Broker association raises ASIC funding concerns

by MPA* | 09 May 2016

Broker association raises ASIC funding concerns
The industry funding model for ASIC confirmed in the Budget this week “makes sense”, according to the Finance Brokers Association of Australia (FBAA), but the broker association is concerned how banks will pass on the cost of regulation.

As a part of the 2016 Federal Budget, the Government announced a $127 million package of reforms to strengthen ASIC. However, the costs of the reforms package will be recovered through a new industry funding model, to commence in the second half of 2017, replacing the current taxpayer funded model.

Switching to an industry funding model was something which was recommended by David Murray’s Financial System Inquiry (FSI) in 2014.

The FBAA’s Peter White agrees an industry funding model is a positive move for the Australian economy, he told MPA’s sister title Australian Broker.

“It is a good thing for the economy and how things impact taxpayers,” White said. “Historically it has been a taxpayer funding model so the new model will put less pressure on the taxpayer and allow taxpayer money to be used for other things.”

Stamp duty, not negative gearing holds housing affordability key
The Property Council of Australia is continuing to push back against proposals by the Labor Party to alter negative gearing and capital gains tax arrangements.

Following Federal Opposition leader Bill Shorten’s Budget reply speech, the PCA has doubled down on its stance that changes to negative gearing and CGT will not improve housing affordability.

“We refute the idea that placing $32 billion in additional taxes on property through changes to negative gearing and capital gains tax arrangements will lead to an improvement in housing affordability. It won’t,” PCA chief executive officer Ken Morrison said.

“Housing affordability is a huge issue in Australia. Housing affordability needs to change, but it won’t change if you prescribe the wrong solution,” Morrison said.

While it appears there is little chance of it ever being removed, Morrison also repeated calls for stamp duty to be addressed if policy makers are serious about addressing affordability.

“The way to tackle housing affordability is to deal with the weaknesses in supply and to undertake meaningful reform of state taxes,” he said.

“Stamp duty adds $35,000 to the cost of buying a typical home in Sydney and $32,000 to a similar home in Melbourne.

“Australia is crying out for government to deal with housing supply imbalances and to reform state property taxes. Stamp duty is an inefficient tax that slugs householders and is a drag on the economy.”

*MPA (Mortgage Professional Australia)

RBA cuts Cast Rate by 0.25% to 1.75%

Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.
The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.
Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.
Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.
Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

7 Ways to pay off your Home Loan sooner

You don’t need to win the lottery to pay off your home loan. There are a number of great strategies for reducing your loan balance and saving thousands in interest repayments. It’s never too late to begin, so pick and choose which of the following work for you.

1. Switch to weekly/fortnightly repayments
Pay fortnightly or weekly instead of monthly. Mortgage interest is usually calculated on a daily basis so the more frequently you pay, the more you will save, even if you are not paying any more than you did previously.

2. Make extra repayments
Extra funds have the immediate effect of reducing the loan balance. Every dollar you put on your repayments will reduce the principal and therefore the interest payable next repayment. This saving then compounds, making a significant impact over the life of your loan. Your loan’s redraw facility offers an easy and efficient way to apply these additional payments.

3. Open an offset account
Have your salary paid into an offset account, which is linked to your loan account, and allows you to use your savings account balance to reduce the amount owed towards your loan. The balance is deducted from your loan account before the interest on your home loan is calculated – which means less interest is charged to your loan. As your mortgage broker we can explain the pros and cons of offset accounts or similar products like line of credit.

4. Align your salary and home loan payments
Align your loan repayment period with your salary payment date in order to maximise the amount you have available to pay onto your home loan.

5. Pay your salary into your home loan
An all-in-one loan account allows you to pay your salary directly into your loan, which reduces the principal amount owing and thereby the amount of interest charged. It acts as a combined mortgage, savings and cheque account, allowing you to access the funds you have left over and above the minimum monthly repayment amount to pay monthly expenses. All-in-one accounts often have higher interest rates than some other products so speak to us about their suitability for your individual circumstances.

6. Cut expenses
List your regular weekly/monthly expenses and find a few that you can remove. Put the savings towards your home loan – remember that every dollar counts.

7. Keep repayments up if interest rates fall
When interest rates fall, resist the temptation to reduce your monthly repayments. Maintaining the same repayments is a simple way of helping to pay down your loan.

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Major bank calls RBA rate cut in early 2016

Researchers from one of Australia’s biggest banks have weighed into the discussion surrounding interest rates, believing the Reserve Bank is likely to cut the official cash interest rate in early 2016.

In a research note published last week, ANZ chief economist Warren Hogan said the bank expects the RBA to make two successive cuts to the cash rate early next year.

“ANZ expects the RBA to cut interest rates by a further 50 basis points at some point in early 2016,” Hogan said in the note

“While timing is tricky, February and March are the likely candidates,” he said.

Hogan said the low Australian dollar and the reduced level of support the housing industry is providing the economy would be key factors guiding the RBA decision.

“Two factors are likely to drive the change – waning support to non-mining sectors of the Australian economy from the housing market and continuing weakness in the Australian dollar internationally,” he said.

“RBA governor Glenn Stevens has previously said growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity. This is currently around average at best with little likelihood of improving. At the same time mining investment has much further to fall.”

While home owners and investors may be hanging out for the cuts in the hope they would see mortgage repayments go down, they may be waiting in vain according to one analyst.

Jonathon Mott, financial analyst from investment bank UBS this week said interest rates on home loans are likely to increase regardless of action taken by the central bank as banks adjust to changed requirements around their capital situations.

“Additional re-pricing may be necessary just to offset the additional funding costs the banks may face,” Mott said “…the vast majority, or even all, of any future rate cuts are now unlikely to be passed onto borrowers,” he added.

Courtasy MPA 28 Sept 2015

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.

The global economy is expanding at a moderate pace, with some further softening in conditions in China and east Asia of late, but stronger US growth. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia’s terms of trade are falling.

The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease policy. Equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired. Long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low. Overall, global financial conditions remain very accommodative.

In Australia, the available information suggests that moderate expansion in the economy continues. While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained. Inflation is thus forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney and Melbourne, though trends have been more varied in a number of other cities. Regulatory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved lower and been more volatile recently, in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.

The Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.