31
Jul 2015

Mythbusters: Insurance edition

Mythbusters: Insurance edition

Written by Hudson Editor Hayley Mcleod

We have had several calls from concerned investors regarding the recent interest rate increases by three of the four major banks (to date). While the move has sparked anger amongst property investors, who have argued that they are being driven out of the market, banks have said that their hand has been forced by banking regulator APRA and the corporate regulator ASIC.

APRA and ASIC have been carefully monitoring the banks’ lending to investors and in the September quarter found that interest only loans had reached a record high of 42.5 per cent of all home loans with investor lending approvals 22 per cent higher than 12 months ago. Over half of new home loans are going to investors. As a result the regulators have put the following conditions in place:

  • Investment housing loans are not to grow any faster than 10 per cent per annum.

  • Lenders should use an interest rate buffer of at least 2 percentage points above current rates when testing serviceability.

  • The serviceability test should use a minimum interest rate floor of 7 per cent to decrease the risk of default.

  • APRA will be monitoring high loan to value ratios, high loan to income ratios, interest only loans to owner occupiers and very long home loans.

  • Banks are to increase average mortgage risk weights from about 16 per cent to at least 25 per cent.

ASIC is concerned that while interest only loans make sense for most investors, especially those taking advantage of negative gearing tax deductions, the risk of the borrower defaulting on their loan repayments when the interest only period is up and principle repayments need to be made is becoming more prevalent with the increase in investor loans.

 

Three of the four major banks have responded with the following:

 

Bank

Increase

New rate

Loans affected

CBA

0.27 percentage points

5.72 per cent per annum (standard variable rate, discounts still apply)

Standard variable mortgage for residential property investors

 

0.1 percentage points

5.14 per cent for four year fixed (standard variable rate, discounts still apply)

New investor loan

 

0.4 percentage points

4.94 per cent for one year fixed (standard variable rate, discounts still apply)

New investor loan

 

 

 

 

ANZ

0.27 percentage points

5.65 per cent per annum (standard variable rate, discounts still apply)

Standard variable mortgage for residential property investors

 

0.30 percentage points

 

Fixed rates for new residential investment loans.

 

ANZ is also reducing interest rate discounts, requiring a minimum 10 per cent deposit and imposing tougher LVR testing on investment borrowers.

 

 

 

 

NAB

0.29 percentage points

 

ALL interest only loans and lines of credit

* Existing fixed rates in a current term will not be affected.

 
Recent RP data figures show that annual house price growth across five capital cities lifted to 10.5 per cent in the year to July. It is this increase that has APRA and ASIC concerned. They are worried that investors are driving first home buyers out of the market and increasing prices. On the other hand, however, investors argue that without investment properties there will be less housing for those choosing to rent which will therefore increase rents.

 

Both arguments have their merits but as per usual there can only be one winner and once again it is the banks. The RBA will have to factor in this increase to investors to ensure that they aren’t driven out of the market all together, while APRA and ASIC have put the banks on notice that they will be monitoring investment growth carefully. Only time will tell how this will affect the market.

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31
Jul 2015

The power of budgeting and ways to save $$$

The power of budgeting and ways to save $$$

Written by Hudson Editor Hayley Mcleod

We have had several calls from concerned investors regarding the recent interest rate increases by three of the four major banks (to date). While the move has sparked anger amongst property investors, who have argued that they are being driven out of the market, banks have said that their hand has been forced by banking regulator APRA and the corporate regulator ASIC.

APRA and ASIC have been carefully monitoring the banks’ lending to investors and in the September quarter found that interest only loans had reached a record high of 42.5 per cent of all home loans with investor lending approvals 22 per cent higher than 12 months ago. Over half of new home loans are going to investors. As a result the regulators have put the following conditions in place:

  • Investment housing loans are not to grow any faster than 10 per cent per annum.

  • Lenders should use an interest rate buffer of at least 2 percentage points above current rates when testing serviceability.

  • The serviceability test should use a minimum interest rate floor of 7 per cent to decrease the risk of default.

  • APRA will be monitoring high loan to value ratios, high loan to income ratios, interest only loans to owner occupiers and very long home loans.

  • Banks are to increase average mortgage risk weights from about 16 per cent to at least 25 per cent.

ASIC is concerned that while interest only loans make sense for most investors, especially those taking advantage of negative gearing tax deductions, the risk of the borrower defaulting on their loan repayments when the interest only period is up and principle repayments need to be made is becoming more prevalent with the increase in investor loans.

 

Three of the four major banks have responded with the following:

 

Bank

Increase

New rate

Loans affected

CBA

0.27 percentage points

5.72 per cent per annum (standard variable rate, discounts still apply)

Standard variable mortgage for residential property investors

 

0.1 percentage points

5.14 per cent for four year fixed (standard variable rate, discounts still apply)

New investor loan

 

0.4 percentage points

4.94 per cent for one year fixed (standard variable rate, discounts still apply)

New investor loan

 

 

 

 

ANZ

0.27 percentage points

5.65 per cent per annum (standard variable rate, discounts still apply)

Standard variable mortgage for residential property investors

 

0.30 percentage points

 

Fixed rates for new residential investment loans.

 

ANZ is also reducing interest rate discounts, requiring a minimum 10 per cent deposit and imposing tougher LVR testing on investment borrowers.

 

 

 

 

NAB

0.29 percentage points

 

ALL interest only loans and lines of credit

* Existing fixed rates in a current term will not be affected.

 
Recent RP data figures show that annual house price growth across five capital cities lifted to 10.5 per cent in the year to July. It is this increase that has APRA and ASIC concerned. They are worried that investors are driving first home buyers out of the market and increasing prices. On the other hand, however, investors argue that without investment properties there will be less housing for those choosing to rent which will therefore increase rents.

 

Both arguments have their merits but as per usual there can only be one winner and once again it is the banks. The RBA will have to factor in this increase to investors to ensure that they aren’t driven out of the market all together, while APRA and ASIC have put the banks on notice that they will be monitoring investment growth carefully. Only time will tell how this will affect the mark

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31
Jul 2015

Myth busters: Insurance edition

Myth busters: Insurance edition

Written by a Hudson Adviser

According to a leading insurance company, in 2014 alone, they paid more than $369 million in total claims to around 6,200 customers Australia-wide. That’s about $1 million a day going to Australian families when they need it most. The whole life insurance industry pays out almost $10 million every working day in claims to customers. This figure would be even higher if the Australians had adequate levels of cover.


Myth 2: I’m young and healthy so I don’t need insurance.

Insurance products can help people of all ages and with all different financial situations. It doesn’t matter how young and healthy you are – What if you fell off the ladder at home and injured yourself and couldn’t work for a while? Insurance can protect you from loss of income and injury costs. In fact, this is the best time to apply for insurance, when you are young and healthy. Don't run the risk of developing 'health problems' as these 'problems' may cause the policy if applied later, to be declined, or indeed incur an increase in your premium.

Myth 3: I don’t need insurance cover as I get in automatically through my super fund.

You probably don’t have enough cover in your super fund. You may have some life insurance (death cover) through your super policy. According to insurance consumer awareness group Life Wise, average people with cover through super have less than half the level of cover they need.

Myth 4: I’m covered by my health insurance.

Private health insurance provides valuable protection against the medical expenses associated with sickness and injury. But this is where it starts and stops: it’s for medical expenses only! It won’t cover your bills, debts or replace your lost income if you have to take an extended period off work due to illness or injury.

Myth 5: The government will look after me if I get sick.

You’re dreaming! The Government, through Centrelink, provides financial assistance for people who suffer a serious disability. From March 2015 the Disability Support Pension pays around $20,000 per annum, that’s a lot less than the average full-time income of $74,724. This would leave most people with funding gap when it comes to covering the bills, your rent or mortgage, medical expenses and lifestyle.

You also have to deal with Centrelink and are at the whim of political parties as to what level of support will be given and whether you are even eligible.

It is vitally important for financial security that you have appropriate insurance cover in place. Call our Hudson Insurance Manager Peter Dale on 1800 804 296 to discuss your insurance needs, or book an insurance appointment online.





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