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Got Interest Rate thread

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Ok, I get the "got" thing :) If people want to, we can put IR things in here. We just had a rate rise in April, but IR stuff- home loan stuff, futures, the commentariat, anecdotes, etc, can go in here. There's a separate TD/savings thread (shoulda called that one "Got"- I know now!) I'll update this over time if anything rivetting comes up.

Thought I would start off with this- a pretty sad state of affairs on the Aussie knowledge of home loans- sheesh. I thought people just used the net to know about this stuff. Here it is (this came out before the rate rise)- "Aussies ignorant, survey says":

http://www.voxy.co.nz/business/aussies-ignorant-survey-says/5/44120

Despite a predicted rate rise and being saturated with financial advice, Australians are not prepared and no more financially savvy than before, according to a just released annual report by leading direct lender MyRate.com.au.

Home loan specialist Kevin Sherman from MyRate.com.au says Australians should act now to avoid being trapped "There have been warnings that the RBA will continue to increase rates and Australia's are simply not prepared."

"We have seen it happen before, interest rates rise, borrowers can't meet their repayments so are forced to sell their homes.

"But many Australians could also find themselves in the same situation, so property prices could drop, leaving those with home loans in a negative equity position. They can't sell, but they can't keep repaying either."

The report summarises the results of a financial knowledge test conducted by 7000 Australians with the analysis showing Aussies have come up short in the money know-how "Australians haven't learnt anything from the GFC and are still confused over important financial issues like compound interest, equity and credit ratings."

Most alarmingly, the report shows almost 40% of borrowers still think you can get a home loan without a steady income. One in five Australians (20%) still don't think they need to tell their lender about their credit history, while one in three (30%) don't understand that having a big credit card limit can affect their lending limit.

"If applicants have a big credit card limit lenders are more likely to lend them less money, even if they only use a small amount of the limit, these are the simple things Australians don't understand that could make all the difference when they are applying for loans."

The results also showed an increase from 40% to 50% of borrowers not knowing what a registration fee is (the Government imposed fee regardless of which lender you chose).

Despite the ignorance there was an improvement in Australia's understanding of what a variable interest rate is, up from 60% to 72%.

Mr Sherman says "This could be an effect of the variable rate fluctuating over the past couple of years and the media's reporting of it."

And here's an article (written today after the rate rise, but for tomorrow's reader wacko.gif ) that kind of reflects the above:

http://www.thechronicle.com.au/story/2010/04/06/rate-hike-puts-home-plan-hold/

Rate hike puts home plan on hold

6th April 2010

A young Toowoomba couple on the verge of owning their first home were forced to put their plans on hold yesterday.

The Reserve Bank of Australia lifted interest rates by 25 basis points, or 0.25 percentage points, meaning official rates have climbed 1.25 percentage points since October, adding more than $240 to the monthly repayments on a $300,000 mortgage.

Yesterday’s increase means homeowners face finding another $50 a month on average to pay the mortgage.

While minor for some, the rate hike has left Peter Langhans, 27, and Sarah Davey, 24, reassessing their dream of owning a home.

Ms Davey admitted the extra $50 a month may place too much pressure on their finances.

"We decided some time ago we’d had enough of renting and we wanted to own our own home," she said.

"While we’ve been saving diligently now for 12 months, (yesterday’s) increase and the news that more increases are on the way has really got us worried."

jawdrop.gif I feel for them but how could they not know? And do they now know?

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Westpac go up by .25%. Their SVR is now 7.26%. Comm Bank also went up by .25% and NAB said they would go up by .25%. ANZ the last one out of the block. Here's the Westpac story:

http://www.tradingroom.com.au/apps/view_breaking_news_article.ac?page=/data/news_research/published/2010/4/96/catf_100406_173300_3809.html

Cbank and Westpac putting online savings account IR's up by .25%. Big deal- they're still not competitive.

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ANZ up by .25%, also:

http://www.tradingroom.com.au/apps/view_breaking_news_article.ac?page=/data/news_research/published/2010/4/96/catf_100406_174500_7571.html

Actually, NAB haven't announced yet. I suppose they could raise less than .25%? I doubt it, but they would sure be the darling of homeowners and prospective borrowers if they did.

Meanwhile, home loan rates at least 1% under the Big 4 can be achieved by smaller providers:

http://www.ratecity.com.au/home-loans/ (top left table).

The Big 4 are a Big Rip-Off, I reckon. If they have such massive funding costs, they might be better off going on the models of the smaller operators. The latter can provide significantly cheaper loans.

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Ok, I get the "got" thing :) If people want to, we can put IR things in here. We just had a rate rise in April, but IR stuff- home loan stuff, futures, the commentariat, anecdotes, etc, can go in here. There's a separate TD/savings thread (shoulda called that one "Got"- I know now!) I'll update this over time if anything rivetting comes up.

Thought I would start off with this- a pretty sad state of affairs on the Aussie knowledge of home loans- sheesh. I thought people just used the net to know about this stuff. Here it is (this came out before the rate rise)- "Aussies ignorant, survey says":

http://www.voxy.co.n...ey-says/5/44120

And here's an article (written today after the rate rise, but for tomorrow's reader wacko.gif ) that kind of reflects the above:

http://www.thechroni...home-plan-hold/

[/left]

jawdrop.gif I feel for them but how could they not know? And do they now know?

you could very easily get a house and lots of land in toowoomba for under 300k. if peter and sarah are employed, even in modest jobs, they could easily easily afford to buy a place in toowoomba. liar spruiks!

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Ok, I get the "got" thing :) If people want to, we can put IR things in here. We just had a rate rise in April, but IR stuff- home loan stuff, futures, the commentariat, anecdotes, etc, can go in here. There's a separate TD/savings thread (shoulda called that one "Got"- I know now!) I'll update this over time if anything rivetting comes up.

Thought I would start off with this- a pretty sad state of affairs on the Aussie knowledge of home loans- sheesh. I thought people just used the net to know about this stuff. Here it is (this came out before the rate rise)- "Aussies ignorant, survey says":

http://www.voxy.co.nz/business/aussies-ignorant-survey-says/5/44120

I'm not really that surprised. I know a bunch of people who don't even watch the news. Very hard to hold a conversation with these types. But they are great on trivial pursuit teams when it comes to the "who" magazine questions. :jerry:

And here's an article (written today after the rate rise, but for tomorrow's reader wacko.gif ) that kind of reflects the above:

http://www.thechronicle.com.au/story/2010/04/06/rate-hike-puts-home-plan-hold/

[/left]

jawdrop.gif I feel for them but how could they not know? And do they now know?

I hope they start getting angry. Unfortunately (or fortunately depending on your POV) they are Australian so this is unlikely.

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I am sure the boffins on here know this stuff, but our rise just raised 10 other bank rates- wow:

http://www.reuters.com/article/idUSGLOBAL20100406?type=usDollarRpt

LONDON, April 6 (Reuters) - Australia's central bank raised its cash rate by

25 basis points to 4.25 percent on Tuesday and flagged further hikes ahead.As a result the average rate set by 11 leading central banks -- the fivethat decide monetary policy for the G7 nations plus six other major banks --rose to 1.09 percent from 1.07 percent.

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The results also showed an increase from 40% to 50% of borrowers not knowing what a registration fee is (the Government imposed fee regardless of which lender you chose).

well I don't know what a registration fee is either, but since i'm not a borrower i guess it doesn't matter (yet)

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Me neither. Home loans have heaps of set-up costs, though, so I guess it is just one of those. I fall into the ignorant category on that one.

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Me neither. Home loans have heaps of set-up costs, though, so I guess it is just one of those. I fall into the ignorant category on that one.

Don't worry I'll take both you guys on my triv team if you can tell me the name of Lara Bingles dog?

Edited by staringclown

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I was just looking at this page on historical interest rates- the one that has the OCR and the SVR's:

http://www.loansense.com.au/historical-rates.html

The person who updates the rates hasn't done April yet (of course), but say it is about 7.10% SVR average, that is higher than every month of 1959 - March 1970, then it beats Feb 1972 - Sept 1973, then higher than August 1977 - January 2000. The SVR today is now more expensive than April 2001 - Feb 2005. And now it's more expnsive than December 2008- GFC time. Anyway, the words demonstrating this look a bit clumsy. Check the graph out in the link, though- it's worth a thousand words. We may not be at "average" SVR yet (and certainly not average OCR, but wow- the SVR is now higher than it has been in many of those years. The person who made the page says the SVR has generally been 1.8% - 2.5% higher than the OCR. We now have 4.25% OCR and say 7.10% SVR (or maybe higher)- that's 2.85% range.

Post-GFC, we are all out of whack. I don't know how things will get back to normal in the differential. I can't see banks not passing on OCR rises. It's more likely they'll raise out of official rises. Anyone got any ideas? Is this going to be the new normal for SVR's?

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Right then. In the above thread, I said the average SVR might be around 7.10%. RateCity has said in the article I am linking that the *current* SVR is 6.54% (by current, I dont know if they mean pre or post April IR rise). The historical IR site says that the March 2010 SVR was 6.91%, so I'd be surprised if it's gone down since then. Anyhoo, here's the link to RateCity's words:

http://www.tradingroom.com.au/apps/view_breaking_news_article.ac?page=/data/news_research/published/2010/4/96/catf_100406_190800_2830.html

PS NAB has raised it's rates by .25%

PPS sorry for hogging. You guys probably know I have a penchant for IR stuff.

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PPS sorry for hogging. You guys probably know I have a penchant for IR stuff.

You go right ahead ma'am. Its interesting stuff and people surf here to be informed not ra ra bullsh*tted to. :thumbup:

In this climate of rising IRs, McKnight hints that it may be a good time to sell:

http://www.propertyinvesting.com/weekly-update/06-04-2010

Another .75 BP and we are back to the end of 2008 again.

There is a poll in the Abbott Daily pointing to a 6% expectation by some.

http://www.theaustralian.com.au/business/markets/rba-raises-interest-rates-to-425pc-stands-firm-on-need-for-further-increases/story-e6frg926-1225850541846

Another 175bps is only another $346 a month on a $300,000 loan.

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Another 175bps is only another $346 a month on a $300,000 loan.

Which is around 10% of a 65k PA wage after tax. To many, many Australians $346 PM is a pretty big amount.

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Which is around 10% of a 65k PA wage after tax. To many, many Australians $346 PM is a pretty big amount.

The nett on $65,000 a year is $993 a week.

A $300,000 loan is $477 a week at 6.75% leaving $516 a week for Electricity, Rates, Petrol, Groceries etc etc.

OCR @ 6%...

A $300,000 loan is $557 a week at 8.50% leaving $436 a week for Electricity, Rates, Petrol, Groceries etc etc.

Thats an -$80 a week difference a week or an -15.5% cut in your left over spending power.

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The report summarises the results of a financial knowledge test conducted by 7000 Australians with the analysis showing Aussies have come up short in the money know-how "Australians haven't learnt anything from the GFC and are still confused over important financial issues like compound interest, equity and credit ratings."

Most alarmingly, the report shows almost 40% of borrowers still think you can get a home loan without a steady income. One in five Australians (20%) still don't think they need to tell their lender about their credit history, while one in three (30%) don't understand that having a big credit card limit can affect their lending limit.

A bunch of ignorant wannabe ungulates destroying the country from within whilst bankrupting themselves thru their inadequacy as enquiring higher primates.

The next few years are just going to be corkers. A mortgage failure reality TV show?

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My link

April 7 (Bloomberg) -- Australia’s central bank may need to raise interest rates by more than previously estimated as an export-led rebound reshapes the nation’s economy and threatens to stoke inflation.

Governor Glenn Stevens will increase the overnight cash rate target to 5.25 percent by the end of March 2011, according to the median forecast of 18 economists surveyed by Bloomberg News. That’s more than the 5 percent expected in the last published Bloomberg survey before the central bank yesterday boosted the benchmark for the fifth time in six meetings.

The central bank’s statement drew attention to Australia’s rising terms of trade, a concept that measures how much a nation receives for exports relative to what it pays for imports. Overseas shipments are increasing in value as Chinese demand spurs prices of Australian iron ore and coal, shifting the growth engine of the country to the resource-rich west.

“When they start discussing the Australian economy, the first mention is on the terms of trade,” said Brian Redican, senior economist at Macquarie Bank Ltd. in Sydney, referring to the Reserve Bank of Australia’s statement. “That will be a larger stimulus to the economy this year than the fiscal stimulus was last year, so that’s a game changer.”

Redican, who previously worked at the RBA’s economic analysis department, said “the growing issue is whether 4.75 to 5 percent will be sufficient, or whether they’ll have to keep punching rates higher through 2011.”

Increased Bets

Investors are betting there is a 30 percent chance of another 25 basis point increase in the central bank’s key rate from 4.25 percent in May, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Prior to yesterday’s decision, there was an 8 percent chance.

The Australian dollar jumped to a two-week high against the U.S. currency, trading at 92.25 cents from 91.85 before the decision. Two-year government bonds fell, pushing the yield on the 5.75 percent security maturing in April 2012 up by 12 basis points to 5.07 percent, the highest since October. The cash, or spot, price of iron ore paid by Chinese steel mills for the most common Australian grade has more than doubled in the past 12 months. It last traded at $156.30 on April 1, compared with $59.80 on April 10, 2009, according to Steel Index prices.

Iron ore shipments from Western Australia’s Port Hedland, the world’s largest bulk exporting port, will double in three years as BHP Billiton Ltd. expands its overseas sales of the steelmaking ingredient, Andre Bush, the city’s Port Authority chief executive officer, said in January in an interview.

Upcoming Election

Prime Minister Kevin Rudd’s government is due to hold an election within the next 12 months and rate increases are particularly sensitive for political leaders in Australia, where more than two-thirds of the population own homes, compared with less than 50 percent in some European nations.

Interest rates to most borrowers “have been somewhat lower than average,” policy makers said in yesterday’s statement. “With growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average.” The central bank’s target range for inflation is between 2 percent and 3 percent.

Policy makers from India to China have joined Stevens in withdrawing monetary stimulus this year, seeking to head off asset-price bubbles as the region leads global growth. China has twice ordered banks to increase the share of their assets held in reserve and India increased interest rates last month for the first time in almost two years.

Mining Boom

Australia has led the world in raising borrowing costs partly in anticipation of a surge in investment on new mines and resources that may spark price pressures. Projects such as the Chevron Corp.-led Gorgon natural gas project in Western Australia are planned to meet soaring demand from China, the world’s fastest-growing major economy.

The Reserve Bank’s decision “wasn’t a surprise given the strength of commodity prices, the continuing positive signs from the global economy, the drop in the unemployment rate in Australia, and business and consumer prices that are at very high levels,” said Rob Henderson, chief markets economist at National Australia Bank Ltd.

“They need to be at least 4.75 percent, so they are still in stimulatory mode. And they probably need to go above that. We’re forecasting 5.25 percent by the end of the year,” he said.

Faster Growth

Australia’s gross domestic product grew 0.9 percent in the fourth quarter from the previous three months, the most in almost two years.

Stevens is the first Group of 20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last month that the world’s biggest economy “continues to require the support of accommodative monetary policies.”

The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank’s rate is at a record low of 1 percent.

Stevens brushed aside weaker recent figures suggesting a softening of economic growth in the first quarter as government fiscal-stimulus measures wane. Home-building approvals and retail sales tumbled in February. Consumer spending accounts for more than half the Australian economy.

“The bank didn’t say much about softer retail spending,” Macquarie’s Redican said. “That’s a message that that’s not sufficient to stop these rate rises from coming through.”

To contact the reporters for this story: Michael Heath in Sydney at mheath1@bloomberg.net; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

Last Updated: April 6, 2010 10:01 EDT

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The nett on $65,000 a year is $993 a week.

A $300,000 loan is $477 a week at 6.75% leaving $516 a week for Electricity, Rates, Petrol, Groceries etc etc.

OCR @ 6%...

A $300,000 loan is $557 a week at 8.50% leaving $436 a week for Electricity, Rates, Petrol, Groceries etc etc.

Thats an -$80 a week difference a week or an -15.5% cut in your left over spending power.

15.5% then, Mr mathematically pedantic.

Either way, it isn't a small amount - especially considerring that 65k is the average full time wage, dragged up by high full time wage earners, which probably represents more than the amount many young Australians borrowed on last year.

In 2008, without the 2009 FHBs in the mix, the market got the jitters at around 8% lender rates (5-6% OCR - I can't remember exactly which). It will get the jitters sooner this time.

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If people borrowed before the GFC, they'll be fine- stil a bit ahead if they continued to repay at the usual rates. If they could afford a loan at 9.30% bank rates, they can afford at 7% bank rates. Anyone who bought at about 5.25% bank rates will be thinking hard and worrying a bit, I imagine, unless they gave themselves a much more considerable buffer. The average loan across Australia is 285k, but I wonder what some of these FHB's paid for a new house and maybe new furniture. No credit - or very reduced credit- to get the loan and then a "package loan" which reduces the bank rate a bit but gives mega-credit with the loan so the banks rake in more.

I guess it's the "sentiment" that counts. First Stevens tells people to be scared about speculating, then the RBA says - again- that rates are just going up more. 5 rises in 6 meetings is serious business.

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Moodys says we can hack it- and more:

http://www.theaustralian.com.au/business/city-beat/mortgage-borrowers-can-absorb-much-higher-interest-rates-says-moodys/story-fn4xq4v1-1225850875159

Mortgage borrowers can absorb much higher interest rates, says Moody's

Moody's argues borrowers on a $300,000 mortgage would still be saving $415 a month compared to March 2008 when rates were at 7.25 per cent.

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Moodys says we can hack it- and more:

http://www.theaustra...1-1225850875159

Mortgage borrowers can absorb much higher interest rates, says Moody's

Moody's argues borrowers on a $300,000 mortgage would still be saving $415 a month compared to March 2008 when rates were at 7.25 per cent.

I agree that most can handle it easily. people who bought before interest rates dropped to emergency levels, people who didn't refinance at emergency low rates and pull all the equity out of their homes, people who bought 10 years ago and have very low LVRs. The vast majority of australians will be perfectly fine even if SVR hits 10%-ish. They won't like it but they will survive.

The people who jumped blindly at the FHOG boost, paying as much as they could, maxing out LVR and pushing their finances to the limit will not fare so well. I reckon that a lot of those wannabe budding property barons who used the fhog boost to get their first rental property will be suffering considerably for negative capital growth.

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I agree that most can handle it easily. people who bought before interest rates dropped to emergency levels, people who didn't refinance at emergency low rates and pull all the equity out of their homes, people who bought 10 years ago and have very low LVRs. The vast majority of australians will be perfectly fine even if SVR hits 10%-ish. They won't like it but they will survive.

The people who jumped blindly at the FHOG boost, paying as much as they could, maxing out LVR and pushing their finances to the limit will not fare so well. I reckon that a lot of those wannabe budding property barons who used the fhog boost to get their first rental property will be suffering considerably for negative capital growth.

It may not be a majority, but would have to be a sizable minority of first home buyers over the last several years, not just the last 12 months, that have borrowed up to the hilt. 100%+ loans have only recently disappeared, and I can remeber how much complaining went on when variable rates were around the 9% mark. Those same people will find it hard again.

It still does my head in that so many never seem to ask the question of themselves, 'can I cope with an interest rate of ~ 10%', when taking out a loan, and leave themselves no buffer.

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One of the big killers in 2008 though was that not only were IR's going up but the price of fuel was close to $2/L in Sydney!

I have been paying around $1.35/L for 95 which is a joke with todays price of oil and our exchange rate but apparently it's all above board.

I noticed that pricing stability between fuel stations is almost non-existant. One place i might pay $1.50/L and 5km down the road it's $1.25/L.

Oil went to US$86 so expect to see anther 10 cents or so added to fuel pricing. Our exchange rate is the only thing stopping fuel going through the roof. Can you imagine if we went back down to 60 cents? We'd be paying $2/L just like 2008.

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One of the big killers in 2008 though was that not only were IR's going up but the price of fuel was close to $2/L in Sydney!

Round 2 coming your way this year!

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