SA budget bounds onto bank-bashing bandwagon

The South Australian government has come under fire from the banking industry for adding a major bank levy to its state budget that closely mirrors the controversial Major Bank Levy that recently passed in federal parliament.

According to SA treasurer, Tom Koutsantonis, the state levy is set to target the same banks as the federal levy, and is expected to raise approximately $370 million over four years to support various jobs initiatives in the state:

“Banking services have benefited enormously from the decision not to apply GST to the financial sector. This decision has meant that for too long this sector has been dramatically undertaxed.”

“The Commonwealth’s major bank levy seeks to address this, but ignores the state’s share.”

Banks come back swinging

As expected, the banking industry is less than thrilled with the SA government’s decision, with the Australian Bankers’ Association (ABA) accusing SA of “triple dipping” into bank money through corporate tax, the federal levy and now the state levy.

ABA chief executive, Anna Bligh, described the SA levy as an outrageous cash grab without policy substance, and called on Australia’s other state governments to rule out similar taxes:

“States are not responsible for banking policy. There is absolutely no policy reason for this announcement, other than a need for the South Australian Government to raise revenue in a desperate political move.”

According to the ABA, the previous introduction of Australia’s GST was partially intended to eliminate state-based taxes on financial institutions such as this levy.

Could this impact bank customers?

The South Australian bank levy comes with the same concerns for big bank customers and mortgage holders as the federal government’s Major Bank Levy – what if these costs are passed on to their customers through higher fees, interest rate increases, or other charges?

According to treasurer Koutsantonis, the draft legislation for the levy prohibits banks from creating a fee to recover the cost of the levy:

“This levy does not apply to mortgages or deposits under $250,000, so there is no justification for the banks to pass on the costs to those customers.”

Other areas of the SA budget expected to impact home owners and investors include a 4% surcharge on foreign purchasers (similar to other state levies), and additional incentives for first homebuyers to purchase off-the-plan apartments, to the tune of approximately $40,000.

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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.

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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.

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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. 

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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. 

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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.

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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.

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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.

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