Confidence in the economy hits decade high

Confidence in the economy hits decade high

Confidence in the economy surged to a 10 year high, representing a remarkable turn of events months after enduring a recession comparable to The Great Depression.

The Westpac-Melbourne Institute Index of Consumer Sentiment lifted by 4.1 per cent to 112 in December, a level not seen since October 2010.

The monthly index, compiled from telephone interviews with 1200 adults in the first week of December, is now 48 per cent above the low recorded in April, representing an economic turnaround in just eight months.

This compares favourably to other recessions. In the eight months following the global financial crisis, sentiment rebounded 8.4 per cent.

“The recovery in sentiment in the COVID recession has been much more rapid” than other recessions, Bill Evans said, chief economist at Westpac.

“...There are still risks, notably around vaccine developments.”

People’s outlook was brighter because the country appears to be containing the COVID-19 coronavirus, the economy performed better-than-expected in the September quarter, and vaccines appear to be on the way, Mr Evans said. This led to a 10 per cent lift in people’s outlook on the economy in the next 12 months -- another a decade high.

The positive sentiment was echoed in the ANZ-Roy Morgan consumer confidence survey, which experienced a 1.7 per cent rise to 109.3 -- pushing it to its highest level all year.

“Consumer confidence rose this week as Australian’s perception of their economic and financial prospects continued to improve," David Plank said, head of Australian economics at ANZ.

The window to snap up a bargain is closing

Fewer believed it was the right time to buy a home with sentiment falling from last month’s seven year high. A fall of 5.9 per cent to 124.2 was recorded, placing it still 4.4 per cent above its long run average.

The result “suggests the turnaround in Australia’s housing markets – which are all now seeing price gains – may be starting to shift views on affordability and prospects for bargain buys,” Westpac’s Mr Evans said.

Housing values have gone up in every capital city other than Melbourne in the September quarter, according to ABS data, once again posting unseen highs.

People sensed property prices were recovering. The index on house price expectations lifted by 9.4 per cent to 143.7 -- an increase of 2.5 per cent for the year.

Spending on major household items is beginning to slow down, the survey found. A lift of 0.7 per cent for the month left it nearly 6 per cent higher than it was over the same period a year earlier.


“The surge in sales of household goods we saw earlier in the pandemic is now slowing,” Mr Evans said, “but activity remains well above pre pandemic levels.”

Families are still struggling

A suite of relief measures have helped the majority of people, but with unemployment and under-employment still high, there are families still doing it tough.

This was reflected in the ‘finances verses a year ago’ sub-index. The gain of 6.9 per cent pushed it to 96.1.

“Those experiencing a deterioration continue to slightly outnumber those seeing an improvement, but the sub–index is over 30 per cent above April’s lows,” Mr Evans said.

“This gain came despite the reduced support from the Government’s JobKeeper and JobSeeker measures and the ongoing reductions in bank deposit rates.”

Job prospects are looking better

The index measuring growing unemployment dropped to its best level in nearly 10 years. The Unemployment expectations index fell 16.2 per cent to 106.3, indicating renewed confidence in job security and less people worrying about losing their jobs.

There were a couple of reasons for the uplifting outlook, Mr Evans said. Unemployment forecasts have been lowered as almost half of the 932,000 jobs lost due to the COVID-19 pandemic were recovered, according to ABS figures.

Brighter forecasts

More is known about the economic impact of the coronavirus pandemic today than when it first struck almost nine months ago, leading to banks revising their forecasts for both this year and the ones coming.

The outlooks are upbeat. Westpac now expects growth of -2 per cent in 2020 and of 4 per cent in 2021, anticipating the economic impact of the COVID-19 pandemic being less than originally expected.

The unemployment rate, at one stage believed to hover around the 10 per cent mark, is now forecast to lower to 6 per cent by the end of 2021, and return to its typical 5.2 per cent in 2022.

“(The) revised unemployment forecasts indicate that the unemployment rate will return to close to its pre–COVID level in less than three years,” Mr Evans said.

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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. 

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

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.

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 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.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

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.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

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.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

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.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile