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Home loan customers may be doing more harm than good by signing up to mortgage incentives

By |2017-06-13T08:02:40+10:00June 8th, 2017|Finance News|

BANKS are using cashback deals and bonus Frequent Flyer points to lure in new mortgage customers but it could leave them worse off.

Lenders are using incentives including cashbacks, doubling the value of Frequent Flyer points earned on settlement, waiving application fees and dishing out gifts cards to snare new business, analysis by financial comparison website RateCity has revealed.

The Reserve Bank of Australia met again yesterday (TUES) and unsurprisingly kept the cash rate on hold at 1.5 per cent but customers continue to be hit by increasing interest rate deals and are being forced to have fatter deposits before signing up to a new deal.

RateCity spokeswoman Sally Tindall has urged borrowers to look beyond the bonuses attached to home loan offers because often it will mean they end up paying for a loan that is more expensive.

“With any introductory deal or special on your home loan crunch the numbers and make sure that you are going to be ahead by taking out that particular product,’’ she said.

“There’s no point looking short term when it comes to home loans, you need to look long term to work out the best product for your financial needs and the one that will see you financially better off.”

RateCity analysis shows on a $300,000 30-year home loan if the customer was paying the average variable rate at 4.51 per cent their total loan cost would be about $548,000 over the loan term.

Instead if they signed up to a loan with the lowest variable rate at 3.44 per cent their total loan cost about $481,000 or about $65,500 less if they took the deal with a $1500 cashback offer.

Home Loan Experts’ managing director Otto Dargan said most of the time incentives are a waste of time and money.

“Banks use all sorts of deals to attract customers and most of the time they’re just gimmicks,’’ he said.

“Occasionally there are some that have an incredible rate and a large cash back which turns out to be market leading.

“Borrowers should focus on the cost of the loan over four years as that is how long most people keep a loan before refinancing.”

One of the easiest ways to make a true comparison of a home loan is to take into account the interest rates and fees and charges which are rolled into the comparison rate advertised on the loan.
Source: SMH

Fair Work Commission rules minimum wage to rise by $22 a week

By |2017-06-13T08:04:32+10:00June 7th, 2017|Finance News|

Australia’s lowest-paid workers will get a $22-a-week pay rise after the workplace umpire lifted the national minimum wage to $694.90.

The Fair Work Commission has lifted the wage by 3.3 per cent – an increase of 59¢ an hour to $18.29 an hour. It comes as inflation hit 2.1 per cent in the year to the end of March, according to the most recent official consumer price index.

Commission president Iain Ross said the decision to hand down the largest minimum wage increase in years was based on subdued inflation, strong company profits and fresh doubts over the link between minimum wage rises and negative employment outcomes.

He conceded that the Fair Work Commission may have been “overly cautious” when weighing the business lobby’s concerns about the impact on employment in previous reviews. He said international research had “fortified out view that modest and regular wage increases do not result in disemployment”

The commission’s findings are at odds with the views put forward by influential employer groups and the Turnbull government, which, in its submission to the minimum wage review, claimed pay increases that were not supported by higher productivity would cost jobs.

“Excessive increases in minimum wages are likely to reduce employment in award-reliant industries,” the government said, “particularly for youth, and especially when wages growth elsewhere in the economy remains moderate and inflation is low.”

Justice Ross said Tuesday’s decision would affect up to 2.3 million people reliant on minimum rates of pay.

The Australian Retailers Association said it was extremely concerned by the decision, saying it would stifle jobs growth and “suppress the benefits” achieved by the recent reduction in Sunday penalty rates.

“Our members are constantly experiencing significant cost pressures through international competition and advances in technology, therefore we believe this wage increase is unfavourable for all businesses operating in the retail sector,” ARA executive director Russell Zimmerman said.

Unions were also unhappy with the decision, with ACTU Secretary Sally McManus saying the rise would do nothing to lift people out of poverty.

“The minimum wage will be just over $36,000 a year – not enough to support yourself let along a family anywhere you live in Australia,” she said.

“The cost of living is going up, wages are already flat, company profits are at record levels and still, our system does not deliver a pay rise that lifts people out of poverty.”

The federal opposition said while it welcomed the increase it was “cold comfort” for those who will see their penalty rates cut.

‘Cost of living keeps rising’

Nathaniel Howard, a retail worker at Chemist Warehouse, said his pay of $22 an hour was “fine for now but the cost of living keeps rising”.

“It seems like it’s getting harder and harder every day to keep up with paying bills,” he said.

Mr Howard, 23, regularly works Sunday shifts, and says he will miss out on “$200 a week” once the penalty rate cuts fully take effect.

“I’m going to have to try and work more hours during the week,” he says, “but I’m already working full-time hours, so that’s going to be difficult.”

Caution and restraint

Business groups had been pushing for “caution and restraint”, with the Australian Industry Group hoping for a more modest increase of 1.5 per cent, or $10 a week.

The nation’s biggest business lobby, the Australian Chamber of Commerce and Industry, and employers in the retail sector had recommended an even lower 1.2 per cent increase, or $8 a week.

ACCI’s Jenny Lambert said the increase would lead to even fewer apprenticeships and jobs for young workers.

“We are really concerned about the impact on jobs, particularly first jobs, and particularly young people looking to get into the market,” she said. “Young people, within their first year of taking a low-paid job, move significantly up the pay ladder but they’ve got to have the opportunity to have that first job.”

Employment Minister Michaelia Cash did not explicitly welcome the decision, but said it would deliver a real increase for low-paid workers because it was above inflation.

“The Turnbull government respects the independence of the Fair Work Commission which aims to balance the interests of workers, employers, the economy and jobs,” she said.

Last year, the Fair Work Commission lifted the national minimum wage by 2.4 percentage points to become an hourly rate of $17.70.

Source: SMH

Banks cut savings account rates for long-term customers

By |2017-06-13T08:05:31+10:00June 7th, 2017|Finance News|

Three of the country’s big banks have cut interest rates paid to many customers with savings accounts in the past month as lenders try to protect their profit margins.

In a move likely to save banks money but attract little public attention, both Westpac and ANZ Bank lowered the “base” rates they pay on online savings accounts during May, while increasing short-term “introductory” rates by the same amount.

The changes mean the advertised rates for these products are unchanged, even though long-term customers will receive lower rates of interest on their money.

Base rates refer to interest rates that are paid to all customers with this type of account, whereas “introductory” rates are only paid for between three and five months, as a way for banks to attract new business.

Meanwhile, Commonwealth Bank also cut the rates it pays on its bonus savings accounts by 0.1 percentage points for balances of up to $50,000 during May, while lifting rates on higher balances.

The cuts come as new figures from financial comparison site Mozo show all of the big four banks have cut interest for online savings accounts by more than the 0.5 percentage point reduction in official interest rates over the past year.

RBA figures show that, across the industry, average rates paid on online savings and bonus savings accounts are at record lows.

Head of data at Mozo, Peter Marshall, said cutting “base” rates but not the advertised headline rates was an effective way for banks to preserve their interest revenue without drawing attention to the fact that longer-term savers would be paid less.

“They can still look as competitive as they did in the past, while reducing the amount of interest that they are paying out for some savers,” Mr Marshall said.

Mr Marshall said it was just one type of change banks could make across various products if they were to try to offset the banking tax introduced in this year’s budget. Banks have not ruled out passing on the levy to customers, but say they are not yet seeking to do so.

Mozo figures show Westpac and the Commonwealth Bank have lowered base rates on online savings accounts by 0.75 percentage points in the past year, ANZ has cut its base rate by 0.8 percentage points, and NAB lowered its base rate by 0.6 percentage points.

ANZ this week cut its base rate by 0.15 percentage points to 1 per cent, but increased its introductory rate, which is paid for three months, by the same amount. This left the headline rate used to market the product unchanged.

An ANZ spokesman confirmed the change, adding: “The headline rate of 2.55 per cent per annum is the equal-highest rate of the major banks for a product of this kind and our base rate remains highly competitive.”

Westpac made a similar move, lowering its base rate by 0.05 percentage points to 1 per cent, but keeping the headline rate unchanged at 2.51 per cent. Its introductory rate is paid for five months.

“We constantly review our rates to ensure we continue to offer competitive rates to customers and balance the needs of our various stakeholders,” a Westpac spokeswoman said.

CBA’s 0.1 percentage point cut for balances below $50,000 is different to the cuts at ANZ and Westpac in that it applies to bonus savings accounts, which require customers to make a minimum monthly deposit, and no withdrawals.

A CBA spokeswoman said the bank had also increased the maximum level at which savers could earn bonus interest from $100,000 to $1 million.

“Regular savers can now earn competitive interest rates of 1.70 per cent to 1.90 per cent, depending on their balances,” she said.

“Our interest rates reflect a number of factors including local and international funding markets, regulatory requirements and competitive conditions and we frequently review our products to ensure they reflect market conditions.”

Source: SMH

What banks aren’t telling their shareholders in tax backlash

By |2017-06-13T08:06:16+10:00June 7th, 2017|Finance News|

Perhaps the most memorable image of the 2010 mining tax stoush was billionaire Gina Rinehart standing on the back of a truck, leading a mob of protesters in chants of “axe the tax”.

Bankers being a more sedate bunch, it doesn’t look like we’ll get anything quite as colourful in the backlash against the major bank levy.

But leaders of our biggest financial institutions are still tapping into their inner protester – in their own way. The chairmen of the big four banks have written to their hundreds of thousands of small shareholders, warning of the potential impact on dividends.

With the exception of ANZ Bank’s chairman David Gonski, who struck a more conciliatory tone, these letters bluntly attacked the policy, which targets our five biggest banks for an extra $1.5 billion a year. CBA will even hold a virtual “town hall” meeting for shareholders over the tax.

In the interests of balance, then, perhaps we should also look at the benefits bank shareholders also receive from society. Surely that is relevant, too, alongside the 0.06 per cent of bank borrowings the government wants to take in extra tax?

More than just about any other business, large banks (and their shareholders) receive big commercial advantages from their essential role in the economy.

I can think of two substantial advantages banks receive, and there are probably plenty of others. If you’re a bank shareholder who’s recently received a letter from the chairman, consider these alongside the potential hit to your dividends.

One is much cheaper money from the wholesale debt markets, where the major banks get about 30 per cent of their funding.

This isn’t a conspiracy theory pushed by the smaller bank rivals. It is there for all to see in the major banks’ credit ratings.

When Standard & Poor’s decides on the big banks’ credit ratings, it gives the big four a very strong AA-, in part because it assumes the government would provide “timely” financial support in a crisis.

Smaller banks like Bank of Queensland or Bendigo Bank don’t get this benefit. If they did, their credit ratings would be three “notches” higher than they are today.

And what is a higher credit rating worth? It lowers the cost of raising wholesale debt – a market where Australian banks, mainly the big four, borrow $125 billion a year.

The RBA has even tried to quantify this advantage. In an internal paper released last year, RBA researchers said the banks had an “unexplained” cost advantage when raising money in the wholesale markets, by paying interest rates that are 20 and 40 basis points lower than otherwise.

S&P’s decision to cut the ratings of smaller banks last month will make this cost advantage higher still.

Another benefit the major banks have is their greater ability to set prices in the loan and deposit market – known as “pricing power”.

Treasurer Scott Morrison said the banks had “significant” pricing power in a speech last week, arguing they had used it “to the detriment of everyday Australians”.

This speech was tough on banks, sure, and pricing power is a hard thing to quantify.

But make no mistake – it exists, and it is ultimately paid for by customers. Investment professionals – hardly bank bashers – acknowledge pricing power exists in spades among the big four banks, and it’s part of the attraction for investors.

Why do banks have so much pricing power?

One likely reason is a reluctance to switch banks by customers, which dulls the intensity of competition.

Even though a series of federal treasurers have encouraged customers to vote with their feet, 80 per cent of people still choose to have their bank account and home loan with a big four lender. That might be because the big four offer sharp prices, good customer service, or a large number of ATMs.

But there’s also an argument some customers are so loyal to the big banks because of a misconception that their money is safer with the big four, even though every deposit worth up to $250,000 is taxpayer guaranteed.

2010 paper from the Australia Institute found almost a quarter of customers thought it safer to put their cash with a bank making bigger profits, despite taxpayer guarantees of deposits.

Whatever its exact cause, pricing power is probably one reason the banks have been such a good investment over the years, alongside Australia’s record run without a recession.

Yet were pricing power or implicit government guarantees mentioned in any of the letters sent to shareholders in CBA, Westpac, National Australia Bank or ANZ Bank last month? Of course not.

Instead, the banks’ lobbying has honed in on the likely cost of the tax, and who might ultimately wear it. And on this score the banks are basically telling the truth.

It is true that some of the tax may end up coming out of bank dividends, if banks can’t pass the cost on to customers or make up for it with internal cost cutting.

If dividends are cut, it also follows that superannuation funds holding bank shares would be affected, although recent analysis suggested the hit for an average super balance of $55,000 was just $7 a year.

What’s missing from the banking industry’s anger, however, is acknowledgement of the commercial advantages these businesses receive due to their special place in the economy.

Valuing these advantages with any precision is hard. But I’d bet they are worth more than the 0.06 percentage points of liabilities the taxman will soon be taking in extra tax.

 Source: SMH

Investing while renting is a growing trend for real estate owners

By |2017-06-13T08:07:02+10:00June 6th, 2017|Finance News|

LIKE millions of Australians, Emilia Rossi is a tenant.

But unlike most of those tenants, Ms Rossi also owns four investment properties across three states.

She is among a growing breed of real estate investors who chose not to own their own home. Known as “rentvesting”, the strategy sees people using investment property growth to build a deposit, or they rent a property that fits their desired lifestyle rather than what they can afford to buy.

“There is no benefit for me in living in what I own,” said Ms Rossi, 34, a digital consultant, lifestyle blogger and co-founder of online wedding marketplace Capriess.

She said building wealth through property investment was a major goal, and renting while investing freed up cash flow for investments and her businesses. “These properties are purely part of my investment strategy … this allows me to increase my cash flow and live a luxurious city lifestyle at minimal cost.”

Research by ME has found that one in 10 first home buyers are choosing to buy as an investor while renting a place to live.

“Renting is usually cheaper than owning in a given suburb, and as a tenant you’re free to select a neighbourhood that meets your lifestyle preferences,” said ME head of home loans Patrick Nolan.

He said rental properties that rose in value could improve investors’ equity to buy their own home later, but they needed to consider expenses such as insurance, rates and repairs.

“More importantly, your investment property will be subject to capital gains tax. Unlike an owner-occupied home, which is tax free, any profit you make on the sale of a rental place can be taxed.”

Metropole Property CEO Michael Yardney said the rentvesting trend was likely to continue because it helped people who moved around a lot for work, travelled for long periods, and wanted to live in suburbs that were priced out of their buying budget.

“Rentvesting suits the lifestyle of many millennials, allowing them flexibility in where they live, giving them the opportunity to travel and at the same time grow their wealth,” he said.

“It’s a lifeline for those who are trying to gain a foothold in a property market that’s essentially a moving target.”

Mr Yardney said the traditional belief that “rent money is dead money” was a sticking point for some people, but renting while investing could be used as part of an effective overall investment strategy.

ATO warns fraudsters have scammed Aussies of $1.5m this year

By |2017-06-13T08:07:44+10:00June 6th, 2017|Finance News|

AUSTRALIANS have been scammed $1.5 million this year by fraudsters posing as tax officials demanding personal information and cash.

Scammers make contact via fake emails, text messages and phone calls, impersonating employees from the Australian Taxation Office requesting the details to steal hard earned cash.

“We have already seen a fivefold increase in scams from January to May this year and typically expect further increases during the tax time period,” tax office assistant commissioner Kath Anderson said.

She said 48,084 scams were reported to the Australian Taxation Office between July and October last year, with one unlucky person losing $900,000 to a scammer.

“Already this year, the Australian Taxation Office has registered over 17,067 scam reports. Of these, 113 Australians handed over $1.5 million to fraudsters with about 2,500 providing some form of personal information, including tax file numbers,” Ms Anderson said.

She said fraudsters often find genuine Australian Taxation Office phone numbers from the group’s website and project these numbers in their caller identification in an attempt to legitimise calls. Ms Anderson said the Australian Taxation Office always calls from a private number, meaning all of these calls are scams.

“People should be wary of emails, phone calls and SMS during tax time that claim to be from the Australian Taxation Office, even if it seems legitimate. If you’re ever unsure about whether a call, text message or email is genuine, call us,” she said.

To avoid falling victim to a scam, the Australian Taxation Office says you should only share your personal information with people you trust, change the passwords on your computer and mobile phone regularly, don’t reply to text messages or emails with your personal or financial information, and if someone asks for your bank account or personal details be cautious.

“The large number of people lodging their tax returns means scammers are particularly active, so it’s important to keep an eye out for anything that looks suspicious and protect your private information,” Ms Anderson said.

Superannuation shortfall prompts Australians to review retirement savings

By |2017-06-13T08:08:45+10:00June 5th, 2017|Finance News|

SIGNIFICANT hikes to power, healthcare and food has resulted in Australians needing to stash even more savings to live a comfortable life in retirement, new figures have revealed.

The Retirement Standard — an superannuation industry benchmark used to determine how much Aussies need once they stop working — has reached record levels as household budgets continue to get squeezed.

The Association of Superannuation Funds of Australia’s latest calculations show in the 11 years the standard has been calculated on a quarterly basis, the budget for singles wanting a comfortable retirement has risen 23 per cent, while for couples it has climbed by 26 per cent.

During this time power costs have soared by 124 per cent, healthcare by 60 per cent, property and charges by 83 per cent and food by 24 per cent, while the Consumer Price Index climbed by 28.6 per cent.

For singles who own their home outright and are relatively healthy they will now require $43,665 per year to achieve a comfortable lifestyle while couples will need $59,971 — a climb of 0.3 per cent on the previous quarter.

ASFA’s chief executive officer Dr Martin Fahy said the looming shortfall for many people means they must take action now.

“For us it’s a call to action to move from 9.5 per cent to 12 per cent for the superannuation guarantee (SG) calculations,’’ he said.

“Retirement standard costs are running ahead of the CPI costs.

“Staying in the workforce longer as you transition into retirement is going to be healthier for you and financially beneficial for you.”

The SG is scheduled to climb in increments and reach 12 per cent by July 2025.

Over the last decade the maximum aged pension has increased in real terms by 70 per cent for a single person and 54 per cent for a couple however, it started from a low base experts said.

Australian Super’s group executive of membership Paul Schroder said despite the amount needed in super continuing to climb “people shouldn’t panic.”

“This is a trigger for people to have a look at their super balance but the government needs to do something … public policy needs to change,’’ he said.

“People should choose a fund that earns them more money, consolidate their accounts, contribute more, check they are not paying unnecessary insurance and continue their super into retirement.”

He said drawing an income from super is much more effective than taking out a lump sum.

In a report issued by HSBC called Shifting Sands yesterday (Sun) Australians are more worried about their retirement than those in 16 other countries — only 21 per cent believe they will have a comfortable retirement.

Australians are relying on an inheritance to buy a home and pay off debt

By |2017-06-13T08:10:00+10:00June 5th, 2017|Finance News|

MANY Australians are relying on an inheritance and are already working out how they will spend it, new figures show.

About 29 per cent of Australians concede they are expecting an inheritance and they intend to spend some or all of it once payday arrives.

Exclusive new figures released by debt solutions agency Fox Symes reveal that 17 per cent of those hoping for a handout once a family member dies will use it to buy a house or pay off their mortgage.

Other ways they plan to spend the money including paying off credit card debts or other forms of debt, buying a new car or paying for school fees.

But Fox Symes’s executive director Deborah Southon said anyone crossing their fingers for an inheritance is putting themselves in a situation that may not eventuate.

“It’s terrifying and really the only person you can rely upon is yourself,’’ she said.

“Parents don’t necessarily disclose their financial situation to their children and there’s certainly the Baby Boomers who are going to indulge themselves.

“Some people also engage in reverse mortgages so they are eating into their property to fund their lifestyle, so you can’t guarantee when your parents die that you are going to be a substantial beneficiary of the estate.”

The research found Generation Y (18-34) are more likely to rely on an inheritance (26 per cent), followed by Generation X (35-49) — 21 per cent) and then Baby Boomers (50-64) 13 per cent.

And while many plan to use an inheritance for costs now, 10 per cent say it will help fund their retirement.

Certified financial planner Patrick Canion said he always asks clients if they are expecting an inheritance because it gives an insight into the family wealth position.

“But don’t rely on them for making a financial plan,’’ he said.

“You don’t know when it’s going to come or ultimately how much it is and so in most cases we treat it as a financial bonus rather than something that we rely on entirely.

“The problem with relying on an inheritance for your financial plan is that so much can change.”

Mr Canion suggests getting advice on intergenerational advance planning and getting an early advance on an inheritance.

“It makes sure for the older person that the right asset goes to the right person and you also get to see the enjoyment it brings,’’ he said.

First-timer homebuyers need 11 years to save for a deposit — UBS

By |2017-06-13T08:12:39+10:00June 5th, 2017|Finance News|

A “TYPICAL” first homebuyer in Australia now needs 11 years to save a 10 per cent deposit and a whopping 40 years in Sydney, according to new modelling.

And if house prices continue to outpace income growth at the rates of the past five years, first homebuyers would likely never save enough without assistance, most likely from mum and dad.

UBS economist Scott ­Haslem says the modelling by the investment bank shows the housing affordability imbalance is “extreme”.

“In the past five years, house price growth averaged 7 per cent, far above household income averaging only 4 per cent,” Mr Haslem said in a research note.

“Our model suggests if these trends were repeated ahead, a potential first homebuyer would likely never be able to save a 10 per cent ­deposit to buy a home.”

UBS’s modelling assumed an average annual wage of $80,000, with a savings rate of 5 per cent each year for a $400,000 property. Future home prices were assumed to grow in line with household income, at 3 per cent a year.

Mr Haslem said the deposit for an average Sydney house, priced at $1.2 million, would take about 40 years to amass.

It comes as industry figures reveal sales of new homes rose slightly in April. However, ­developers are concerned the improvement will not halt a continuing weakening in construction and buying activity.

The Housing Industry Association report shows sales of new houses and flats rose 0.8 per cent nationally in April.

HIA senior economist ­Geordan Murray warned the rise was too meagre to negate a continuing downward trend and changes around state government housing policy were creating more uncertainty.

The NSW Government this week announced it would hike taxes for foreign property ­investors and cut stamp duty concessions for all investors.

The measures will fund stamp duty discounts for first-time buyers.

with AAP

Pension age rising to 70 will save government $3.6b

By |2017-06-04T11:31:14+10:00June 4th, 2017|Finance News|

FORCING Australians to work until they are 70 will save the federal government more than $3.6 billion in just four years, new data has revealed.

And that doesn’t include the extra five years or so of ­income tax the government can enjoy ­extracting from those who can’t afford to retire without a pension.

Yet there are no signs of an increase in the age at which our federal politicians can ­access their generous pensions, which will be just 60 in 2025.

For everyone else, the pension age will be gradually increased between 2025 and 2029, saving $3.6 billion in those years alone, with billions more added to the budget bottom line in subsequent years.

With an average life expectancy of 80 years for men and 84 for women, it means most people will get to enjoy only a few years of the pension — certainly 10 years less than a federal MP.

The unpopular budget-repair measure, announced in 2014 by Tony Abbott and Joe Hockey, remains on the government’s books despite the Coalition walking away from most of the other “zombie measures”.

Social Services Minister Christian Porter said the changes must go ahead.

“It remains government policy to increase the age pension age to 70,” he said.

“This is a sensible move to ensure that our pension system is sustainable for future generations, as Jenny Macklin and Wayne Swan themselves acknowledged in 2009.”

However, Labor’s social services spokeswoman Jenny Macklin said the $3.6 billion would be “coming from the pockets of ordinary Australians”.

“How does Mr. Turnbull expect construction workers, miners, nurses and farmers to work until they’re 70? He’s ­totally out of touch,” Ms. Macklin said.

The May Budget reaffirmed the plan to increase the pension age by six-month increments from 67 years to 70 over the decade starting in 2025.

The Department of Human Services revealed the data this week showing the move will bank $3.6 billion between 2025 and 2029.

Council On The Ageing Australia chief executive Ian Yates said he was not opposed to increasing the pension age on principle but slammed the blanket approach.

“We note that more and more Australians are working well beyond 65 years,” Mr. Yates said.

“However COTA is ­opposed to increasing the age to 70 in the absence of a number of other measures.’’

Mr Yates called for an overhaul of other programs helping elderly pensioners, including tax concessions and employment assistance for people struggling to get jobs.

 Source: SMH