Charter Group Finance

Charter Group Finance Residential and Commercial Mortgage Brokers. ACL # 398472 Charter Group Finance specialises in all types of home and commercial loans.

We recognise that each client has specific needs in relation to their finance. We strive to meet those unique requirements through our knowledge and expertise gained from over 30 years combined experience in the mortgage, banking and finance industry. Contact us for an obligation FREE consultation, at a time and place convenient to you, where we can determine your borrowing capacity or review your

current debt portfolio. Enjoy the benefits of our exclusive SERVICE GUARANTEE. During the loan application process we guarantee to return your call within 3 business hours (8am-6pm) Monday to Friday, or pay you a $100 cash-back upun settlement of your loan. As part of Charter Group, we can also provide the additional financial services:

Accounting
Tax Advice
Business Strategy
Financial Planning and Wealth Creation
Life and General Insurance
Business Broking

We are your one-stop shop whatever your situation is; whether you need to refinance your existing loan, source a new home loan, access the equity in your property or finance your next development project…call us on 61-2 8966 8800.

20/11/2023

More Pain for Mortgage Holders

Following their regular meeting earlier this month, the RBA have heaped more misery on mortgage holders by increasing the official cash rate another 0.25% to 4.35%. This is the 13th increase since May 2022 and comes following a pause of 5 months.

The decision to increase rates was thanks to our resilient economy. Not only was the CPI inflation number for the September quarter higher than expected, but unemployment remains low, wages have grown 4%, increased property prices and rents continue to defy the rate increases, and consumer demand remains strong due to immigration and expansionary fiscal policy (thanks mainly to the State governments who can’t stop spending).

This makes it difficult for the RBA to reduce inflation when the only tool at their disposal is interest rates.

On a more positive note, in her statement following the decision the new RBA Governor Michele Bulloch spoke in a more ‘dovish’ tone regarding future rate increases (a link to her full statement is available below). There is an understanding that inflation will now fall more slowly than previous forecasts, and that the RBA are happy to see this occur over a “reasonable timeframe”. Most market commentators interpreted this to mean there would be no increase in December, with the potential for one final increase at the February 2024 meeting, which falls a few weeks after the December quarter CPI results are released.

In more good news globally, US inflation came in lower-than-expected last week, with the market now predicting that interest rates have peaked as inflation is under control.

From discussions I have had with many of you, this latest rate increase will really hurt cashflow, especially over the Christmas period. Please reach out via email should you wish to discuss options for helping to alleviate financial stress, whether we can review rates with your existing lender, refinance, or request some repayment relief.

With regards to mortgage rates, any owner-occupied principal and interest loan with a variable rate in the 5.95% to 6.20% range, remains competitive in the current market. Once it becomes clear that we have reached the peak in rates I expect to see a bit of a “mortgage war” break out as lenders fight for market share, so the next 12-24 months could be a great time to refinance.

Until next time,
Paul

05/07/2023

Are We There Yet? RBA Approaching Rate Peak

In a move that surprised over half of market economists, the Reserve Bank of Australia (RBA) decided to pause interest rate increases this month, as they await crucial economic data in coming weeks. The June Quarter CPI number (released 27 July) plus ongoing employment and wages data will help the RBA determine if further rate increases are required to bring inflation back down into the target band of 2-3%. Most economists are still predicting another 0.25% to 0.50% of rate increases this year before we reach the peak.

Australian mortgage holders have endured an increase of 4% on their home loan rates since May 2022, which is inflicting cash-flow stress on households already struggling with increased cost of living. Many of you took out fixed rate loans at or close to 2% over the previous 2-3 years and are now faced with variable rates around 6%. For a loan of $500,000, this means repayments have increased by over $1500 per month. The majority of fixed rate loans across the country are scheduled to expire in the second half of 2023, creating the “mortgage cliff” that has been widely discussed in the media. The RBA are aware of this, and no doubt it played a part in their decision to pause rates this month.

Whilst inflation has clearly eased from peak levels, our economy has been incredibly resilient in the face of 14 months of rapid rate increases. Unemployment is still low, property prices have started increasing, rents are high thanks to low vacancy rates, and consumer spending has yet to show a dramatic fall. In addition, the RBA will be concerned that the Federal Budget and recent Wage increases are mildly inflationary, plus our immigration targets will only add more pressure to an economy that rapidly needs to cool. More people means greater demand for housing and more money to spend in the economy.

With rates increasing, lenders have been more than happy to increase their profit margins across loan portfolios. This has given borrowers an opportunity to request a “reprice” on existing loans, and in most cases the banks are able to reduce rates to retain business. For an owner-occupied loan with principal and interest repayments, the best rates for new business are in the range of 5.7% to 6%. If your rate is higher than this, please reach out to me via email and we can discuss the best options.

NEW BROOKVALE OFFICE AND PROPERTY INVESTMENT SERVICE

In exciting news for 2023, I have opened an office at 117 Old Pittwater Road. It’s in the “Lifestyle Working Brookvale” building, with plenty of free parking downstairs.

I’m in Suite 26 on the ground floor, right next to the coffee shop.

I am building an expanded broking and servicing team in partnership with Equity Finance Solutions (EFS). EFS are Mortgage Brokers and a specialist Buyer’s Agent for residential investment properties, experienced in sourcing high yielding growth properties across the country. They utilise a data-driven approach to property investing and are focused on creating a long-term strategic investment plan for clients.

If you are interested in using the equity in your existing property to build an investment property portfolio, we now have the specialist team that can assist.

Please call or email to get the ball rolling on this new opportunity.

24/12/2022

The official cash rate has now increased by 3% since May, following the Reserve Bank of Australia’s decision to set the rate at 3.10% at its monthly board meeting back on December 6.

Their statement of monetary policy reiterates that the Board will continue to act until they see inflationary pressures subside. With a prediction that inflation will peak early next year at around 8%, most market economists are tipping rates to increase by another 0.25%-0.50%, before starting to fall in around 12 months’ time.

The RBA will closely monitor Christmas and New Year consumer sales activity, as an effective measure of levels of demand in the economy. Monetary Policy usually operates with a lag of around 12 months, and with many mortgage holders coming off fixed rates of around 2% in the coming 6 months, we should see a marked slowdown in economic activity. Its then up to the RBA to adjust settings to ensure we achieve a ‘soft-landing’ and avoid recession.

Property markets are still experiencing falls of around 10%, but as soon as its clear that we have reached a peak in interest rates, we can expect prices to stabilise. I don’t believe prices will fall further whilst interest rates remain at their highpoint for 12 months. Banks still have plenty of funds to lend out, so once borrowers are confident that their repayments are at a peak, we should see demand bounce back.

Thanks as always for your support this year, a period in which we have been challenged with 8 interest rate increases in a row. I will be taking a break until Monday 16 January, but will be monitoring active deals in the system, and settlements due in early January. If you have any questions or new loan requirements or servicing requests, please feel free to send me an email and I can action after the 16th.

I hope you have a very Merry Christmas full of good times with family and friends, and send you best wishes for a safe, healthy and prosperous New Year.

Paul

06/09/2022

RBA Determined to Crush Inflation

At their monthly Board meeting yesterday, the Reserve Bank of Australia (RBA) continued their determined fight against inflation with another 0.50% increase to the official cash rate, which now stands at 2.35%.

Whilst the main source of inflation has come from external, supply-side factors, the RBA are closely monitoring our tight labour market, rising wages and strong savings levels, for signs that "demand-pull" inflation will be tempered by these rate increases. I read a report recently that noted Australians, on average, have savings that would cover 21 months of mortgage payments, whereas before the pandemic, average savings covered 10 months of payments. This explains why certain segments of consumer activity, such as car sales, have yet to register much of a slow down after 5 months of rate increases.

The property market continues to see reduced demand and prices falling from the highs achieved during the rapid price increases through 2019-2021. I have however seen some investor interest returning to the market, but prices will still be impacted as all buyers have had their maximum loan capacity reduced due to rising interest rates.

Headline CPI inflation currently sits at 6.1%, with the forecast for it to increase to 7.75% over the next 6 months. But this doesn't mean that the rate rises are not working. Remember that the annual CPI number is calculated by adding together the 4 current quarters of results (sorry to get all "economics nerd" on you):

Jun 2022 - 1.8%
Mar 2022 - 2.1%
Dec 2021 - 1.4%
Sep 2021 - 0.8%

Current Total = 6.1%

You can see that the rate of inflation on a quarterly basis appears to have already started slowing, from 2.1% to 1.8%. Even if we get another 1.8% reading for Sep 2022 (release date 26/10), the headline rate will jump to 7.1% triggering more media headlines of "Inflation Getting Worse!!" even though it actually would have stabilised. The RBA will be looking for lower quarterly figures for evidence that their actions are working, which hopefully means we can ignore all the negative headlines.

You can read the full RBA statement via the link below.

Once again, all lenders will no doubt pass on the full 0.50% rate increase over the coming weeks. A competitive owner-occupied, principal and interest loan should reach the 4.3%-4.5% level. Fixed rates have started to reduce from their peak, reflecting market expectations that we are likely to only see a further 0.50% to 1% increase in rates over this cycle. Three year fixed rates are available around 5%-5.5%.

05/07/2022

At their monthly Board meeting today, the Reserve Bank of Australia (RBA) surprised no one with another 0.50% increase to the official cash rate, which now stands at 1.35%. Since their initial move in May, the RBA have now increased rates by 1.25%. With underlying inflation not expected to return to the 2-3% target band until 2023, the RBA will continue to increase rates to a level that will help slow inflation.

There were no new comments or insights contained within Governor Lowe’s statement, with a reiteration that “The size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market”.

You can read the full RBA statement via the link below.

July contains a lot of important data releases that will influence monetary policy over the coming months:

Wages Growth – 7th
Business Turnover – 8th
Building Approvals – 11th
Household Spending – 12th
Labour Force – 14th

Then the biggie:

CPI inflation – 27th

All this data will provide clues on household spending and the level of demand in the economy. If the RBA can detect that their initial rate increases are having the desired effect, it will reduce the size and speed of future rate increases.

All lenders will no doubt pass on the full 0.50% rate increase over the coming weeks. Fixed rates have also continued to increase, but at levels now around 2% higher than variable rates, which looks expensive against the expectation that variable rates will increase another 1% to 2% during this cycle.

The property market will continue to see a big pullback in demand over the coming months, as buyers await a clearer indication of how high rates will go. The increase in rates also impacts borrowing capacity, which reduces buying power.

There are still some very competitive variable rate offers available, with some lenders offering refinance bonus payments. Please feel free to send me an email with any questions, or to compare your existing loan rates with current market offers.

Chat next month!

Paul

14/06/2022

Higher Inflation Forecasts Force Another RBA Rate Hike

The Reserve Bank of Australia increased the official cash rate by a larger-than-expected 0.50% at last week’s June monetary policy meeting. This sets the RBA Cash Rate at 0.85%, and lenders have already announced a commensurate 0.50% increase to their variable rates. This will see the average owner-occupied, principal and interest home loan rate at around 3%, returning to pre-pandemic levels.

It has become hard to predict how much higher rates will go. Market economists believe the cash rate could increase anywhere from 0.5%-1.5% by the end of this year, which is a huge forecast range. The forward market indicator (‘swap curve’) had predicted even higher moves but has been adjusting lower over the last few weeks.

The RBA is watching all relevant data closely, for signs of impacts on household spending. The general theory on raising interest rates is that it reduces household spending, and then the rate of inflation should drop. However our current high inflation is mainly due to higher energy (petrol/gas) and construction costs. These supply-issue cost increases also impact household budgets directly, without the added impost of increased mortgage repayments. But offsetting all this, households have record high savings after 2 years of pandemic restrictions. All these factors explain why its hard to predict how high rates need to go.

The statement from the RBA on Tuesday included a paragraph that explained their thinking on these matters:

“One source of uncertainty about the economic outlook is how household spending evolves, given the increasing pressure on Australian households' budgets from higher inflation. Interest rates are also increasing. Housing prices have declined in some markets over recent months but remain more than 25 per cent higher than prior to the pandemic, supporting household wealth and spending. The household saving rate also remains higher than it was before the pandemic and many households have built up large financial buffers. While the central scenario is for strong household consumption growth this year, the Board will be paying close attention to these various influences on consumption as it assesses the appropriate setting of monetary policy.”

With all this rate uncertainty, the property market has already seen a sudden slow down in activity. This comes after 3 years of frenetic growth where some market segments increased by 25%-30%. Its very normal for our market to see a growth slowdown and even price decreases of 5%-10% as part of our usual property cycle, with prices then going sideways for a year or two.

As always, please feel free to reach out via email to discuss your current loans and chat about the market in general.

I’ll report back after the July meeting with the latest rate news.

Until then,
Paul

03/05/2022

Inflation Jump Forces RBA Rate Hike

The Reserve Bank of Australia (RBA) announced earlier today that they will increase the official cash rate from the historic low of 0.10%, to 0.35%. Rates had been kept at this low level to stimulate the economy during the pandemic, however the sudden jump in inflation has forced their hand. For most of last year the RBA had indicated they would remain patient before moving rates higher, noting that an unemployment rate below 4% and wages growth of above 3% were pre-requisites for moving rates back to more neutral levels.

However, what they didn’t anticipate was the magnitude of the ‘supply-push’ impacts on inflation, caused by supply-chain and energy cost issues. This saw the ‘trimmed-mean’ rate of inflation jump to 3.7% in last week’s March quarter CPI release (this is the best measure to use, as it removes more volatile factors). The RBA target is to keep this measure of inflation between 2%-3%, so they really had to take their “foot off the accelerator” today and commence the cycle of moving interest rates to a more neutral setting.

The market and most economists have been predicting higher rates for some months, with fixed rates now around the 4% mark for 2 years, and around 4.5% for 3 years. This compares with variable rates in the low to mid-2% range. How many rate increases can we expect from the RBA over the coming months and years? The general consensus is for the official cash rate to be at 1% by the end of the year, and 1.5% by the end of 2023. Much rests on issues such as the War in Ukraine, and further lockdowns in China, which impact the price of resources and production. They’ll also keep an eye on wages growth, which will create more ‘demand-pull’ inflation should wages grow faster than 3%.

If you’d like to read the Monetary Policy Statement from the RBA, you can access this via the link at the bottom of this email.

Rates and Property Outlook

CBA and ANZ announced they were increasing their variable rates by 0.25% this evening. No doubt all lenders will follow suit in the coming days. With rates increasing, it will have an impact on how much people can borrow, which will then feed through to property prices. Following the strong growth experienced across most residential markets since the May 2019 Federal Election, we can expect a market slow down, with prices likely to plateau or fall slightly as rates gradually increase over the next 12-18 months. We have seen this all before in the Australian property market, so you can ignore the media hysteria and ‘click bait’ about crashing house prices.

If you have any questions or concerns about today’s rate increase, please don’t hesitate to drop me a short email and we can book in a time to chat.

Otherwise, I’ll be in touch again after the next RBA meeting in June.

Regards,
Paul

15/12/2021

Inflation Fears Stoke Interest Rate Speculation

As we reach the end of another frenetic year for property and loans, it appears as though we may be inching towards movement on the interest rate front.

Whilst the RBA have kept the official cash rate at the historic low of 0.10%, speculation is mounting that rates will need to increase much sooner than our central bank is forecasting.

The most recent inflation reading saw headline CPI rise sharply to 3%, with the underlying or “trimmed-mean” measure now at 2.1%, finally entering the RBA target band of 2-3%.

The RBA have repeatedly told us that they want to see underlying inflation consistently at the upper end of this band, before they will consider raising interest rates. They still believe this won’t occur without substantially higher wages growth – they expect the Wage Price Index to reach 3% over 2023 - and in their own words, will “prepare to be patient”.

This is their way of saying “we don’t expect to have the conditions we need to raise interest rates until 2024”.

Most market economists disagree, with some expecting a rate rise as early as mid-2022.

Who should we believe? I’ll take the side of the RBA - historically its rare to “bet against the bank” and come out ahead!

With the market now expecting rate increases to arrive sooner, and with the RBA no longer targeting low rates out for 3 years, the yield curve has suddenly steepened. Some lenders have increased their fixed rates on 4 separate occasions in the last 6 weeks. This market prediction of very early rate moves makes me think that fixed rates are probably now a bit expensive, especially if you believe the RBA forecast.

With 2 and 3 year fixed rates now at around 3%, we are seeing a lot of competition from lenders on variable rates. For owner-occupied, principal and interest loans, variable rates are as low as 2%. However I suspect that over the next 12-18 months, some lenders will increase their rates ‘out of cycle’ with the RBA, due to an increase in their funding costs. The RBA and Federal Government have provided banks with very cheap access to money during the pandemic, which won’t last forever. I expect these moves will be quite incremental, and may only impact new loans.

So there’s no need to panic! Once the RBA do start raising rates, the rate on your variable home loan will likely only increase by 1.5% - 2%, which will basically send interest rates back to pre-pandemic levels.

The other major news from the last few weeks relates to lending criteria. With APRA and the RBA expressing concern about rising house prices and debt levels, APRA now require banks to apply a buffer rate of 3% on all new loan applications. This means loan repayments are assessed at 3% above the actual rate (previously this buffer was 2.5%). This has the effect of reducing borrowing capacity.

APRA has also recently written to banks about other "macro-prudential" measures they may consider, such as restrictions on loan to value ratios, stricter debt to income ratios, and restrictions on investment and interest only loans. In particular they asked the banks if they had systems in place that would allow any new measures to be targeted at particular market segments, based on geographic, borrower or property type. Its interesting to note that the last time APRA enacted similar measures in 2015 and 2017, the property market did experience a decline, so they know they have many effective tools at their disposal to manage property prices.

I can't see a dramatic crash in property prices over the coming years, and our regulators certainly don't want this to occur. We have experienced around 25% growth in prices across many market segments this year. I suspect the pace of growth will slow to around 5% in 2022, and then flatten out or slightly fall in 2023 as the future for interest rates becomes clearer.

In closing, I’d like to take this opportunity to wish you a very Merry Christmas, and a safe and prosperous 2022, after the two very challenging years we have all lived through.

I’m taking break from 17 Dec, but will be working on in-flight loan submissions due to settle in Jan.

I’ll be fully refreshed and back on deck from Monday 17 January, ready to work on new scenarios and applications.

Look forward to chatting with you in the New Year!

Regards,
Paul

10/09/2021

"Watch and Wait" from the RBA

The August and September Board meetings of the Reserve Bank Australia (RBA) have, unsurprisingly, seen the official cash rate unchanged at the historic low of 0.10%.

The timing of any rate increase will still rely on an increase in inflation, which requires unemployment at 4% and wages growth at 2% or more. The RBA have assessed that the current lockdowns in NSW and Victoria, will delay, not derail, Australia's economic recovery from the pandemic. Expectations on when these rate increase conditions will be met, are still forecast for 2024.

With the September qtr GDP figures likely to show a sharp negative reading of around -4%, the December qtr should rebound slightly before we resume strong quarterly growth in 2022. Note that last year the Australia-wide lockdown saw June qtr GDP decrease -7%, before a big rebound of +3.6% in the Sep qtr.

Our December 2021 recovery all depends of course on vaccination rates and a return to "covid-normal" economic conditions. I attended an economic webinar with Westpac Chief Economist, Bill Evans, yesterday and his bullish view on the recovery was based on Australia eventually reaching a 90% vaccination rate (for those aged 16+), which would give us one of the highest vaccinated rates in the world. At that point also, he expects that the focus would then shift to vaccinating the 1.2m Australians aged 12-16.

On this basis, his forecasts show the RBA starting to increase rates in 2023. Many other market economists agree that rates will start to increase earlier than the current RBA forecasts. The main basis for his confidence is the savings rate, which shows how much households are saving during the lockdowns, and their capacity to spend and grow the economy once restrictions are lifted.

His one warning though, concerned hospitalisation rates once the economy is re-opened. If the rates are high, this may require the return of restrictions on economic activity, plus many people may limit their own movements and not spend as much.

With regards to property values, the lack of supply is still seeing prices soar in some segments of the market. If this continues into next year we can expect to see the introduction of “macroprudential regulations” to slow down the lending to investors, as I have mentioned previously. At the present time though, the prudential regulator (APRA) will not act until the economy is in full operational mode again.

In terms of rates, there has been a slight reduction in variable rates for loans with a low Loan to Value Ratio (LVR), with some lenders now offering deals around the 2.3% level. Fixed rates for 2 and 3 years can still be secured at just under 2% and we continue to see a large portion of loans featuring a fixed component.

For those of you still in lockdown, I hope you are coping as best as possible and keeping safe and healthy. If you are experiencing any financial hardship, please get in touch so we can work out how best to request assistance from your lender.

Until next time,

Paul

02/06/2021

Yesterday’s RBA announcement on interest rates gave us no surprises, with the official cash rate remaining at 0.10%. The targeting of the same rate out to 3 years on the yield curve was also reinforced via Government purchase activity in bond markets, and availability of the “Term Funding Facility” for banks. This means we can expect stability in variable and fixed rates out to 3 years, however most of the sub-2% fixed rates for 4 years have now been withdrawn.

Despite the strong results for the economy, including today’s GDP result of +1.8% for the March quarter, the RBA continue to make it clear that their focus is on an unemployment rate of below 5%, which they predict will lead to much-needed wages growth. They expect this won’t occur until 2024. Our great economic results can be seen across many sectors, especially retail spending, business investment, construction and property values. With low interest rates and continued Government stimulus, the RBA see economic growth at 4.75% over the coming 12 months, and 3.5% for the following year.

Probably the most significant comment included in the statement from the RBA Governor, was a note that the RBA would be “monitoring trends” in the property market, which signals a change to previous rhetoric. This is an indication that we can expect the RBA and APRA to eventually make similar moves to what we saw back in 2015, to slow down the growth of investment loans. This will take the form of higher rates for Investors, especially for interest only loans.

At the moment, we still see very competitive variable rates for owner occupied, principal and interest loans at below 2.5%, for LVRs less than 80%. Fixed rates for 2 and 3 years are just below 2% with most lenders, although the 4 year rates have started to rise, as mentioned above. More lenders are now offering ‘tiered’ pricing, where the rates are lower for LVRs below 60% and 70%. Investment interest only fixed rates are around the mid-2s, but expect these to rise at some point as the RBA and APRA take action to remove some heat from the property market.

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