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

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,

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

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.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.