Edge Financial Services News

We here at Edge Financial Services are wondering why the local credit market has decided that the Australian economy is set to recover by the end of 2009. And on what facts are based the predictions that by the time pyrotechnics herald the arrival of 2010, the Reserve Bank will need to ‘slow things down’ by increasing interest rates.

There seems to have been an incredible outpouring of optimism at the same time as both the global and domestic economies are sliding. And this at a time when even Treasurer Wayne Swan is warning of a big-stick budget, and gloomy times ahead.

Whatever the cause of the wild optimism, we believe it is having the result of pushing up the banks’ fixed term rates.

Key interest rate strategists agree with us that it is up to the Reserve Bank to fix this problem by spelling out to the market the direction that it sees its cash rate taking.

At a time when the Reserve Bank is attempting to loosen monetary policy, and in line with most credible economic forecasts, it seems incredible to us that anyone would predict interest rate increases any time soon. It’s barely a month ago that credit market players agreed that the RBAs cash rate was heading to 2% in 2009, with little prospect of it rising more than 5 points in 2010.

We believe that the Reserve Bank should release a policy statement following its 5 May Board meeting that clearly states that the need for tighter monetary policy is unlikely to occur in the next 12-18 months and that the expected the cash rate will remain at or below its current level of 3% at the end of 2010.

Such a statement should create a rally in our local interest-rate markets. In turn this will minimise lending rates and bank funding costs. In short, the Reserve Bank needs to become more transparent in its outlook for interest rates.

One of the main reasons for the banks’ fixed-term rate increases is that overseas three-year money costs are increasing as existing lines expire. In the view of the Edge team, another is this weird interpretation of RBA thinking that’s being taken by the credit market.

A key result of interest rate speculation is an increase from 3.4% to 4% in the 3 year swap rate – and this higher cost of funding is sure to be passed on by the banks.

For up to the minute advice on your best loan options, get in touch with Edge Financial Services.

Bank policies are out as borrowers are rejected left right and centre. Whilst banks have a policy to lend money it would appear that policies normally adhered to have been thrown out the back door as funding is now  extremely hard to obtain.

Mortgage insurers have clamped down to the extent having a loan approved is a rarity. Seeking a loan in this ‘new’ economy must be done through an expert according to Edge Financial Services Managing Director Michael Woodworth.

Michael will be posting a series of Podcasts relating to finance in the Australian marketplace over the coming months. Keep an ear out for them…

 

 Finance News Australia Mortgage Lending Criteria [0:10m]: Play Now | Play in Popup | Download (48)

Low doc or “lo doc” loans have become available by lending institutions to cater to a particular market. This market is comprised of people who either cannot, or would prefer not, to disclose financial statements and taxation documents.

Such people might include the self-employed, who have the assets and income needed to support a loan, but who are unable to provide the necessary documentation at the time of application. You do not have to provide proof of your income.

For a traditional mortgage, lenders require the self-employed to have been in business for a minimum of 2-3 years to qualify. They also require tax returns and statements for this period. When offering lo doc loans, a lender is recognizing that it can be difficult to keep your financial documentation up to date – after all, you are busy running a business.

That’s not to say lenders will just hand over the loan amount to anyone. Most will ask you to complete a standard loan application together with an income ‘declaration’ form – what they call “self certification”. A clean credit history is required, but you do not have to disclose your income versus asset position.

Note though that some lenders may not lend in what they determine “high risk” areas, which could be rural allotments or city high-rise buildings.

Features of a Lo Doc Loan

Reputable lenders will ask for a greater deposit than for a traditional loan, and in the past that has been between 10 and 20%. However from December 2008 there will be a limit to the amount borrowed of 80% of the property value, meaning you will need to furnish a 20% deposit.

Most other features and loan types remain the same as with a traditional loan products, including:

• Principal and interest
• Fixed rates
• Interest only
• Offset accounts
• Lines of credit
• Building
• Refinancing

Just about all lenders will require borrowers to take out lenders’ mortgage insurance, and some may charge a higher interest for this type of loan. It is possible however, to negotiate a reduction in interest rate once you are able to furnish the documentation required of a traditional loan.

Do you need 80%?

The main consideration for borrowers is to find the loan is right for their circumstances at the time of application. Shop around, and only deal with licensed and reputable lenders – and if you need more than 80% - get your application in NOW!

In uncertain economic times, it is important to know the different options available to you when deciding the right loan type for your situation.

>> Every Australian can get professional financial services advice HERE!