RBA slashes Rates by a full 1%

[Laminge]

Originally Posted by phoonfan

Lets hope the banks do the right thing and pass it on!

Lets hope that they dont, be he the brave one that doesnt bend to the will of the masses.

Its the super companies and bhp that have us by the proverbial, watch the left hand whilst it pats you the back while the right hand waxes and bleaches your privates.

Nothing like a bleach rash!

[Yellow_Festiva]

This may be a precursor for what is ahead. Several of the worlds leading economies are on the brink of collapse. The US bail out has not had the desired effect...

However, of the worlds 18 AAA rated banks, our main 4 are in that 18.. which statistically speaking based on pop and GDP is an amazing achievement.

The cash rate is around 6.5% now... the economists interviewed on the radio this afternoon are predicting a further 2% in cuts in the near future.. with a possible cash rate of high 3 percent if our commodities fall out of flavour, which will happen if people stop buying....

We are in for very interesting times ahead...

[JADED6]

Very surprised. We've had our home loan for 18 months and all the rises, threats of 10% rates and now this 1% cut by the RBA leaves me scratching my head.
It's going to be a fun 20 odd years.

Left our repayments the same at last months cut and we'll do the same again. Just means the loan is re-payed a bit quicker. The sooner the better, it's bloody crazy.

Fixing your loan was the "safe bet" 3 to 4 months ago.

[gcg2503]

I am just glad that the AUD weakened as a result

I get more $$ for every ££ i send home now

Rejoice!

[bob^]

Originally Posted by 4Vman

Interesting move... i hope it doesn't backfire on them.
Watch property prices climb again.....

Spot on - there goes the price of housing.
I for one was hoping that the interest rate would go that next step higher. I know - I'm only thinking of myself there but when we are talking about that much money, I want what is best for me!
The price of housing is ridiculous and is only going to get worse now.

[Yellow_Festiva]

I actually don't think house prices will rise, in fact they will probably remain stagnant or fall.

The past has shown the trend of rising house prices when rates free-fall, but that was at a time when you could walk into a bank and get a 95% No Doc loan with a smile and promise that you can eventually pay it back.

Now banks are becoming very cautious with their lending. The free flowing easy credit is no longer available to many banks, let alone the average Joe wanting to buy a house.

I'm wanting to further invest in real estate, but I’m having a 'wait and see' attitude... too much uncertainty. I’m sure I’m not the only one with this attitude now that the excreta has hit the fan.

[SB076]

Originally Posted by bob^

Spot on - there goes the price of housing.
I for one was hoping that the interest rate would go that next step higher. I know - I'm only thinking of myself there but when we are talking about that much money, I want what is best for me!
The price of housing is ridiculous and is only going to get worse now.

Not neccesarily, take the US as an example there official rate I think (cant be bothered looking it up) is 2%. But their housing prices have dropped (and are still dropping over there as their economy slows) European house prices are also dropping (again too early in the morning cant be bothered looking it up) Oz is different, but it will be very interesting to see what happens in the future.

As yellow festiva said we are in for very interesting times

[merlin]

Just a tip guys as I keep reading in this thread about people leaving their repayments the same. IMO (and most top financial advisors) there is a better way:

My wife and I have our entire pays/income go into our home loan account. We then put all our purchases (fuel, groceries, everything) on credit card. You then redraw the absolute minimum from the home loan (usually once or twice a week) as needed to pay off the credit card (so you dont occur any interest whatsoever on the card).

This way you are paying off the house as fast as possible and most importantly always minimising the amount of interest you are paying on your home loan.

To make this work our home loan has unlimited free redraws and the credit card has a 28 day interest free period. This is through our credit union by the way.

[mr smith]

Originally Posted by merlin

Just a tip guys as I keep reading in this thread about people leaving their repayments the same. IMO (and most top financial advisors) there is a better way:

My wife and I have our entire pays/income go into our home loan account. We then put all our purchases (fuel, groceries, everything) on credit card. You then redraw the absolute minimum from the home loan (usually once or twice a week) as needed to pay off the credit card (so you dont occur any interest whatsoever on the card).

This way you are paying off the house as fast as possible and most importantly always minimising the amount of interest you are paying on your home loan.

To make this work our home loan has unlimited free redraws and the credit card has a 28 day interest free period. This is through our credit union by the way.

In my opinion this is one of the biggest scams the banks have come up with. Has never worked in the long term for anyone I know, all they end up with is a blown out credit card debt because they cant keep track of their spending. Cash will always be king.

[Scott]

Originally Posted by Yellow_Festiva

but that was at a time when you could walk into a bank and get a 95% No Doc loan with a smile and promise that you can eventually pay it back.

I've never seen a Low Doc loan for more than 80%. Who was doing them at 95%?

I'm unsure of property values moving much though, I'm really not too fussed either way TBH. IMO, more people are better off in a falling market than a rising one. The people who are most affected by an increasing market are those who are not in it yet.

If you have property and are looking to sell, the odds are you are looking to buy something aswell, on top of that the thing you are looking to buy will likely be dearer than the one you are in therefore you get the benefit of a closing gap between what you have and what you want.

Originally Posted by mr smith

In my opinion this is one of the biggest scams the banks have come up with. Has never worked in the long term for anyone I know, all they end up with is a blown out credit card debt because they cant keep track of their spending. Cash will always be king.

Or just use an offset acct...

[Yellow_Festiva]

Originally Posted by mr smith

In my opinion this is one of the biggest scams the banks have come up with. Has never worked in the long term for anyone I know, all they end up with is a blown out credit card debt because they cant keep track of their spending. Cash will always be king.

Not a scam at all. The people you know have no clue how to control their spending and stick to a budget if they all end up blown in debt.

Actually, you said it yourself... they can't keep track of their spending.

I do what Merlin has said. I HAVE NEVER paid interest in my credit card in the last 7 years. I pump every last cent into my loan, then calculate how much is needed on what days and make sure the funds are there (loan repayments / credit card payment etc)...

Yes, cash is king, but using the banks cash interest free in the short term to bundle your spending repayments into 1 monthly transaction while earning points / rewards / frequent flyers etc is a whole lot smarter.. for those who have the discipline needed.

[BlackLS]

I keep reading this thread title as a heads up on of cheaper slotted disc brakes.

[Yellow_Festiva]

Originally Posted by GTP006

I've never seen a Low Doc loan for more than 80%. Who was doing them at 95%?

I haven’t applied for a loan in a while but 3-4 years ago a broker mentioned that there were "non conforming / boutique or low documentation lenders" who would lend this much. He was a dodgy bloke to say the least. The interest rates were higher than regular bank rates so I steered clear of this style of lender.

Perhaps I shouldn't have used the word 'bank', as the companies that were touted I had never heard of before.. wonder if they are still in business today?

[gcg2503]

IMO I doubt house prices will increase that much as some are stating above.

Lets not forget the economic climate os far diofferent to what we had one year ago.

People are definitely as optimistic as they were 12 - 18 months ago.

[merlin]

Originally Posted by mr smith

In my opinion this is one of the biggest scams the banks have come up with. Has never worked in the long term for anyone I know, all they end up with is a blown out credit card debt because they cant keep track of their spending. Cash will always be king.

How is this a scam - I have never paid a cent of interest on my credit card - the bank is losing not me.

However if you dont trust yourself with a credit card then you can do the same thing I said originally but just redraw into a seperate cash account and use cash to buy everything (you do then miss the advantage of the card which is the 28 day interest free period whereby that money is working for you in your home loan account).

[4Vman]

House prices will move, there's no doubt, you can't make borrowing more affordable without it increasing competition in the market place.

[balthazarr]

Originally Posted by merlin

How is this a scam - I have never paid a cent of interest on my credit card - the bank is losing not me.

However if you dont trust yourself with a credit card then you can do the same thing I said originally but just redraw into a seperate cash account and use cash to buy everything (you do then miss the advantage of the card which is the 28 day interest free period whereby that money is working for you in your home loan account).

Another alternative, if you are adverse to the idea of credit cards, is to set up an offset account, where any money in your transaction account is offset against the loan, reducing the interest you pay.

[Polyal]

Originally Posted by JADED6

Fixing your loan was the "safe bet" 3 to 4 months ago.

Thats exactly what I did, thought since its our first we should lock it in for atleast 12 months and see what happens.

Good and bad decision I suppose, either way with the drop Id probably keep the same repayment rate anyway.

Meh, its all a cycle, and sometimes there is not much you can do other than knuckle down.

[BENT_8]

Originally Posted by 4Vman

House prices will move, there's no doubt, you can't make borrowing more affordable without it increasing competition in the market place.

How do you come to this opinion when it goes against all current trends?
The US as has been stated is at 2%, a rate most here would jump at yet US borrowing is all but non existant and house values are down 50%.
The only way around that is to claim the old were not reliant or following the US trend, an argument that loses ground every day that goes by, clearly we are.
Our banks borrow from the US and if that supply has slowed so will the opportunity for less than ideal borrowers to be funded.
As has been said many times before, prices are about supply and DEMAND, less borrowers means less demand as has been seen in the US and their result is lower house prices.
Gone are the days when you could get a loan without real evidence of payment ability and theregoes 50% of borrowers.

[4Vman]

Originally Posted by BENT_8

How do you come to this opinion when it goes against all current trends?
The US as has been stated is at 2%, a rate most here would jump at yet US borrowing is all but non existant and house values are down 50%.
The only way around that is to claim the old were not reliant or following the US trend, an argument that loses ground every day that goes by, clearly we are.
Our banks borrow from the US and if that supply has slowed so will the opportunity for less than ideal borrowers to be funded.
As has been said many times before, prices are about supply and DEMAND, less borrowers means less demand as has been seen in the US and their result is lower house prices.
Gone are the days when you could get a loan without real evidence of payment ability and theregoes 50% of borrowers.

You can't compare the US housing market to ours, we have a chronic short supply of housing here, people are itching to get into the market, either as investors, or upgraders, not just first home buyers, if loans become more affordable people will be more keen to get in, more people competing for the same property will have a natural tendency to drive prices upwards, as has been happening for the past 8 years... The last crop of rate rises just slowed things.. if rates drop watch the auctions go crazy.

[Scott]

Originally Posted by BENT_8

How do you come to this opinion when it goes against all current trends?

It is worth remembering that the majority of mortgagee's our there can afford their home and did do the hard yards to buy it. 4Vman argues a valid point in that not all buyers are first timers with no money...

Between the mix of potential buyers, I think property could go either way. +/- a couple of percent at best.

[4Vman]

Originally Posted by GTP006

It is worth remembering that the majority of mortgagee's our there can afford their home and did do the hard yards to buy it. 4Vman argues a valid point in that not all buyers are first timers with no money...

Between the mix of potential buyers, I think property could go either way. +/- a couple of percent at best.

Yep.. Also the first property you buy will be the toughest to afford... once you're in the market it gets easier, there are also allot of people just waiting to get in, i think this opportunity will tempt them to jump, if lots jump competition will be fierce..

[Brent]

Why the hell does "Aussie" John Symonds always pop up like the messiah to give his 20 cents worth on the issues of personal debt, mortgage stress etc. Its the exact likes of him and his '2nd tier financier' mates who caused a great deal of this mess in the first place with regard to people having far too easy access to credit.

In days gone by, if you wanted a loan for a house you had to stump up a 20% deposit, go and see one of the 'big 4' banks, and prove you could afford to pay the loan. Otherwise, see ya later pal. OK, maybe a bit of a closed shop arrangement and not ideal in this modern era of competition........enter the 2nd tier financiers. With a limited product range and minimal infrastructure, they entered the market on a low overhead cost structure, and turned the home loan market upside down. For the most part, everyone thought this was fantastic. They lowered home loan margins, and were overnight thought of as the good guys. Then they started lending 85%, 90%, 95%+. Joe average thought "this is awsome! I can go and buy a $500k house with spare change as a deposit, and I get a cheap interest rate into the bargain. Perfect!" Add in a wallet full of credit cards, and deck out your house in furniture on 48 months interest free, then lease the car, and you're off and away.

However, in the haste to sign the paperwork and off their local big bank, Joe Average forgot that a good deal of these smaller financiers are pretty much mercenaries, and often don't give a stuff about the customer experience. Then the mortgage brokers got into the game, setting up your mortgage with the cheapest and dodgiest financiers for an exhorbitant fee, and it was all downhill from there. Just try missing a payment on the "no interest for 24 months" deal you got with your plasma TV (underwritten by god knows which financier). Suddenly, all bets are off. Ditto for your cheap home loan.

Now we've got a generation of people who are geared to the eyeballs, and when tough times hit, there's stuff all financial headroom in peoples' budgets to accommodate the financial impact.

As much as I'd like to see this latest 1% cut boost the economy, I've got a sinking feeling that many people will use it as a free spin of the wheel. Yes, it'll no doubt help those who are genuinely battling through tough circumstances, but it'll also be a let-off for the multitudes of people who never should have borrowed so much in the first place.

Brent.

[SB076]

I dont think we can say with confidence what will happen to the housing market

House prices in the Europe and USA have dropped even though rates have dropped, Interest rates are dropping all round the world as those in charge attempt to get economies going. However having said that Australia is different as we apparently have a shortage of housing, this may lead to an increase but not necessarily. Apparently there are over 1 million homes in Oz under "mortgage stress", if the economy falls into recession and poeple start struggling these homes could be up for fire sale - which could drop the price of housing. If you are buying and selling typically you wont be effected because you will be buying and selling in the same market (either low or high)

USA is Chinas largest customer, when a business loses its largest customer its typically not good, In Oz we dig holes and sell "stuff" to China, if there is a reduction in the amount of sales to China that will have consequences here.

Read an incredible article that compared the current economy to 1930's depression - they stated the only difference was that the major banks (in the USA) all got through the 1930's, where as they havent managed to get through this. Then read another article suggesting this is all just a correction and things will be as per normal mid way through next year. So who knows what will happen or how it will pan out

[4Vman]

Originally Posted by Brent

Why the hell does "Aussie" John Symonds always pop up like the messiah to give his 20 cents worth on the issues of personal debt, mortgage stress etc. Its the exact likes of him and his '2nd tier financier' mates who caused a great deal of this mess in the first place with regard to people having far too easy access to credit.

In days gone by, if you wanted a loan for a house you had to stump up a 20% deposit, go and see one of the 'big 4' banks, and prove you could afford to pay the loan. Otherwise, see ya later pal. OK, maybe a bit of a closed shop arrangement and not ideal in this modern era of competition........enter the 2nd tier financiers. With a limited product range and minimal infrastructure, they entered the market on a low overhead cost structure, and turned the home loan market upside down. For the most part, everyone thought this was fantastic. They lowered home loan margins, and were overnight thought of as the good guys. Then they started lending 85%, 90%, 95%+. Joe average thought "this is awsome! I can go and buy a $500k house with spare change as a deposit, and I get a cheap interest rate into the bargain. Perfect!" Add in a wallet full of credit cards, and deck out your house in furniture on 48 months interest free, then lease the car, and you're off and away.

However, in the haste to sign the paperwork and off their local big bank, Joe Average forgot that a good deal of these smaller financiers are pretty much mercenaries, and often don't give a stuff about the customer experience. Then the mortgage brokers got into the game, setting up your mortgage with the cheapest and dodgiest financiers for an exhorbitant fee, and it was all downhill from there. Just try missing a payment on the "no interest for 24 months" deal you got with your plasma TV (underwritten by god knows which financier). Suddenly, all bets are off. Ditto for your cheap home loan.

Now we've got a generation of people who are geared to the eyeballs, and when tough times hit, there's stuff all financial headroom in peoples' budgets to accommodate the financial impact.

As much as I'd like to see this latest 1% cut boost the economy, I've got a sinking feeling that many people will use it as a free spin of the wheel. Yes, it'll no doubt help those who are genuinely battling through tough circumstances, but it'll also be a let-off for the multitudes of people who never should have borrowed so much in the first place.

Brent.

Well said, as you've pointed out the availability of money has created more interest, people don't need to save for a deposit anymore, (that went on luxury or self indulgence items..) and the Govt gives you a freebee...
The effect of this is ultimately pushing prices up, people just borrow more over a longer period... It was also noted in some circles the instant propensity of people to find ways to "spend" the amount of this reduced loan payment rather than reduce their loan debt by maintaining the repayment amount... these people are saying "wow, ive got an extra $160 a month to spend", not "great, my debt will be paid off quicker".. scary stuff.

[Pinch]

On the wider front a bit disconcerting to see such a big decrease. Surely not a good sign of the wider economy.

Personally it doesn't have much of an impact now. My small mortgage (on an even smaller place!) is being paid as if the interest rate was 11% at my initiative. This means that the extra is paying off the loan faster, and if rates were to ever climb to 11% I would not have to adjust my budget (unless I wanted to keep paying the extra). All academic really anyways until end of next year as most of my loan is fixed at 6.something percent with only a small variable portion to allow the extra payments. The rate cut for me actually equals about $20 a month extra in my pocket.

Could be an issue for petrol though, with the commensurate fall in the AUD, with the price we pay for fuel pegged to the AUD/USD exchange rate.

Don't know about the whole 20% deposit policy demise being THAT much of an issue though. More likely those who got loans either shouldn't have got a loan in any event, or more likely should no have taken the amount they did. It was probably more the amounts offerred that caused people issues rather than accessing any money at all. I didn't have 20% at the time but did my sums and did not take what the bank offerred. That was crazy huge offer for a first home buyer, but I just got the cheapest thing I could almost live in and did some hard hards weekend and annual leave work to make it liveable. Voila - hasn't been too bad AND I am out of the rental system (although a rental place at my mortgage cost would be a much better place). Some people I know went the different direction, took the whole lot offerred and now aren't in such a happy place - despite the home theatre rooms, 3 bathrooms etc and now can't sell cause no-one is buying. Not nice.

[Scott]

Originally Posted by SB076

if the economy falls into recession and poeple start struggling

I've had the long standing thought that we've been in recession for some time now. The mining boom doesn't reach very far south...

[XWGT]

Interesting times indeed.

I think Australia however is insulated to some degree by a few factors

1) The housing market is only effected by the demand side in Aus, not the supply side as well at the moment. In the US its a disaster as house stocks are massive and demand is terrible, hence the massive drop in prices. That is not the case here. Demand is still ok as other recessionary effects havnt hurt us that badly, and supply is still short so property values should remain at least steady. A good thing as..

2) The RBA has a lot of room to move to stop the economy slowing too rapidly (4 more % in fact) as we have come off a fairly high interest rate spike and inflationary period and the economy, contrary to popular belief is not showing signs of slowing in a hurry.

3) At the moment the only people who have lost money in Aus are those that need to access their shares NOW. The underlying value of other assets has not dropped and therefore Aus has generally kept its WEALTH even if income has shrunk some what. A much better situation that the US or a recession scenario where wealth and income both drop.

5) The exchange rate and Oil prices help regulate spending in Aus. We just got a 1% rate cut however the cost of oil when multiplied by a falling $AUD means the pump price of fuel remains the same or higher. That means that the additional $ will more than likely go in the fuel tank and any imported goods rather than fuel another property boom.

6) Overall the world economy has never had to deal with this type of situation before (no this is not a standard garden variaety style recession in the US). Consequently no one really knows what the future holds. HOWEVER Australia has all of the economic fundamentals in good shape. And that means we are well armed to deal with any world economic issues. The only real issue that might hurt is the credit squeeze, but that simply means lenders will access more internal funds (such as the Future Fund) which also, as long as it provides decent returns to the fund) is not a bad thing in itself.

In the immortal words of Ford Prefect..........DONT PANIC. Serioulsy, the US is getting hammered back down to where it probably never expected to be, however that does NOT mean the the rest of the worlds economies where as over inflated or fundamentally flawed and they should not suffer the same fate. This really looks like the US beginning to pay its economic dues.

[mr smith]

[QUOTE=merlin]How is this a scam - I have never paid a cent of interest on my credit card - the bank is losing not me.

The Banks NEVER lose.

[Rodp]

Originally Posted by mr smith

In my opinion this is one of the biggest scams the banks have come up with. Has never worked in the long term for anyone I know, all they end up with is a blown out credit card debt because they cant keep track of their spending. Cash will always be king.

A scam a bank has come up with?

It's how I also do things and I'm on target for knocking off 10 years of repayments, 5 years into paying it off - as time goes by, that target will continue to drop.

If you can't keep control of your spending, that's a different issue entirely. I only put on credit what I would normally have paid cash for. I zero the credit card balance before the interest free period ends and my paycheck going straight into my homeloan is offsetting my interest.