There are a lot of reports in the media about financial support to small business following the Corona Virus outbreak so I thought I would fore-arm you with some information if you find yourself in this situation.

1. Make an assessment of how bad this will actually get for you & your business.
2. Put together a financial budget and then assess what items can be cut or reduced
3. Approach your bank and have a frank discussion with them. There are a number of measures that can be taken such as:
   1. Moving onto interest only payments for 6 month or a year
   2. A repayment holiday where you don’t make any payments to your loan for the next 6 months
   3. Reduce your monthly payments for a period

However, all the above options simply “kick the can down the road”. Let me explain:

1. By moving to interest only for 12 months

If your loan has 15 years left to go when you approach the bank & they agree to give you a year interest only, then at the completion of this time, you will only have 14 years left to repay the same debt & hence your monthly payments will be higher
As an example, the repayments on a $500k loan over 15 years P&I at 4% are $3,698 pm, however the repayments on $500k over 14 years P&I at 4% are $3,891 pm. I.e., almost $200pm more

1. Take a repayment holiday for 6 months

 
If your loan is currently $500,000, your interest rate is 3% and your repayments are $2,200 pm, at the time that the bank provides you with a 6 month repayment holiday then you will have approx. $13,200 extra in your business/household budget ($2,200 x 6).
 
However, the loan continues to attract interest during this period & your $500k loan will increase up to approx. $507,500. At the same time the loan will reduce under its normal monthly amortisation arrangement and hence at the end of this 6 months the loan limit will be approx. $494,300.
 
This does not cause any problem for your lender or you and you can resume your repayments of $2,200 pm all the way through to the end of your loan (which will simply take an extra 6 months to clear). No additional or penalty interest will ever be charge to you and as far as your lender is concerned there is nothing you need to do.
 
However, it becomes a problem should you seek to refinance onto a better rate with another lender or simply seek to borrow additional funds to do some renovations. This could be years down the track. The problem is that your loan limit is now showing $494,300 but your account balance is showing $507,500 and whilst this has been done with the full approval and knowledge by your bank, it is actually in arrears according to all other lenders.
 
If you want to borrow additional funds from your current bank the story is similar in that you are “still under financial hardship provision” and hence they will not lend you any further money.
 
The only way out from this position is to attempt to catch up the $13,200 that you are behind by making additional repayments to your loan.

1. Point C is simply a combination of points a. & b.

 
This article is not intended to dissuade you from seeking repayment relief from your bank if you need it. It is simply giving you the tools to hopefully deal with the matter in an informed manner.
 
The best solution to any of the above is to seek the repayment holiday (or interest only term), but in doing so obtain confirmation from your bank that once you return to normal repayments that they will

1. Formally extend the term of the loan by the same period that your holiday or interest only term was for, AND
2. Ensure that the loan limit is adjusted to cover the debt at the back end of the repayment holiday. Again you will need to seek Formal approval to this aspect, not just verbal advice that “everything is ok”

 
Note: Many lenders may not agree to this approach.

Interest Rate Bulletin March 2019

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economy grew above trend in 2018, although it slowed in the second half of the year. The slower pace of growth has continued into 2019. The outlook for the global economy remains reasonable, although downside risks have increased. The trade tensions remain a source of uncertainty. In China, the authorities have taken further steps to ease financing conditions, partly in response to slower growth in the economy. Globally, headline inflation rates have moved lower following the earlier decline in oil prices, although core inflation has picked up in a number of economies. In most advanced economies, unemployment rates are low and wages growth has picked up.

Overall, global financial conditions remain accommodative. They have eased recently after tightening around the turn of year. Long-term bond yields have declined, consistent with the subdued outlook for inflation and lower expectations for future policy rates in a number of advanced economies. Also, equity markets have risen, supported by growth in corporate earnings. In Australia, short-term bank funding costs have moderated, although they remain a little higher than a few years ago. The Australian dollar has remained within the narrow range of recent times. While the terms of trade have increased over the past couple of years, they are expected to decline over time.

The Australian labour market remains strong. There has been a significant increase in employment and the unemployment rate is at 5 per cent. A further decline in the unemployment rate to 4¾ per cent is expected over the next couple of years. The vacancy rate is high and there are reports of skills shortages in some areas. The stronger labour market has led to some pick-up in wages growth, which is a welcome development. The improvement in the labour market should see some further lift in wages growth over time, although this is still expected to be a gradual process.

Other indicators suggest growth in the Australian economy slowed over the second half of 2018. The central scenario is still for the Australian economy to grow by around 3 per cent this year. The growth outlook is being supported by rising business investment, higher levels of spending on public infrastructure and increased employment. The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities. A pick-up in growth in household income is nonetheless expected to support household spending over the next year.

The adjustment in the Sydney and Melbourne housing markets is continuing, after the earlier large run-up in prices. Conditions remain soft in both markets and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased further. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

Inflation remains low and stable. Underlying inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual and to take a little longer than earlier expected. The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020. Headline inflation is expected to decline in the near term because of lower petrol prices.

The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.​

Australian brokers are among the lowest paid in the world, according to a new global research report by the Finance Brokers Association of Australia (FBAA).

The study looked at remuneration structures in Australia, Canada, Holland, New Zealand, South Africa, the UK and the USA. It found that lenders in Australia pay brokers an average remuneration of 0.65% upfront for a home loan settlement, compared to the global average (excluding Australia) of 1.26%.

Some lenders also pay brokers an ongoing (trail) fee for the period that the home loan borrower continues to meet their mortgage repayments. In Australia, the 0.15% trail fee is 5% lower than the global average.

A conflict of interest?

Most mortgage brokers don’t charge a fee to their customers because they are paid commission by the lender once the loan settles. This means we often provide our services without any guarantee of payment.  

Does this generate a conflict of interest? Would we recommend a loan because we are paid to do so by a lender?

No, is the short answer! The long answer is that we want to keep ourselves in business, which means we operate ethically and legally. After all, mortgage brokers are holders of an Australian Credit Licence and must adhere to the protections set out in the National Credit Act 2010. These state that a broker must never recommend a product that is ‘unsuitable’ based on ‘reasonable enquiries’ of your financial situation.

We take pride in a job well done. Our intimate knowledge of our lenders’ products is one way we achieve success in matching home loans to individual client needs.

Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices are generally higher than they were a year ago, providing a boost to Australia's national income. The prices of iron ore and coal, however, have declined over recent months as expected, unwinding some of the earlier increases.

Headline inflation rates in most countries have moved higher over the past year, partly reflecting the higher commodity prices. Core inflation remains low, as do long-term bond yields. Further increases in US interest rates are expected over the year ahead and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.

Domestically, the transition to lower levels of mining investment following the mining investment boom is almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. Year-ended GDP growth is expected to have slowed in the March quarter, reflecting the quarter-to-quarter variation in the growth figures. Looking forward, economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent.  

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months, although growth in total hours worked remains weak. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens. Slow growth in real wages is restraining growth in household consumption.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders have also announced increases in mortgage rates, particularly those paid by investors and on interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Conditions in the global economy have improved over recent months. Both global trade and industrial production have picked up. Labour markets have tightened in many countries. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Core inflation remains low. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.

The Australian economy is continuing its transition following the end of the mining investment boom. Recent data are consistent with ongoing moderate growth. Most measures of business confidence are at, or above, average and non-mining business investment has risen over the past year. At the same time, some indicators of conditions in the labour market have softened recently. In particular, the unemployment rate has moved a little higher and employment growth is modest. The various forward-looking indicators still point to continued growth in employment over the period ahead. Wage growth remains slow.

The outlook continues to be supported by the low level of interest rates. Lenders have recently announced increases in mortgage rates, particularly those paid by investors. Financial institutions remain in a good position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Inflation remains quite low. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent. The rise in underlying inflation is expected to be a bit more gradual with growth in labour costs remaining subdued.

Conditions in the housing market continue to vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades.

Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income. By reinforcing strong lending standards, the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the Australian market would also be a positive development.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

At its meeting today, the RBA Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy have improved over recent months. Business and consumer confidence have both picked up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth was stronger over the second half of 2016, supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a boost to Australia's national income.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Long-term bond yields have also moved higher, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of further monetary easing in other major economies. Financial markets have been functioning effectively and stock markets have mostly risen.

In Australia, the economy is continuing its transition following the end of the mining investment boom. GDP was weaker than expected in the September quarter, largely reflecting temporary factors. A return to reasonable growth is expected in the December quarter.

The Bank's central scenario remains for economic growth to be around 3 per cent over the next couple of years. Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end. Consumption growth is expected to pick up from recent outcomes, but to remain moderate. Some further pick-up in non-mining business investment is also expected.

The outlook continues to be supported by the low level of interest rates. Financial institutions remain in a position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Labour market indicators continue to be mixed and there is considerable variation in employment outcomes across the country. The unemployment rate has moved a little higher recently, but growth in full-time employment turned positive late in 2016. The forward-looking indicators point to continued expansion in employment over the period ahead.

Inflation remains quite low. The December quarter outcome was as expected, with both headline and underlying inflation of around 1½ per cent. The Bank's inflation forecasts are largely unchanged. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.

Conditions in the housing market vary considerably around the country. In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors. With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.

Taking account of the available information, and having eased monetary policy in 2016, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

The question of whether home values double every 7 to 10 years is guaranteed to raise debate.

While some argue that property buyers should expect a doubling of their money every 7-10 years, others believe this is simply not the case.

Property analytics provider, CoreLogic RP Data recently tried to find the answer, with a study that compared home values across capital cities. It found that in the ten years to 2006, home values more than doubled across each capital city, but in the ten years to 2016, growth was half that of the previous decade. Melbourne is the only capital city housing market in which home values doubled between 2006-2016, although Sydney and Darwin each recorded an increase of more than 75%.

So, what does this mean for you? As a property investor, it’s a timely reminder of how important it is to buy the right property, at the right price and in the right location. A powerful way to push the odds in your favour is to buy property in an area that has a long history of strong capital growth.

Also, look for properties close to employment and amenities like schools, shops, and transport. Don’t buy the property because it appeals to you; think about what owner occupiers would like and the features that are going to remain popular in the future, such as entertaining areas, open plan living, natural light and an appealing kitchen.

We often get asked whether investing in interstate property is worth the risk. Tales of property spruikers and the hassles of buying in an unfamiliar area have turned many investors off looking beyond their home state.

While it’s true that there are traps for unwary investors, there are also a number of very good reasons to buy interstate. As the property market cycle can move differently state by state, when properties are slowing down in some states, in other states they may be growing. By diversifying your assets to include interstate properties, you could expand your potential to enjoy strong capital growth and healthy rental yields.

As with any property investment, research is the key to making a success of your interstate purchase. Start by reading these four strategies and speak to us if you need professional advice – such as which investment property loan is right for your needs.

1. Research the full picture

Strike the right balance between doing your own internet research and talking to industry professionals. The more research conducted from a variety of sources, the more likely you are to gain an understanding of both positive and negative aspects of the property. 

Internet searches, property reports, virtual property tours, buyer’s agents, real estate agents and other investors are all valuable ways to find out whether this property is likely to perform.

2. Factor in the cost of a property manager

You might not think you need a property manager, but it’s wise to factor in the cost upfront. Screenings tenants, conducting inspections and organising repairs has its challenges when the property is nearby, let alone thousands of kilometres away. Including the fees of a property manager in your budget will ensure you are prepared should you choose not to self-manage.

3. View it as a long-term investment

Look not just at the qualities of a property but instead hunt for suburbs that show potential for capital gain and rental growth over a longer period. Positive signs include strong rental demand, population growth, adequate transport links, shops, schools and planned developments.

4. Conduct background checks on the professionals you hire

It might not be feasible to make numerous interstate trips, in which case you’ll need to rely on local talent such as conveyancers, solicitors, real estate agents, buyer’s agents, building inspectors, pest inspectors and property managers. To find people you trust, it’s imperative not to be sucked in by sales talk – always request and follow up on references when hiring a professional.