal ball but as much as possible we need to be considering the future and the consequences of our decisions now. What is it they say, ‘short term pain for the long term gain’!

Who you take advice from to grow your property portfolio is of high importance, so stop and ask the question – “Are you a property investor yourself”?

Westpac announced on the weekend that on Tuesday it will lift its one-year fixed home loan rates by 10 basis points to 5.59%, its three-year fixed rate by 40 basis points to 6.99% and its five-year rate by 45 basis points to 7.64%.

The bank blamed a rise in its funding costs for the increases. Frank Lopez, and analyst with research firm Canstar Cannex, says the average three and five year fixed mortgage rates have jumped 1% since May and again started edging up again last week after a speech by Reserve Bank Governor Glenn Stevens led many commentators to predict the next RBA rate movement will be up, rather than down.

“We don’t see any reason for rates to start coming down anytime soon,” Lopex says. “The best fixed rates are gone.”

So have those mortgagees wanting to fix their mortgage officially missed the boat?

Lopez points out that the gap between fixed mortgage rate and the average standard variable rate, currently sitting at around 5.78%, is now looking very wide. And while fixed rates are creeping higher, most economists are not expecting the RBA to increase its cash rate (which would likely trigger a rise in variable rates) until at least the middle of 2010.

He says those who fix rates now need to understand just how far their variable rate needs to rise before they will actually be saving money.

“Assume the five-year fixed rate is sitting at 7% and the variable rate is sitting at 6%; the variable rate really needs to hit 8% before you are actually making a saving with that fixed mortgage rate,” says Lopez.

“That is quite a lot of rates rises, particularly when most economists are not excepting the economy to exactly boom in the next few years.”

Bruce Brammall, owner of Castellan Financial Consulting and author of Debt Man Walking – A 10-Step Investment and Gearing Guide for Generation X says there is a very small chance that the RBA will cut rates again, but it is diminishing.

“The time to fix, with the benefit of hindsight was about four or five months ago.”

That said, he points out that fixed rates still remain low by historical standards and certainly lower than 12 months ago, when five year fixed rates were sitting at around 10%. He says that if you are still keen to lock in rates, you can still get a reasonable deal by historical standards, particularly if you do a bit of shopping around.

“To say that the boat has left the shore is probably right, but if you run and jump you can still get on.”

He sees fixed rates as insurance policy against big rises in the variable rates and says that some mortgagees love the certainty that fixed rates offer.

Adir Shiffman, chief executive of financial research site HelpMeChoose.com.au agrees and says the decision on whether or not to fix comes down to personal psychology.

But while he is unwilling to make a call on whether or not to fix, he points out that the banks consistently report that those who stick with variable rates are typically better off than those who fix.

But he says that for some people, the certainty of knowing your rate five years in advance is very important.

“Consistently, people that have left rates variable have done better than those who have fixed rates, but they’ve probably had a few more sleepless nights,” Shiffman says.

“But if you can wear that uncertainty from standard variable rate then, according the banks, you will be better off in the long-term.”

(Article taken from smartcompany.com.au)

“Interest rates take between six and twelve months to stimulate the market and especially new housing starts. The economic conditions, given the rapid easing in interest rates to date and the large fiscal stimuli, should be much better during financial 2009/2010.

Unemployment lags, whilst confidence anticipates. Confidence in residential property as an investment, has improved dramatically over recent months. New dwelling sales are now starting to lift. New housing starts will follow in due course.

Looking forward, Australia (and most of the western world for that matter) cannot hope to pay back debt with low interest rates. Eventually interest rates will rise back to more neutral levels. Our cash rate is currently 3.00%. History suggests that a cash rate of between 6.00% and 7.00% is neutral.

Interest rates are likely to fall further, but not as fast nor anywhere near as much as in recent months. Jobs, and especially casual work, are still being created across much of Australia. Yet unemployment is on the rise due to a growing workforce, fuelled mainly by a lift in the participation rate. Fulltime work, however, is starting to slide, placing a lid, at present at least, on new housing starts. Hence interest rates are likely to fall a bit more.”

So what does this mean in a nut shell to us investors? Well, we are set to enjoy some low interest rates for a while yet. Perhaps start to consider fixing some debt in next year if the lenders bring back fixed rates in line with the variable, before we head back to more neutral levels.

Confidence is definitely returning in residential property investment so our window of opportunity in sourcing those bargains will begin to reduce.

We don’t have a crystal ball to see what lies around the bend however current indicators definitely show that things will bounce back. So why not take advantage of what so many others are yet to see.