Consumer advocate, Resi Mortgage Corporation
Interest rate outlook
We are probably looking at a 2% increase over the next two years, but how quickly that's delivered to borrowers will depend on how well the RBA controls inflation. But it also depends on the banks, who control the mortgage market. There's a possibility that the banks will move independently of the RBA, because there’s still pressure in the capital market in terms of cost of funds. That is obviously disconcerting for borrowers, so preparing now is the best thing to do.
I think we're going to see innovative products coming into the market in the year ahead. We've already seen BankWest launching its capped rate, which is a variable loan capped at a certain rate. It means it cannot go above a certain level, but it can fluctuate underneath it. I think we’re going to see a raft of new innovative mortgage products next year.
Low-doc loans will come back into the market, and there will be more opportunities to access this product. I think there will also be opportunities for no-doc borrowers to access these loans, but I think the criteria will be a lot stricter. The ease of obtaining finance will not come back. I don't think LVRs will fall lower for lowdoc loans. If anything I think they'll go higher. Low-doc finance is a niche product and should remain so. It's possible that we may see banks pull back on loans offered to first homebuyers and low-doc borrowers, as they are considered riskier. But as funding become more available, we see more option for nonconforming borrowers.
I think we'll see new players come to the market eventually. We don't want to be in a position where the Big Four banks can dictate what borrowers in Australia pay for their home loans. We're dangerously close to that now, because the government has handed down decisions that have really hurt competition.
Advice to borrowers
If you currently have a loan, you need to review it to make sure that it still fits your current circumstances. If you're a new borrower, don’t just choose something that suit you today – it needs to work for you tomorrow and the next few years too.
Don't just look at the rate – weigh up the features, flexibility and the service aspect of your loan.
Chief economist, BT Financial Group
The outlook for interest rates The Reserve Bank is about to go boldly where it has never gone before. It is about to start raising interest rates while the unemployment rate is (almost certainly) still rising. Usually we wait until the 'all clear' has been sounded.
Why is it different this time? When the RBA cut the short-term cash rate from 7.25% to a 50-year-low of 3% in just seven months, it did so because it saw a very real risk of something very nasty happening to the Australian economy. We now know that hasn't happened. It is true that the Australian economy has been affected, and the effects are not over yet.
But the current state of the economy and the outlook are both much better than seemed possible three to six months ago. So we no longer need interest rates at emergency levels. We are not tightening; we are simply 'deloosening'. The first rate rise could be as early as October (you will know by the time you read this) or as late as February 2010 – but it's coming.
History suggests that once the direction of interest rates changes, the ensuing move goes on longer and further than generally expected. So rates could rise throughout 2010, and possibly by at least 2%.
Should you fix your home loan?
It's too late to find a 'bargain' fixed rate. The time to fix is generally when very few people are doing so, which was about six months ago. The case for fixing now is all about insurance; you probably won't make money, but you will remove one area of uncertainty from your life.
Board member, FBAA as well as General manager for Reduce Home Loans
I think rates will go up by 1%–1.5% maximum. I'm not sure it's as rosy out there as people are saying – there are still a lot of people who are scared. It doesn't make financial sense to fix now. It's too late – the difference between variable and fixed rates too big. To get fixed rates and pay that high rate for stability is too expensive now.
I think the banks' move to lower the LVR on low-doc loans opens up an opportunity for the non-conforming lenders to come back into the marketplace. There is a possibility that we will go back to having a 2% difference between a full-doc loan and a low-doc. Don’t forget that when the banks decided to take a share of the lowdoc market, they decided to do so via pricing – and brought their low-doc rates to full-doc rates. Everyone else had a difference of 1%, but the banks chose to do it at the same full-doc rates.
I believe there should still be a market for low-doc loans. If it means we go back down to a 1% differential if there’s perception of risk, price that into it – but don’t eliminate the market completely.
The choices are still there for borrowers. There's still a very strong non-bank market. It's more a perception than anything. You can still do a far better deal with a non-bank lender than you can do with a bank. The banks are still very expensive. I think it's been a good thing that we had a shake up as a result of the subprime crisis, because anyone can claim they’re non bank lenders. We don’t need the numbers that we had in the past, but we need it to be stronger. At the moment, we don't have a competitive market.
Advice to borrowers
Look for a good product, and make sure that it has all the features you are looking for. Pay extra whenever you can to reduce that non-deductible debt.
Director, Metropole Property Strategists
Where the property market is heading in 2010
2010 is the year of the next property boom. As the economic improves, residential real estate is on the verge of the next big growth cycle. The property cycle is moving up in the major capital cities of Australia, and despite the likelihood of interest rates rising by up to 2% in the next year or two, the year ahead looks set to be a strong growth year for property values.
The key drivers for our property values will be rising consumer confidence as our economy improves; strong population growth, including high immigration numbers, changing demographics with fewer people living in each household; and rising building costs, which will push up the price of new housing stock.
At the same time, demand is going to increase from owner occupiers and investors because there is limited stock available. This should push up property values.
Movers and shakers
The lower end of the market, below $500,000, has already seen prices rise strongly on the back of the return of first homebuyers. As they retreat I expect to see eestablished homebuyers, and then investors, take their place in this price range.
This will underpin values, but I anticipate slower price growth. Price growth will of course not be uniform across all suburbs.
This has commenced in the near-city and beach-side suburbs of the major capitals. I expect a 'ripple effect', where buyer demand and capital growth flows outwards from one suburb to the next.
Simply, as prices increase beyond the reach of buyers in the suburb of their choice, they tend to look for ‘the next best thing’ that falls within their budget; in adjoining, lower-priced suburbs. As more and more buyers start buying in these adjoining suburbs property prices start to rise. This ripple effect in capital growth most commonly moves from the inner suburbs outwards, and along or away from the coastline.
Prices are also likely to ripple upwards. Firstly it was the sub-$500,000 market that was strong, but as vendors have now sold their properties and in many cases for much more than they anticipated, they are now pushing up prices in the $600,000 to $1,000,000 mark.
The upper end of the property spectrum is also set for a significant rise. Buyers in the prestige sector have consolidated their positions, and with the stock market and their businesses performing strongly, they are heading to prestigious suburbs where prices have fallen 15% or more.
With little stock and historically low vacancy rates, rents are also likely to keep rising – but more slowly than in the last few years.
Chief economist, HIA
Outlook for interest rate
Interest rates will head higher in 2010. The unanswered question is when the process begins and how far through the process we are by the end of the year. At the time of writing the RBA doesn’t know when it will start raising rates, so I’m not going to be presumptuous enough to say that I do. It may be that by the time you are reading this the RBA has already started the process, although that appears unlikely. Retail banks may, however, have already moved off their own bat, but you would hope not.
Let's remember, however, that as interest rates rise they will be doing so from near fifty-year lows. There is no need to get jittery from the get-go about the prospect of higher mortgage rates as you consider your options. The RBA will probably also be cautious to begin with, and we're unlikely to see a hefty increase in rates over only a couple of months.
Advice to homeowners
Considering your options is the first thing you should do. There is no definitive answer as to what one should do with their mortgage. That all depends on the financial circumstances of the household and also on how comfortable you feel with a particular type of mortgage. If, for example, you are already worried about higher repayments, then look into fixing at least part of your mortgage. If you have a variable rate mortgage with a large amount of flexibility regarding repayments and you can wear a few rate increases, then consider sticking with what you have.
Research analyst,Colliers International
Property market outlook
The year 2010 is going to be another tough year. It's too early to call a recovery – even though that has been talked about. There are a lot of distressed assets which haven’t been released to the market, which means we could see some bargains arise – but they are going to be scattered.
If you are planning to invest – buy in blue chip suburbs which have the right underlying fundamentals like waterfront, infrastructure and long-standing good reputations. I would be purchasing within the first 7km of the CBDs. Key infrastructure including transport nodes, population centres such as hospitals and universities will be underlying drivers of sound investments producing growth in 2010.
Don't rush into buying. Do your homework, including all aspects of due diligence. I'd be avoiding marginal locations including outer suburbs.
Realistically, price growth starts in the CBD and filters out. This recovery will start from the centre.
Where to buy?
There will be the chance to pick up good apartments on the Sunshine Coast, including Caloundra because it’s an undervalued emerging area with good views. In Brisbane the suburbs to watch include Morningside, Hawthorne and Bulimba on the east of town; and Woolloongabba, Dutton Park, and Buranda on the south thanks to the completion of Clem 7. And suburbs like Lutwyche, Bowen Hills Kedron and Wilston will benefit from the Northern Link.
Anything purchased in 2010 should be viewed as a long-term investment. All indicators say we are on the way out of the bottom of the market but in terms of consumer sentiment it will be five years before we see big jumps in the market.
Chief economist, AMP Capital Investors
Outlook for the economy
We'll probably see the economy growing by 3%–3.5% by end of 2010. Unemployment rate will rise from 5.8% to 6.3%, as the economy has turned out to be in a better position than expected. Consequently we revised the jobless rate down.
Interest rate outlook
We were originally expecting the RBA to leave rates unchanged until early next year, but it looks like that they may start raising by end of this year. It will be a gradual process. By the end of 2010 the cash rate will be at 5%, which is still relatively low.
Housing market recovery
There is still a shortage of new housing and we’re not building enough to meet demand. With the economy faring reasonably well and the rental market still reasonably tight, I can see prices go up by 5% in 2010.
Collections: Mortgage News