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MFAA Prosper : Mortgage and Finance Brief 05
In early September, the Reserve Bank of Australia held cash rates steady at 4.25% for the fourth consecutive time, but a record number of Australians are reporting fears about costs and are making budget cuts in anticipation of rising rates ahead. The latest BankWest/MFAA Home and Loans Index Report clearly shows that half of those interviewed have cut their discretionary spending dramatically – bad news for an already nervous retail sector as well as small and medium business owners vulnerable to revenue decline. This latest index shows that borrowers view their situation with caution, perceiving they were less well off than three years ago, although there have been small improvements in that sentiment since April 2008. The study found that on average, 18.9% of household income went towards repayments. A number of borrowers also perceived that they are worse off than 12 months ago. Not surprisingly, people most concerned about the economy were those heading into retirement, the unemployed, low income earners, or students – all sharing a degree of fixed income and restricted cash flows. While most borrowers have comfortably met their repayments, the prospect of rising rates and living costs remains a concern. More concerns about repayment difficulties This is also reflected in the Genworth Homebuyer Confidence Index (GHCI), launched by Genworth Financial in September, which shows the proportion of respondents expecting repayment difficulties in the coming 12 months has jumped from 15% to 20% over the past year. 61% of respondents blame the cost of living (increasing from 48% during 2009) and 61% nominated interest rate changes as the key driver. However, the Genworth Index shows stronger employment conditions have been a big factor in higher levels of confidence. “Cautious optimism should prevail with a number of signals suggesting confidence is on a delicate balance,” says the mortgage insurance provider. Businesses and banks more optimistic More optimistic business surveys by Dun & Bradstreet and a resolution to the national election support a better economic outlook for the country going into the final quarter. Improved economic data in the US, Australia and China has also led to a financial markets rally on the back of more upbeat sentiment. Some lenders are releasing a bit more liquidity into the system by taking a slightly less tight view on their criteria, and Mortgage Choice observed a number have eased up on their loan to value ratios (LVRs). However, LVRs remain tighter with 90% as the norm. Banks more popular The major banks increased their share of lending from 67.1% to 76.3% in the past six months, according to the latest bi-annual JP Morgan Fujitsu Mortgage Industry survey released in early September. While 2009 saw high LVR activity in the first home buyer group, gearing is now increasing with a return in the upgrader and investor market. The study also shows the share of lending between the top-tier banks has shifted, with ANZ and National Australia Bank picking up more business with less onerous wholesale funding requirements. Overall, housing credit growth rates are expected to be sustained in the mid to high single digits. Delinquencies across the industry continue to grow but are stabilising, the report adds. To find out more about the Bankwest/ MFAA Home and Loans Index Report, visit www.mfaa.com.au or call 1300 554 817. Consumers cautious as interest rates rise Consumers are becoming more concerned about the cost of living and their potential to meet mortgage repayments as interest rates go up. Words Julianne Dowling What you need to know Consumers – are more worried about the cost of living and their ability to meet repayments as interest rates rise Businesses – are more optimistic after recent improvements to financial markets Lenders – are loosening lending criteria, while banks are increasing their share of lending 20 | Mor tgage & Finance brief InView
Mortgage and Finance Brief 06