Property, super and more: What lies ahead for 2016?

Property, super and more: What lies ahead for 2016?

Will house prices rise or fall? Will the government implement changes to the super system? And will customers be able to wear online banking technology?

RateCity caught up with the experts and asked them these burning questions and more to get their predictions for the year ahead.

The bottom line: it’s all possible in the year 2016.

Saul Eslake, Economist

Dollar to hit the mid 60’s

The Australian economy in 2015 was a bit like the curate’s egg in what became a famous cartoon published in the British satirical magazine Punch 120 years ago – it was good, in parts.  Although overall growth remained ‘below trend’ for the third year in a row, job creation surprised on the upside and the unemployment rate appears to have peaked at a lower rate than anticipated at the beginning of the year. Although the Australian dollar was once again showing surprising resilience in the face of the ongoing decline in commodity prices, there are increasing signs that the earlier decline in the currency is providing a boost to tourism, education, agriculture and even some parts of the otherwise beleaguered manufacturing sector.

Against this background, the Reserve Bank is unlikely to perceive any need for further reductions in Australian interest rates. With commodity prices yet to find a floor, and the US Federal Reserve set to raise interest rates another three or four times in the coming year, the Australian dollar will likely fall to somewhere around the mid-60’s against the US dollar, which will probably bring ‘underlying’ inflation back up to the mid-point of the RBA’s 2-3 per cent target range

Ian Muir, Head of Customer Experience for Digital, Westpac

Wearable banking?

The future of internet banking is going to be a very interesting one because the resources that used to be scarce, like bandwidth and storage, are no longer constraining us or limiting our possibilities. Essentially, where scarcity disappears, the unimaginable rapidly becomes reality allowing us to deliver benefits to customers in new and exciting ways.

I think there’s definitely something in wearable devices and the way we think, act and interact with technology. Also I think the intelligence layer around the ability to create instantaneous insights in the moment on customers is an emerging trend and the sort of thing that will shape the future of internet banking.

Nicole Pederson-McKinnon, Commentator, Educator and Founder of themoneymentorway.com

Beware of your credit card

It was widely missed but the Senate gave the banks a total bollicking at the end of 2015.

An extensive inquiry by the economics committee into credit card fees and interest rates – which are stupid-high compared to the record-low cash rate – found issuers were “taking advantage” of consumers and earning “significant profit.” It didn’t take actual action on rates though, as you might suspect from a ‘free market’ style of government. But it did recommend new laws to force card providers to make interest rates ‘in your face’ on all marketing, advertising and also monthly statements.

This is great news for consumers as they actively hide them at the moment. And they never tell us when they hike (they’re required to ‘fess up when they hike mortgages).

Look out for a coming crackdown on ‘honeymoon’- style offers too. When the low or no-interest period is up, they might soon be forced to alert us. The government is also looking to set minimum repayments – at the moment banks can. This means they’ll go up – cheaper for customers in long term but, of course, more costly each month. And the Senate’s called for another report into fees and surcharges.

In any case, the banks have seen this crackdown coming a mile away and cynically taken steps to circumvent the slap. A raft of new tricks and traps are designed to protect their $7bn in interest and fee revenue, including extending massive credit limits, offering unsolicited cash advances and hiking ‘revert’ rates on interest-free purchase deals and balance transfers. And those balance transfers now often come with a savings-cancelling so-called balance transfer fee.

As card companies get more desperate, be on guard in 2016! 

Michael Yardney, Property Investment Expert

Sydney and Melbourne property prices to slow in 2016

Melbourne and Sydney are going to slow down and Perth and Darwin will probably still have a little bit more in the way of falls over the next 6-12 months as they’re still unravelling the mining boom. The other capitals will probably do much the same as they did this year with between 3-5% capital growth. I see Melbourne and Sydney still doing probably 5-6 per cent capital growth over the year and Brisbane much the same which is basically what it did over the last 12 months. 

I see minimal growth drivers in regional areas and no growth drivers in mining areas. I think again the capital cities will be where the job growth, wages growth and economic growth will be and that’s going to lead then to people being comfortable buying properties in capitals.

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Vaughn Richtor, CEO, ING DIRECT

Customers will take greater control of their finances

In recent years customers have demonstrated an appetite for taking greater control of their finances and this is set to continue in 2016.

The availability of digital technology has made it easier for customers to access personal finance information, build their knowledge and plan for the future using online tools and calculators– independently of their banks’ input.

People are relying more on the personal opinions and experiences of friends, peers and the online community and weighing up information from a variety of sources prior to making decisions.

As Australians become more informed, we’re also seeing them becoming more open to switching providers to get greater value for money – particularly in terms of minimising fees. Research by RFi has shown that 12 per cent of Australians say they are highly likely to switch banks in the next 12 months.

However, they are also increasingly likely to consider multiple providers rather than have a relationship with just one financial services provider. 

Norman Morris, Industry Communications Director, Roy Morgan

Big changes for super

In 2016 we are likely to see considerable changes relating to superannuation. The pressure for change is coming from the deteriorating budgetary position and the increasing cost of the social welfare bill. The New Year will probably see the introduction of limits on the amount that can be held in superannuation that is not subject to tax in the retirement phase, tax to be paid on withdrawals over a certain amount and the introduction of the concept of maximum lifetime contributions outside of the compulsory levy. Lump sum withdrawals on retirement are also likely to come under review and replaced by regular income products such as annuities.

The government has been giving clues that they also have in mind other means of making up for the fact that many people have inadequate superannuation to fund their retirement. These include encouraging older people to realise some of the equity in their house by either downsizing or taking out reverse mortgages.

There is also likely to be a continued focus on making up for the gender imbalance in superannuation, where women on average have only two thirds of the male balance.

The challenge for the government in 2016 will be how to introduce significant changes without undermining confidence in the system which is designed for the very long term and as such should not be subject to frequent rule changes.

Dr Andrew Wilson, Senior Economist, Domain.com.au

Investor activity to remain robust in 2016

While the housing market is likely to be relatively subdued comparatively, it is likely that activity from some buyer types – particularly investors – will remain robust and increase. Despite higher interest rates, investors will be drawn to the relatively high yields available and continued taxation advantages – particularly for small-scale investors.

Australia’s capital city property markets will remain key targets for foreign investors in 2016, particularly from China. The demand from foreign investors reflects the country’s strong cultural and economic connections and is indicative of the security of local residential property.  Buyers from China will continue to target CBD and inner-suburban apartment markets in Sydney and particular Melbourne and will remain a significant source of demand and supply in these burgeoning sub-markets.

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Learn more about home loans

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.