As we all know there have been talks by the RBA of interest rate rises during 2005. I’m interested to know what the community, particularly the mortgage brokers and money managers of the forum think about this. How high are we looking at them going this year? When can this be expected to happen? How will it affect the mum and dad investors? What does it mean for newbie investors (like myself) starting out with their first few properties?
Lumwood,
Not a broker etc, however, you can today get very good 3 and 5 year fixed rates for around 6.5%, I have seen advertised. To put that into perspective, I am currently paying 6.67% variable with a professional package.
You can mitigate the RBA risk through this approach.
As for interest rate rises, it seems likely for at least a 0.25% increase but when, I would be only guessing. However, if it is during the winter months (and the traditionally slower months for real estate), would be interesting to see what happens to market sentiment. Might make for some interesting opportunities.
James
I would have staked my knowledge of the industry and my judgement on no increases this year until Derivex came along. I think their product will cause a massive demand on properties Australia wide which may cause the Reserve Bank to respond. But then again, there is no interest so it will not stop the rush on properties if they raise the rate. I guess the property market will go back on the boil in the next few months and may even go out of control.
It is hard to say now with these interest free loans gaining momentum!!!
My concern will shift towards inflation.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdI don’t think property will go through another boom for a while. Mainly because it’s already had high CG. Look at the trends.
As for interest rates, I’ve got a feeling that there won’t be any large interest rates. My only concern is the tight job market at the moment, but with the IRC keeping that in check I don’t see that as a major concern.
Rgds.
Lucifer_auLumwood – what the RBA has said is that interest rates have yet to reach what they consider to be a neutral level. While this does, on the face of it, appear to be RBA speak for “rates will rise” it is not as simple as that. They have been saying this for months now. And?? No rate rises. Economists (of which I am one) refer to this as “jawboning*”. There have been some ridiculous suggestions reported in the media that interest rates will not rise in 2005. While I am not saying that they wont – be very wary of anyone who makes such statements as they are the economic equivalent of peeing into the wind.
I dont see Derivex’s product as being a major stimulant to the housing markets. Also, as much as property investors like to think that they are the centre of the universe, the reality is that the RBA takes account of many macroecomic factors and not just asset prices.
The short answer is this. Atm it is very difficult to see justifcation for higher interest rates.
BIS Shrapnel are on the public record as saying that interest rates will approach 10% within a couple of years though, unless I have missed it, they have kept a very low profile lately. My understanding is that BIS’s forecasts draw heavily upon the US economy – where if things went pear shaped then the realities of international inflationary pressures could force the RBA to move quick. Of course this is all conjecture atm, but then that is economics.
It is not called the dismal science for nothing.
FWIW
MB
*Jawboning – when influential people / organisations such as the RBA or the US Federal Reserve make statements about what they may do or the future may involve. The mere suggestion that the RBA *may* raise interest rates causes concern and causes many people to stop and think. This of course actually reduces the pressure to raise interest rates. Which is kinda the purpose in the first place. Of course, the RBA can jawbone all it wants, but it wont mean diddly squat to the US economy.
Welcome to PI Pitt, always good to see a friendly face (avatar?) [biggrin]
Pitt,
My concern with Derivex also includes the reduced cost to hold properties resulting in increased spending in other areas. If the property market picks up again, more jobs will also result in more spending and so on and so on… Will this not cause upward inflationary pressure and potentially be a major cause of future interest rate increases?
Then again, the Free Trade Agreement with the US has kicked in and we should see more jobs in Australia and some cheaper products coming through. It is confusing times as far as I am concerned. I am still comfortable with rates remaining pretty steady for the short-term.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdHi all
Derivex is very new and i think people are still cautious of this.
If one goes with derivex what does the fine print say.What if you wnat to refinance
What if you want to increase borrowingsThese are thing people are now comfortable with, dealing with banks etc.
People putting the PPOR and major IPs with an unknown seems risky to most.
I guess it comes down to what is the worst thing that can happen to the person taking the loan from derivex if things go wrong.
cheers
alfRob, yes. If less $$ is spent on loan repayments then more $$ is left to spend.
But….
1. As I understand it Derivex has pretty tight servicibility criteria (I looked at my own situation and realised I could borrow $40k less than I currently have if I used Derivex – and I know I can still borrow more atm using the big banks). So this actually retards housing demand.
2. What sort of take up of this product do you expect? Unless it becomes the market leader with well into double-digit market share – or unless copy-cat loans emerge and between them the mortgage market is turned on its head – then all we are talking about is a small section of one part of the economy.
I recall that just after the election (of course) the Treasurer came out and admitted that the economy probably would slow in 2005. To the best of my knowledge, this remains typical sentiment.
FYI http://wopared.parl.net/library/pubs/mesi/ is a great one for economic data.
MB
After the massive runup in CG we’ve seen and with rents, if anything, falling backwards, I struggle to see how the housing market could pick up again when the yields for the majority of properties will be about 3% on average.
Unless there is a pretty strong reason for big CG, property just doesn’t seem like a wise and very financially rewarding investment right now. That’s with interest free loans or not.
Of course, this is all IMHO.
Maybe i see it too simply, but back 2000-2001 when i bought my first house (ppor) everyone was going nuts saying “oh, its so cheap to borrow money atm” etc etc. That was the major driving force back then…
The same type of first home owners, mums and dads etc would be the same people swept up into the craze once again…
So i guess with that said, if you make it EVN MORE cheaper for people to borrow (ala Derivex)I could see it possibly happening again. However Derivex is a BIG IF!!!
I’ve put in a request to Derivex and will be doing my due diligence once i recieve the forms. It’s just a matter of time as to whether PO Loans are for real or not….
Cheers,
Damon
In theory, there is no difference between practice and theory, in practice, there is….
Originally posted by Pitt St:1. As I understand it Derivex has pretty tight servicibility criteria (I looked at my own situation and realised I could borrow $40k less than I currently have if I used Derivex – and I know I can still borrow more atm using the big banks). So this actually retards housing demand.
I think there must have been an error in the calculation here. Derivex base their calculations on ‘CashFlow’. There is no interest component and they lend up to 100% of the property value. If your rent is solid and it is more than the principal only repayments (ie: at least 5% net), and/or your income is good, there is no way you could borrow more through normal channels.
2. What sort of take up of this product do you expect? Unless it becomes the market leader with well into double-digit market share – or unless copy-cat loans emerge and between them the mortgage market is turned on its head – then all we are talking about is a small section of one part of the economy.
I believe the take up rate would be easily into double digits. Copy-cats will take time to work it all out and get established. This offering does not only apply to property (as in houses). It can be applied to any tangible property (eg: block finance for phone companies). I am very impressed with the structure.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltdlumwood,
nice post, nicer disapearing act.
mate, ’04 was the year when rates were meant to rise to blah blah blah blah
12 months since the last move – prior to the november ’03 move I think the previous interest rate move was a further 18 months prior.
so 3 moves in 30 months. a total of 0.75%
WOW
you have more chance of having a baby in this time frame – and trust me, that has a bigger impact.
cheers
brahms
mortgage broker
[email protected]
brisbaneOriginally posted by brahms:lumwood,
mate, ’04 was the year when rates were meant to rise to blah blah blah blah
12 months since the last move – prior to the november ’03 move I think the previous interest rate move was a further 18 months prior.
so 3 moves in 30 months. a total of 0.75%
WOW
you have more chance of having a baby in this time frame – and trust me, that has a bigger impact.
cheers
brahms
mortgage broker
[email protected]
brisbaneGreat post Brendan, concise, thought provoking and some humor thrown in for good measure,
I know its only January, but this is my nomination for post of the year, Cheers.
Regards
Steven
Mortgage Broker
Mobile Mortgage Market[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
The RBA has been talking about interest rate rises because of RISKS they see in the economy. Unless those risks materialize, all at once, they will be reluctant to raise interest rates.
My sanity check on the RBA is what the bond market thinks. The RBA keeps statistics on daily bond yield rates on their web site. The current 5 and 10 year bond yields are currently lower than the cash rate. To me, it seems as if other people think the economy isn’t all that crash hot and the long-term yield reflects this.
Jireh
in Sydney
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