The finance news that really mattered in 2019

The finance news that really mattered in 2019

As Christmas creeps closer and the year comes to a close, it’s common practice to reflect on the twelve months just passed. In the world of finance, this has been a big year.

Cash rate cuts, a noticeable reduction in consumer spending and rumours of Quantitative Easing (QE) have placed the banking industry in the spotlight, and highlighted the need for financial literacy.

Following the Haynes Royal Commission, regulation has tightened in some areas, whilst in other areas, economic conditions have made it easier for consumers to access finance, with record low home loan rates and the announcement of the First Home Loan Deposit Scheme.

With open banking legislation to begin in February 2020, now seems a good time to review some of the major news stories that put finance front and centre this year. Here's the finance news that really mattered in 2019.

ASIC increased litigation after the Royal Commission

On 1 February 2019, the final report documenting the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was submitted to the Governor-General. Tabled in parliament on the 4 February 2019, the report called for tougher governance on banking misconduct, finding a lack of litigation from banking regulators Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

This has resulted in a number of legal battles between ASIC and the banking industry this year to ensure that financial services entities that broke the law were held to account, as the final report documented this was not previously the case. Litigations this year have included a lawsuit that saw an NAB branch manager sentenced to twelve months in jail, and an investigation into a money laundering scandal concerning Westpac CEO Brian Hartzer, which led to his exit from the bank in November, set off by a lawsuit from AUSTRAC, a financial intelligence agency.

Three RBA cuts took the cash rate to 0.75%

In the middle of this year, consumer spending was as low as the 1991 recession. This, amongst other factors, contributed to the RBA cut the cash rate an historical low of 0.75%.

Three 25 basis point cuts sent the home loan market into a frenzy, as the banks tried to keep up with media and consumer pressure to pass on these cuts in full.

The cuts are made to encourage lenders to reduce their current interest rates, so as to boost consumer spending and increase the overall inflation rate. Whilst these cuts did increase the inflation rate from 1.3 in July to 1.7 in December, and dropped home loan rates as low as 2.68%, the full effect is still yet to be seen.

The new Banking Code of Practice was launched

On 1 July 2019, the new Banking Code of practice commenced, managed by the Australian Banking association. This code, approved by ASIC, was created to keep banks accountable, ensuring that they commit to ethical, fair and responsible lending practices.

The document, which you can access here, not only sets the expectations for banks, but also acts provides safeguards and protections, outlining a set of enforceable rights for financial consumers.

Some of the expectations include all banks offering low-fee or no-fee accounts to low income customers, no more unsolicited offers to increase credit card limits and reminders when card introductory offers end.

Rumours of quantitative easing and negative interest rates

In August, after two cash rate cuts, the RBA’s Governor Philip Lowe spoke in parliament about unconventional monetary policy, specifically negative interest rates, and did not rule out Quantitative Easing (QE).

This caused media speculation about the potential of applying quantitative easing to boost the economy if negative interest rates were not in Australia’s best interest. Known as ‘money printing’, QE is a process where the RBA would use their cash reserves to purchase existing government bonds, to pump money directly into the financial system.

On the other hand, negative interest rates are where interest rates drop below 0 per cent, creating a bizarre financial scenario where consumers pay banks to hold their money, whilst ‘earning money’ for taking out a loan.

As of December, we are yet to see either of these unconventional methods employed by the RBA. However, if consumer spending refuses to lift this could be a potential reality in 2020.

The First Home Loan Deposit Scheme (FHLDS) was announced

Widely anticipated since its announcement by the Coalition before the Federal Election earlier this year, the FHLDS aims to give First Home Buyers (FHBs) a potentially better opportunity to get their foot on the property ladder.

Starting January 2020, 27 approved lenders will essentially act as ‘guarantor’ on FHB home loans, including National Australia Bank and Commonwealth Bank.

For FHBs who were previously locked out of the housing market by high deposit amounts and costly LMI fees, the scheme offers 10,000 FHBs each year an opportunity to secure the home of their dreams with as little as a 5 per cent deposit.

There are some restrictions of course, including limits on income and property thresholds. However, this is the first scheme of this kind to help FHBs in a time when a 20 per cent deposit can be hundreds of thousands of dollars.

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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.

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.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

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.

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.

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 the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

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 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 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 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 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).

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 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.