Interest rate decision June 2018
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 global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth. Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets. As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus and further steps in this direction are expected.
Financial markets have been affected by political developments in the eurozone, particularly in Italy. There are also concerns about the direction of international trade policy in the United States and economic developments in a few emerging market economies. Long-term bond yields in most major economies have declined recently and there has been some widening of corporate credit spreads. Overall, though, financial conditions remain expansionary. Conditions in US dollar short-term money markets have eased recently, although they are tighter than earlier in the year, with US dollar short-term interest rates having increased for reasons other than the increase in the federal funds rate. The higher rates in the United States have flowed through to higher short-term interest rates in a few other countries, including Australia.
The price of oil has increased over recent months, as have the prices of some base metals. Australia's terms of trade are expected to decline over the next few years, but remain at a relatively high level.
The recent data on the Australian economy have been consistent with the Bank's central forecast for GDP growth to pick up, to average a bit above 3 per cent in 2018 and 2019. Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Stronger growth in exports is expected. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high.
Employment has grown strongly over the past year, although growth has slowed over recent months. The strong growth in employment has been accompanied by a significant rise in labour force participation, particularly by women and older Australians. The unemployment rate has been little changed at around 5½ per cent for much of the past year. The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a gradual reduction in the unemployment rate expected. Wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.
Inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.
The Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. Housing credit growth has slowed over the past year, especially to investors. APRA's supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high. While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline.
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.
93% believe brokers have client interests at heart
Annie Kane, The Adviser, 21st September 2018
The vast majority of customers believe that brokers have their clients’ interests at heart and are satisfied with the strength of their knowledge and competency, according to new research.
Research commissioned by the Finance Brokers Association of Australia (FBAA) and undertaken by industry researchers MyNextAdvice surveyed 2,049 broker clients that had settled loans and asked them to respond to questions based on a range of key performance indicators including broker-client relationship and ease of doing business.
The survey found that the vast majority of people who had sourced mortgages through brokers were satisfied with almost every aspect of the transaction.
According to the research, 94 per cent were happy with their broker’s knowledge and competency, while 93 per cent agreed their broker had their clients’ interest at heart.
Further, 93.6 per cent found their broker understood their needs, objectives and financial situation, and 92.1 per cent were satisfied with the strength of the broker-client relationship.
A high proportion of respondents also said they had received excellent or fantastic service.
Speaking of the research findings, FBAA executive director Peter White said that the results indicate brokers are doing the right thing by their clients.
“Overall confidence with the brokers relevant to this research was 95 per cent, and the same percentage said brokers were easy to do business with,” Mr White said.
The head of the broker association added: “There is always room to improve, but when we see the issues [raised] in the royal commission, we know the broker industry is best in breed, and the objections raised by the Productivity Commissioner are simply not based in fact or competent research.”
Call for mandatory reverse mortgage training
As well as releasing the research findings, the FBAA has also recently called for the introduction of mandatory training and accreditation for anyone offering reverse mortgages.
Last month, the Australian Securities and Investments Commission (ASIC) released the findings of its review on the $2.5 billion reverse mortgage market, and it suggested that more could be done to ensure seniors understand the risks and benefits of reverse mortgages.
ASIC’s investigation, which involved interviewing 30 borrowers and analysing data on 17,000 loans, also found that poor understanding of the costs and rates associated with reverse mortgages — which are higher than standard home loans — and perfunctory lender checks could negatively impact borrowers in the long term, depending on market conditions such as fluctuations in interest rates and property prices.
The chief executive of Heartland Seniors Finance, Andrew Ford, highlighted last month that brokers were well positioned to demystify the reverse mortgage market, and the FBAA has now called for the introduction of mandatory training and accreditation for anyone offering reverse mortgages.
Highlighting that the association has been working closely with ASIC on reverse mortgages, FBAA executive director Peter White added that the association had formed a specialised working group under the chairmanship of Stephen Rasmussen, picking up from the work of the Senior Australians Equity Release Association of Lenders, which folded in 2017.
Mr Rasmussen said: “We are seeking to develop a co-ordinated industry understanding and strategy towards higher levels of training and accreditation, and to improve consumer access to accurate, timely and appropriate advice on their financing options.
“Our working group is focused on a whole of industry approach to strengthen consumer safeguards, but it’s important to note significant protections have been in place since 2011 including high level disclosure requirements and the ‘no negative equity guarantee’.”
Mr Rasmussen continued: “While in the main lenders have maintained high standards, this is a highly specialised area ideally served by practitioners who have developed the knowledge and experience in the sector. The tick-box response from some lenders is not appropriate as all applicants for reverse mortgages deserve good, independent advice taking into account long-term needs.”
The head of the FBAA added that it had previously instructed its registered training organisation to develop a new course on reverse mortgages, and that this was mandatory to FBAA members writing these loan products.
He concluded that all reverse mortgage writers should now be accredited to the same standards to ensure that, and it has therefore made the reverse mortgage course available to non-members to help ensure they are fully compliant and up to date.
Why does my broker ask for so much documentation?
No one likes paperwork; however, providing your broker with the right documentation will save you time and money.
What information will your broker ask you to provide?
When you ask to enlist the services of a broker, they will probably ask you for the following documentation:
Identification, including photo ID such as driver licence
Income verification documentation such as recent payslips
Birth certificate, if you are applying for a government funded first home owner grant
Depending on the lender or bank you would like your broker to apply to for your loan, you may also be asked to provide:
A recent PAYG summary
A notice of assessment from the Australian Taxation Office
Proof of your contribution toward the transaction, such as savings or deposit statements
Purchase contracts for a home loan, including building contracts, or plans if building
Why is this information important?
While it may seem that you are climbing the Mount Everest of paperwork, a broker will ask for all of this to ensure they are protecting you and that they get the best possible deal.
“Gathering various forms of documentation allows brokers to do a fact find, which is an important part of the loan process,” explains Mortgage Consultant Justin Lidgerwood from Mortgage and Finance Solutions.
This is the process by which brokers ensure that they match a client with a loan that helps them achieve their property goals, whether that is buying a home to live in, one to renovate and sell, or a long-term investment, and one that matches their financial positions. “Brokers do not want to put prospective loan clients into a situation where they cannot afford to repay their new loan commitments,” says Lidgerwood.
Will a bank ask for the same documentation?
If you apply for a loan with a bank that you do not currently have an account with, they will require much of the same information as a broker would.
Although borrowers may be able to avoid the paperwork by applying for a loan with their current bank (which will already have a lot of information on file), this means being constrained by the products that bank offers and risking missing out on a great deal.
“The benefit a broker has compared to an individual bank, is the broker has access to most banks and lenders across Australia,” Lidgerwood says. “Lending policies and pricing vary greatly across the lending market and some clients do not realise this, so why waste time going direct to a bank?”
It is also likely to mean missing out on having a broker match a loan to longer-term goals, rather than just a purchase price and interest rate.
Saving you time and money
Lidgerwood says a broker can usually tell a client within 10 minutes whether they have a chance of obtaining loan approval.
“Brokers have access to bank loan affordability and serviceability calculators, which show clients’ potential borrowing capacity,” he explains. “Depending on the size of the funding required, and the loan to valuation ratio, these days the banks are extremely competitive, and we can quite often get a better price deal than advertised.”
If a client is not yet in a position to obtain a loan or has a credit issue on their file, such as a default, having a broker on-side can be invaluable.
“We can guide the client with a view of getting default removed, or waiting until the default drops off the client’s credit file,” Lidgerwood explains. “Most brokers are accredited to gain access to client’s credit files these days, which is an extremely important issue due to the banks’ risk scoring.”
In a nutshell, a broker will shop around to get the best possible deal for you, their client.
MFAA accredited finance brokers are the experts in finding you a loan that matches not just your finances, but your future plans.