Ask Alan - Alan Heath

25/03/2022

I wrote to my client base this week with an important message on how the interest rate scenario will unfold in 2022 and how to prepare together. We each have roles.

The pieces are falling into place for the Reserve Bank to start to lift the cash rate.
• Inflation between 2% and 3% - is already in place.
• Unemployment under 4% - this is imminent.
• Wages growth above 3% - is the missing piece.

The Reserve Bank also recently notes that banks have reduced their margins by more than their funding costs to compete for business.

To repeat from an earlier email, this is how I see the rate scenario playing out this year.
• The Reserve Bank – lifts the cash rate by 0.15% (or 0.25%).
• Banks lift home loan interest rates by 0.25% (or 0.35%) citing “funding cost pressures”.
• BUT – either lifting the interest rate to attract NEW business by only 0.15% (or 0.25%).

I will ensure in my 6 monthly reviews that your rate will only rise to match what is being offered to new customers.

Some of you will have already received my email of your own 6 monthly review and rate reduction to the current “new to bank” offer.

I simply call this fair - and this is where I specifically ‘take action to create value for you’ This is my commitment to customer service in action.

I am happy to be known for this.

Until I hear Bill Evans (from Westpac) alter his view – then we plan for the peak of the next interest rate cycle at 4%.

• This is nothing to fear – this is where rates started from pre-Covid. Rates go up, rates go down – this is the life of your home loan.
• Fixing your rate is a terrible response (the response of fear) – fixed rates are ALREADY at 4% - why would you volunteer more than you need to?
• You should work out what your payments would be “if” rates were 4% (use my app) and start paying that now – this alleviates the budget fear. Your home loan payments should be like tax, paid first from your salary and live off the rest.
• It is DEFINITELY time to strip out unnecessary costs from your budget – do you really need the 6 streaming services you took on during Covid, as just one example?

Remember, if you’d like some advice specific to your circumstances – I’m here on call or email anytime. It’s what I’m here for.

Ask Alan - Alan Heath

13/05/2021

Amidst surging interest in property, there are record enquiries for loans.

The Reserve Bank reiterates again that it will not be raising the cash rate until unemployment has a 4.x% on it and inflation has a 2.x% on it. (The Australian Sat 8th May)

The Government initiative HomeBuilder is an incredible success but is driving up the cost of materials and labour by up to 30%. (The Australian 9th May)

Demand for existing houses – including in the regions (such as the Gold Coast) is pushing up house price by similar amounts. (The Australian 9th May)

How do you choose the right lender and not make an expensive mistake?

A cheap rate is important at the start. What you really want though is the cheapest rate over time.

Some obvious traps to avoid – lenders fall into three categories.

Category 1 – what I call “no-name” lenders. Lenders you have never heard of and did not even exist a year or so ago. They offer rates that are too good to be true… and they are. These lenders sell off your loan as soon as it is settled – to someone else. (The Australian 9th May) The loan you had with a lender you’ve never heard of is now with someone whose name is completely hidden. Do not go there! I will never recommend these lenders. History is filled with consumer disasters here and history usually repeats.

Category 2 – the 4 major banks. All of them were found guilty of appalling breaches of consumer trust by the Royal Commission. All have had to pay large fines, and all are now reporting large profits again, by overcharging their own customers. Yes, a profitable banking system is important, but do you individually really feel the need to ‘take one for Team Australia’ by paying more than you have to? Own their shares by all means, but don’t borrow from them, until their behavior changes.

Category 3 – I call these the middle tier. Banks outside of the major 4, from 5 – 8. Their starting prices are cheaper than the major 4. They will actually initiate competition for your business.

Above all my advice is to choose a lender who readily agrees to reprice your loan (as time goes by) back to their next ‘new to bank offer’.

When I ask every client of mine “would you like a lender who agrees to reprice your loan back to their new to bank offer” 100% of my clients answer “yes”.

How could anyone answer “no” to that.

Any bank could agree to this, and I have approached all of them. But at the moment, only some lenders inside Category 3 have reached this agreement with me.

You deserve the cheapest loan over time and one way to get that is to use my experience to only choose lenders who agree with this fundamental principle of fairness.

Now how to find the best house? … well, that’s another question altogether. My job is to find you the best loan (for your needs).

Do not miss this property boom – waiting will only cause regret.

As always if you would like advice specific to your own personal circumstances, please call or email anytime, it’s what I’m here for.

www.askalanheath.com.au

03/02/2021

The Reserve Bank of Australia says the economy has been more resilient than initially anticipated but ongoing support is needed while inflation remains stagnant and unemployment is high.

03/02/2021

Banks and Commentators alike are saying this week; “The next move on rates is UP - You must lock in now!”

What complete twaddle! (Commentators are back at work after the holidays and feel the need to say something to start the year, banks however, are saying things out of complete self-interest).

I only listen to the person with the RED Rate Button on their desk.

That person is the Chair of The Reserve Bank.

In Yesterday's Minutes - where rates were left on hold, he SAID…
• “I will not be moving rates until Inflation and Wages Growth are FIRMLY in the 2-3% band”
• “That will NOT be until AT LEAST 2024” !!

Now to the money market facts behind this:

The Australian 3-year Bond Rate had started to creep up to 0.12% and because that rate is so HIGH, money was flowing into Australia pushing our dollar UP (now almost 77c).

That is the main game - keeping our dollar low by ensuring rates are in keeping with almost zero rates overseas.

The Reserve Bank Governor stated that he will continue to purchase Aust Govt Bonds with another $100bn in April.

So official rates are around 0.1%.

Banks can make a profit with a margin of 1.8%- 2.0% - that is why there are fixed rates at the moment of 1.9% - 2.1%.

Variable rates are at around 2.4% - 2.6% (because when banks fund variable rate loans it is from buckets of funds borrowed previously at higher rates). As these buckets roll over in the coming year or so cost of funds to banks will continue to fall.

And hence commercial pressure will be on banks to lower their variable rates down to 2% and lower.

What does this mean? People who borrowed FIXED at 3.8% two years ago - saying "rates will never go any lower" - well how silly were they!

I grant you it is very difficult to see fixed rates falling significantly below current - BUT - that does not mean you have to fix to achieve either certainty or low rates.

A variable rate from a bank who has a written agreement with me to reprice my clients existing loans back to their new client offer is as certain as you need things to be.

I review every loan, every client, every 6 months and reduce their rate accordingly.

I refuse to use banks who will not agree to this.

It was ASIC who said “…any consumer who deals with a bank who price gouges their own clients is foolish.”

Banks behave terribly on rate towards their own customers - we know that - they favour profit and shareholders.

Your response is as it always has been; choose a bank that has a fair repricing agreement with me and reap all the benefits of variable.

Ask Alan

10/12/2020

You can save up to $50,000 on your home loan by refusing to play the dirty game that banks have been forcing on you for years. (Weekend Australian Dec 5th p 5)

The game… A new client is offered spectacular deals but then banks deliberately force those rates up with “out of cycle” rate rises.

Banks call this “differential pricing of the back book”.

Consumers call it “being ripped off”.

A loan is the gift that keeps on giving to a bank… when a bank (or broker) tells you the price of a loan, if you wish to avoid being ripped off then you should also be told;
• The price of the loan now (rate and fees).
• The ongoing pricing policy of the bank in relation to that loan.

The hidden pricing of the loan is apparent over time, far more so than in the first month or two.

I require that if any bank wants my new clients that they MUST agree to reprice my clients back to their new client price either automatically or when I review my client’s loans. Which I do for EVERY loan, EVERY client, EVERY 6 months.

I have four banks who have agreed to this – which proves that it is possible.

On January 1 new legislation comes into play – it is called Best Interest Duty, and it is all about acting in the best interest of clients.

Under that legislation a broker MUST ask you what features you wish to have in a loan.

Back book pricing is the banking industry’s greatest rip off… and hence, in my opinion, one of the questions your broker asks you MUST be;

“Do you wish to use a lender who agrees to reprice your loan back to their new client offer either automatically or when asked.”

Brokers are responsible for two thirds of all loans – if brokers took a stand to deal only with banks who will agree to this principle then this great rip off would cease overnight.

The fact that brokers in general WON’T ask you this question this makes them part of the problem rather than part of the solution.

I will always put my clients’ needs first and if you have friends or colleagues who would benefit from my stand against the banks then please refer them to me.

This is worth up to $50,000* to you and them.

*If you would like to read more on this: click below for my breakdown of the current BID (Best Interest Duty) issues and legislation.

04/05/2020

God News and the Corona Virus!

If you listen to the news in relation to home lending you will pick up one main thread.

“The home loan market is under severe stress with people applying for deferrals on payments.”

The follow up “end of the world” conclusion is that the home loan market will “crash”.

The media loves bad news stories, but let’s check the facts.

PRIOR to Corona Virus $20bn of home loans out of a total market of $2000bn were in arrears – this is 1%. It’s called the 90 days arrears rate and this 1% is the “normal” market.

The Australian today p13 states a fact - $6.8bn in home loans have been granted approval to have their payments deferred under the Corona Virus policy – this is 0.34%.

So, the arrears rate has moved from 1% to 1.3%. Yes, there is difficulty for individuals, but this is NOT significant in terms of the overall state of the market.

When I began mortgage broking over 20 years ago the arrears rate was 1.5% and this was considered manageable in a healthy market.

I hate to say it – but this isn’t even a story!!

The story is how wonderfully resilient the Australian home loan and property markets are – but who is telling this story?

Another fact – median house price across Australia went marginally UP in April.

I have lived through “the end of the world” in housing 3 times in my mortgage career – 2000, 2007, 2015 and now 2020.

If you have the ability to buy – now is in fact, a great time to buy – all you need to do is let facts rule over emotion.

It is a good time to buy because banks are heavily stress testing all loan applications for vulnerability of an applicant’s income to Corona Virus – which is slowing lending down.

Right now – if a vendor wants to sell a home they need to “meet the market”.

Throughout this period please contact me – not your bank – if you are experiencing difficulty.

If you are in the market to buy however you should continue to do so with confidence.

If you own a home, do not fear the worst in relation to the value of your home. I suspect that the world will not end just yet … (again).

In times like these – this is why you have me… Just Ask Alan.

www.askalanheath.com.au

31/03/2020

If you’ve saved for a rainy day… It’s raining.

These are the guidelines you should follow for your home loan or your investment loan – if you find yourself in difficulty.

Depending on the level of difficulty you face, these are the steps you should follow… in order;

1. If you have any available redraw in your home loan – take it out and put it in an account – “self-isolate it” – use it to pay the loan over the next 6 months. Effectively this payment is then removed from your budget. This is the rainy day you were saving for.

2. Find out the minimum repayment on your loan and reduce your payments accordingly. Rates have fallen over several years and most people are still paying at the previous higher rate.

3. Request a switch to Interest Only for 3 months and then another 3 months if required.

4. Request a deferral of your loan payments for 3 months and then another 3 months if required.
I can help you with Items 1 and 2

Items 3 and 4 are being dealt with by banks’ hardship departments (they have sweet names – like “Assist” and “Care” – but make no mistake they are the hardship departments).

Your loan still needs to be paid back within the same term once items 3 and 4 are over – meaning a slightly higher payment down the track.

Items 3 and 4 will not be for all loans – you will have to demonstrate hardship – but the criteria will be lowered in these unusual times.

Each bank is slightly different and hence your FIRST contact needs to be with me.

I will help you work out what is best for you and assist with the required steps with your bank.

In times like this – this is why you have me… Just Ask Alan.

06/02/2020

Economic flu or just a cold?

They used to say, “when America catches a cold the world catches the flu” (economically speaking).

At the moment because of the literal Corona Virus, in China, the world is at risk of catching the economic flu.

It was widely predicted at the end of last year that the Reserve Bank would cut rates twice more – starting in February.

They DID NOT cut rates this week.

To understand why … cutting rates (while benefiting homeowners) has been predominantly about keeping the Australian Dollar low (around 69c) … to help exporters… to help the economy.

The corona virus response has significantly affected the Chinese economy and the world markets are concerned that the Australian economy will suffer.

The Corona Virus knocked the Australian dollar down to 66.7c.

The Corona Virus has done the Reserve Bank’s work for now – and that is a direct quote from them. (The Australian Wed 5th Feb)

What does this mean for interest rates and you in 2020?

As certain as anyone can be – interest rates will not go up this year, the only move is still likely to be down.

For a more detailed analysis read here: https://askalanheath.com.au/economic-flu-or-just-a-cold/

With interest rates at historic lows, house price will continue to firm (unless significant other factors come into play).

So…

With volatility in the stock market – housing is still the safest bet.

If you want to buy your own home or use housing to invest – the time is right in 2020.

Holiday at home – while the dollar is down you will get much more “bang for your buck” here. Specials will abound in post bushfire regions and those hit hardest by any slowdown in tourism from China.

As always if you would like advice specific to your own personal circumstances, please call or email anytime, it’s what I’m here for.

“when America catches a cold the world catches the flu”... because of the literal corona virus in China, the world is at risk of catching the economic flu.

17/12/2019

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.

Why do they do that? To be able to continue to offer the next round of spectacular deals to new people.

Surely there has to be something wrong with this… Well the “umpire” has called “no foul”.

Rod Sims (the umpire) – head of the ACCC (Australian Consumer and Competition Commission) was asked to look into this practice and has said (yesterday, 16th Dec) “It is neither illegal nor unethical”.

He does continue – “… if you stay with one lender … over time … and you’re not enquiring about better rates …” then silly you...

Continue reading the full article here:

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. Why do they do that? To be able …

16/09/2019

Legislation has been introduced for First Home Buyers enabling them to purchase with a 5% deposit without having to pay mortgage insurance.

For some of my readers this is the MOST significant news they have heard in many years.

If you are a First Home Buyer - or know a First Home Buyer and would like to be kept informed in the lead up to its introduction in Jan 2020 then;

Please direct message or email me at [email protected]

and I will create a separate emailing list to keep you informed.

(and to keep unnecessary emails out of inboxes for the rest of my clients)

Click here to read the full article:

“Detailed” consultations are due to begin with lenders regarding their participation in the federal government’s First Home Loan Deposit Scheme.