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Is the credit crunch affecting the property market in Australia?
The Australian property market has shrugged off concerns about higher interest rates, upcoming election and the global credit squeeze affecting local lenders. All capital cities except Perth and Darwin recorded strong growth in property prices in Jul-Sep quarter.
There has been a lot of speculation about Australian lenders including the major banks having to increase lending rates in excess of the RBA's August rise of 0.25%. Some smaller lenders and mortgage managers were forced to add extra 0.10%-0.25% to their mortgage rates to reflect the rising cost of funding. However, the banks seem to be playing a waiting game to see if disappointed borrowers will turn to them away from struggling non-bank lenders.
Last week, the Commonwealth bank and NAB slightly increased their fixed rates by 0.05-0.10% and other majors are expected to follow. Another indication that the banks are feeling a pinch from the rising cost of funding is the fact that they are actively attracting funds from public. Recent specials on consumer deposits include ING bank and BankWest who are currently offering 7.0% on online saving accounts. This is well above the current RBA cash rate of 6.5%. Historically, the interest offered on a saving accounts was slightly below the official rates.
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Recent Testimonial
Hi Hakly and Anton,
I just want to thank you all for helping to arrange finance and settlement of my mortgage. Given that I am out of country it was very helpful to know that all was being taken of by you and Blackheath Conveyancing who you recommended.
Phillip , Vientiane , September 2007
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Reverse mortgage basics
Invented in the UK in 1980's, reverse mortgages, also called equity release, are now gaining popularity in Australia. This product is designed for asset rich cash poor individuals over 60. It allows to borrow against equity in existing property with the interest and fees added to the mortgage for the life of the loan. The loan balance goes up over time, hence the name - reverse mortgage. The funds can be used for any worthwhile purpose. Examples can be:
- To supplement the pension or superannuation income
- Travel, renovation or purchase of a motor vehicle or caravan
- Financial assistance to family or friends
- Quite often, elders would like to give some of their wealth to children or grandchildren with a 'warm hand' rather then in a form of inheritance after they pass away.
With the interest added to the loan balance, the most commonly asked question is if the loan will ever exceed the value of the property, so called negative equity situation? The answer is NO in most cases. The major player in this reverse mortgage market have a no negative equity policy. That means that should the loan balance approach the property value or the property market suffers a sharp fall, they will write off the part of the loan in excess of the property value.
Another feature of reverse mortgages is that the borrower can opt to protect a certain portion of their equity. For example, 20% of the property value can be nominated as protected equity. As a result, the loan will never exceed 80% of the property value and any excess balance will written off as above.
The interest rates on the reverse mortgages are slightly higher than the traditional home loans and range from 8.5% to 9.5%. To qualify, the prospective borrowers need to be over 60 and own their home. No questions asked about income or ability to service because no regular repayments are required. To enquire about a reverse mortgage for yourself or for your parents or grandparents, contact us now.
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Our selection of articles by Fairfax
Picture of prosperity has a dark side
OUR homes are bigger, our bellies fatter and we're spending more money than ever on things we want but don't necessarily need...more
Credit squeeze will hit rates says RBA chief
More borrowers will be asked to meet the costs of higher lending rates, with further problems in global financial markets expected to persist in the months ahead, the head of the central bank says...more
Unemployment hits 33-year low
Australian employment rose a little less than expected in October but the jobless rate dropped to a fresh 33-year low, keeping alive speculation that interest rates might have to be lifted again to restrain inflation...more
RBA's vote may well go to rate rise
JOHN Howard is nothing if not a gambler. No doubt he saw some advantage in delaying the election until November 24, but in doing so he's running a high risk of being hit by something no prime minister has faced before: an interest rate rise slap in the middle of the campaign...more
IMF issues a warning, but are the US and China listening?
COUNTRY A is borrowing a net $2 billion a day from the rest of the world - which seems odd to many, since it is not in obvious need. Country B is lending a net $1 billion a day to the rest of the world - which seems odd to many, since it has obvious needs around every corner...more
In our next newsletter
- All you need to know about financing a commercial property in Australia.
We will be happy to discuss and research various options for your new or existing mortgage in Australia. There are plenty of deals in store for you, simply contact us by sending an enquiry.
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