This is no surprise as media reports have indicated that this may occur.

It is expected that in coming months further rises may be expected, how many I suppose will depend on how our economy continues to grow and reacts to these rises. Continued low inflation may assist borrowers a little here.

My guess will be that it will take most banks/lenders 3o seconds to increase their rates .  A 0.25%pa increase will add around an extra $39/4 pm to a $250,000 loan over a 30 year loan term.

Next RBA meeting is Melbourne Cup Day, 3rd November, 2009 

To see what the  RBA governor had to say please keep reading.

Statement by Glenn Stevens, Governor Monetary Policy RBA

The global economy is resuming growth. With economic policy settings likely to remain expansionary for some time, the recovery will likely continue during 2010 and forecasts are being revised higher. The expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis. Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend.

Sentiment in global financial markets has continued to improve. Nonetheless, the state of balance sheets in some major countries remains a potential constraint on their expansion.

Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected. Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending is also starting to provide more support to spending. Overall, growth through 2010 looks likely to be close to trend.

Unemployment has not risen as far as had been expected. The weaker demand for labour over the past year or so nonetheless has seen a moderation in labour costs. Helped by this and the earlier fall in energy and commodity prices, inflation has been declining, though measures of underlying inflation remained higher than the target on the latest reading. Underlying inflation should continue to moderate in the near term, but now will probably not fall as far as earlier thought.

Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months. Business borrowing has been declining, as companies have sought to reduce leverage in an environment of tighter lending standards. But large firms have had good access to equity capital and access to debt markets appears to be improving, helped by the better-than-expected economic conditions and increased willingness on the part of investors to accept risk. Share markets have recovered significant ground.

Interest rates facing prospective borrowers on fixed-rate loans have already risen to some extent, as markets have anticipated a higher level of the cash rate. For many business borrowers, increases in risk margins will still be occurring for some time yet. In addition, the exchange rate has appreciated considerably over the past year, which will dampen pressure on prices and constrain growth in the tradeables sector. These factors have been carefully considered by the Board.

In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.

Low Document Loans are Dead, says John Symond – was a recent heading in The Australian, but is this really where we sit today?

Westpac, St George and RAMS are the latest lenders to follow in the footsteps of CBA, ANZ and NAB who tightened up on their policy for self employed borrowers six months ago. The change will greatly impact the low document loan segment of the market where borrowers are now required to provide the past 12 months Business Activity Statements and in many instances business transaction account statements. This dramatic policy change does not leave a great differentiation between full doc and low doc loans.

When low doc loans first became available they were not brought to the market by these major lenders but by the non major lenders, so it is no real surprise that our major banks have never been fully comfortable with this style of lending, particularly in a market where they are more than ever picking and choosing their new customers.

Good news for those customers still dealing through these major lenders and battling with their less than satisfactory servicing issues, this will reduce the volume of applications to the lender and therefore hopefully bring us back to a time where purchase settlements are once again taking place on time.

But where do you now sit if you are a self employed applicant who does not fit within the lenders strict new guidelines? It’s back to the non major lenders for you, and when we say non major this thankfully does not always suggest non competitive. There are many lenders in our market today that have chosen the low document segment of the market to specialise in and therefore offer great competitively priced products. And the add bonus, you too will no longer have to deal with less than satisfactory servicing issues.

However, like many thing in our current economy this is subject to change without prior warning. Unfortunately no one has a crystal ball to see when things will return to the ‘good old days’. As much as Australia is in a very positive position compared to the rest of the world, with the impact on our economy being so much less than anticipated we still are not able to anticipate what changes will still need to be made before we once again return to full strength.

So the biggest piece of advice we can give you in the lending industry is – do all you can today, because tomorrow is another day. If you’re considering investing further in property, buying your first home or renovating the family home, even if you’re not ready to spend the money now, put those things in place that will ensure you’re not limited when you are. Unlock your equity, get a preapproval, whatever it is to increase your chances now of not being affected by any further changes.

Remember tomorrow will see the end of the Governments increased FHOG offering, this will inevitably bring about more changes within the property market. Are you ready to seize the opportunities?!

As I am not an economist or financial adviser I am unable to advise clients if they should fix their home loans / investment loans.

I can however on a personal level I can share that I personally, have not fixed interest rates on my investment loans.

My thoughts behind this were that if I were to fix now I would be paying almost two percent higher in interest which for me would equate to nearly $15,000 per year. If the rates only remained as they are for only twelve months I was $15k better off.

I have however been putting extra money into my offset account which when the rates rise (and hopefully not all at once) that I will have created a buffer to cover the increased repayments.  

Obviously my personal strategy does not suit everyone and rightly so, each person’s circumstances are entirely different.

There is an interesting article titled “Borrowers in a fix” by Katja Buhrer in this month’s Smart Investor Magazine based on this very subject.

The article goes on to say that Not only do fixed-rate loans historically cost home owners more than their variable counterparts, but if there were a time to enter into a fixed-rate loan, it’s now passed.

Fixed rate home loans have jumped more than 1 percentage point over the past four months as the market grows increasingly confident the market will recover more quickly than first thought, giving the Reserve Bank of Australia greater scope to raise interest rates. “The horse has bolted,” says chairman of the website Rate City, Andrew Willink. “While there’s a lot of talk about interest rates going up, consumers should not panic into a fixed-rate loan.”  

Canstar Cannex estimates that three-year fixed rate mortgage holders would have to wait until mortgage interest rates hit 9.27% to come out equal with variable mortgage rate holders on a package deal.  The article goes on further to say that it’s worth noting some economists believe the RBA won’t hoist rates as quickly as anticipated. So fixed-rate yields could even fall in coming months as interest rate expectations are relaxed.

 You may be able to view the whole article on the smart investor website.

Recently Reserve Bank Governor Glenn Stevens wrote: “the present … setting of monetary policy is appropriate…”

For the past many months the Reserve has been indicating a rate cut due to the more favourable inflation figures. With rates remaining unchanged, it seems that they are happy to stay put for a while longer.

With most other countries’ rates so much lower, why are Australia’s interest rates now stuck higher than anyone else’s in the world, apart from China, India and Brazil?

Many say that it is due to the resources needs of China, others say that maybe the government stimulus has been the reason (remember that most world economies received a stimulus package from their government). One clear point of difference in Australia is that our housing prices have not fallen to the same extent as overseas countries, where many are still on the decline. In fact according to the ABS, they are rising – a 4.2 per cent rise in the June Quarter.

Although most Australians have seen their superannuation figures plummet and share portfolios savaged like all other economies, the big difference is house prices – mainly because Australians just cannot walk away from their mortgages, according to Harvard Professor Nouriel Roubini, the man who is credited with predicting the GFC.

According to a Westpac-Melbourne Institute survey recently released, more than 65 per cent of consumers expect house prices, which have been declining gradually for much of the 2008 year, to stabilise or begin to rise in the next 12 months.

Combined with mounting evidence that low interest rates and the federal government’s boost to the first-home owners grant are set to drive a recovery in housing construction, the survey results suggest a degree of confidence that the nation’s property market will escape the worst global economic meltdown in more than 60 years relatively unscathed.

So far private-sector surveys indicate that price falls have been limited to 3 to 4 per cent, while the Australian Bureau of Statistics says they dropped by more than 2 per cent in the March quarter to be almost 7 per cent from the peak reached in the same period last year.

Reserve Bank of Australia governor Glenn Stevens says there is reason to think the property bubble that developed early this decade is deflating without major fallout for the economy.

“The ratio of the median dwelling price to average household income has declined quite noticeably since 2003 without a very large absolute decline in house prices,” he said recently. “This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy.”

Losses in Australia have been relatively mild compared with falls of close to 20 per cent in the United States and Britain.

Some would suggest this is a double edged sword – house prices stay strong, but the cost of getting into the market is too high. According to figures from AFG, the average new mortgage lodged with in Australia rose to $354,137 in July which was a new record, beating the pre-Lehman Bros record set in October 2008.

The chart below shows an interesting historical snapshot of average weekly ordinary times earnings (annualised) to purchase a house in Australia’s capital cities, which highlights this point.

Click to enlarge

One of the winners seems to be property Investors, who are discovering that credit is available for housing and so have returned to the market as they continue to monitor the stock markets.

So it appears the economy is doing better than we thought it could this time last year…go the little Aussie battler.

Article courtsey of La Trobe Financial

In the past, house prices have led the way out of a downturn and are more affected by consumer confidence than any other factor according to RP Data senior analyst Cameron Kusher.  He says that house prices and consumer confidence have historically shown a very high correlation. “What we’ve seen over time is that sales volumes and the consumer confidence index trend together very closely. So sales volumes and consumer confidence have been very low, right until the most recent months when it bounced back a bit” he says.  Kusher also points out that property is the biggest asset class in Australia, with many people having most of their money tied up in it. As a result when prices start to rise confidence increases – and the two feed each other.

Consumer confidence is measured by Westpac, which puts out a monthly survey to see how people feel about spending their money.  If the resulting number is above 100 then optimists outweigh the pessimists, if it is under then visa versa.  From January 2008 and May this year the index fell from 103.1 to 88.8 and never broke that all-important 100 mark. In June and July, however it ahs surged upwards. Kusher says that six months of high confidence will be enough to breathe life back into the sagging property market. “once consistent confidence returns to the market for over six months we’ll see these sales volumes start to pick up,” he says.

ANZ economist Alex Joiner agrees that the house prices reflect the economic cycle, and will therefore lead the way out of the downturn. He also agrees that consumer confidence has a strong impact on property prices – recent reports have been very positive for the housing market.

Recent news of “green shoots” within the broader economy is credited with part of that confidence, but another aspect is the Reserve Bank’s willingness to hold interest rates at exceptionally low levels. The good news for investors is that Joiner expects the rates to stay low for another 12 months at least. With the economy far from out of the woods, Australia’s central bank will not start lifting rates until late next year – and even then not as high as in recent years.

“I expect the Reserve Bank to increase interest rates some time in the second half of 2010, and that will certainly put the brakes on the housing market - it always does. Historically, it just slows growth in house prices – it hasn’t caused significant falls before,” Joiner says.

Article from MPA magazine August 09.

SOARING demand for affordable residential real estate is prompting buyers to pay tens of thousands of dollars more than the advertised price on websites and has even sparked a punch-up at an auction in Sydney’s Parramatta.

Turnover in the middle to lower end of the market has doubled for many real estate agencies in recent weeks, compared with last year, The Australian reports.

This is great news for sellers.

Buyers – get a move on and don’t miss out on this great opporunity to get in before we see another boom!