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Commonwealth Bank First Quarter Unaudited Cash Profit Rises 9.5%

Commonwealth Bank of Australia reported a 9.5 percent increase in first-quarter cash profit as revenue rose and charges for bad debts fell.

Unaudited cash profit, which excludes one-time items, was about A$2.3 billion ($2 billion) in the three months ended Sept. 30, the Sydney-based lender said in a statement today. Unaudited net profit in the period rose 14 percent to A$2.4 billion.

Commonwealth Bank, the nation’s largest lender by market value, and its main competitors are gaining from a sustained fall in soured loans as businesses and retail customers repay faster. The ratio of bad debt expenses to loans for the four largest banks is the lowest since the mid-1990s, PricewaterhouseCoopers LLP said in a note Nov. 3.

“Bad debt provisions for Commonwealth Bank came in lower than our expectations,” said Simon Burge, the Sydney-based chief investment officer at Above the Index Asset Management Pty, who oversees about A$500 million including Commonwealth Bank shares. “The lower bad debt cycle is staying low for longer.” The fund manager increased its Australian bank holdings in September, he said.

The bank’s shares rose 0.3 percent to A$80.98 at 10:12 a.m. in Sydney, compared with a 0.1 percent fall for the benchmark S&P/ASX 200 Index. (AS51)

Bad Debt Charge

CBA set aside A$198 million to cover non-performing loans in the quarter, the lender said in the statement. That compared with A$228 million a year earlier. Such provisions rose 6.4 percent in the six months to June 30, the first increase since the six months to Dec. 31, 2012, according to filings.

Net interest margin, a measure of lending profitability, dropped marginally as increased competition more than offset lower funding costs, the lender said in today’s statement.

The focus is on profitable mortgage growth, CBA said. The bank expanded home loans by 1.3 percent between June and September, compared with 1.74 for all banks, according to data from the Australian Prudential Regulation Authority.

Customer deposits made up 63 percent of Commonwealth Bank’s total funding as of Sept. 30, down a percentage point from three months earlier, the lender said. It raised A$12 billion from the bond markets in the quarter, it said.

Common equity Tier 1 capital, a measure of a bank’s ability to absorb future losses, was 8.6 percent after paying out the final dividend, compared with 9.3 percent three months earlier, the lender said.

Capital Requirements

The government’s financial system inquiry has sought views on increasing capital requirements for banks considered systemically important. The review may require the major banks to hold more funds and the four largest lenders may need as much as A$68.7 billion in extra capital, UBS AG said in a Sept. 8 note.

Commonwealth Bank is the last of the nation’s so-called four-pillar banks to post results in the past week. National Australia Bank Ltd. (NAB) reported a 9.8 percent drop in 2014 cash profit. Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) reported second-half cash earnings rose 9 percent and 8 percent respectively.

Commonwealth Bank shares have risen 4.1 percent this year, the second-worst performer among the four biggest lenders. The benchmark S&P/ASX 200 Index has climbed 3 percent.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at

To contact the editors responsible for this story: Chitra Somayaji at Darren Boey, Edward Johnson

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Banks get generous to hook clients


Advisers warn mortgage deals offering electronics, cash, furniture may cost people more in long run

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loan. Photo / Thinkstock

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loans – but experts warn consumers not to be taken in, or it could cost them tens of thousands of dollars.

ASB is offering potential customers a Sony 48-inch TV and PlayStation 4 with new loans of $250,000 or more, while Kiwibank recently offered $2000 cash or a $2500 Freedom Furniture gift card for those willing to transfer their everyday banking and loan to the bank.

ANZ is offering between $1500 and $2000 cash, depending on the loan amount, while Westpac is offering a “healthy cash bonus” with loans worked out with customers “on a case-by-case basis”.

But Karen Tatterson of the Professional Advisers Association said consumers should be wary because there was “no such thing as a free lunch”.

Some people could be tempted by gimmicks and inadvertently sign away tens of thousands of dollars refinancing their loan for a bit of extra cash, she said.

“You have to be very careful your loan isn’t going back to a term that’s longer than you’ve currently got. Banks always write a loan over 30 years, so if you refinance to another bank and you’re 22 years into your home loan, make sure you keep it at the current loan term.

“If you go from a 22 to a 30-year term it could add $20,000 or $30,000 interest to the cost of your loan.”

David Chaston of finance website said the value of loan incentives depended on how they were used.

“If you’re able to negotiate a good deal with the bank, ignoring the incentive, and then you add the incentive as a bonus you have a very good deal,” he said.

“And you have an even better deal if you can use the cash incentives to pay down your loan.”

Real Estate Institute head Helen O’Sullivan said an increase in marketing activity from banks usually coincided with the spring property uplift, but also warned consumers to be wary of temptation.

“You’ve got to weigh up the value of it with the overall package that is being offered …

“Don’t get blinded to the downside of the financial cost of something because of the excitement of getting a new PlayStation.”

ASB’s head of home lending and small business Vince Clark said the bank’s spring package was in reaction to it being a typically busier season for house sales activity.

Kiwibank spokesman Bruce Thompson said its promotion was designed to keep the bank on mortgage shoppers’ radars.

“It’s a very competitive market and Kiwibank has never taken the approach of sitting back and waiting for the phone to ring.”

ANZ head of mortgages Sarah Berry said the bank had offered cash with home lending since 2012 and the home loan market in New Zealand was very competitive.

Westpac said every customer’s situation was different and the bank worked with them on a case-by-case basis to ensure they have the right solution for their circumstances.

NZ Herald


CFPB Targets Payday Lender's 'Cash-Grab Scam'

A new, brazen fraud begins with a twist: Instead of losing money, consumers get money, which is unexpectedly deposited into their checking account. But the surprise windfall turns into a big headache, and even bigger bills, the Consumer Financial Protection Bureau says in a lawsuit disclosed Wednesday.

The cash comes from a payday lender owned by a firm named The Hydra Group, which turns around and immediately begins charging huge fees and interest against the unexpected deposit, the CFPB says. Some consumers received $200 or $300, then saw $60-$90 in fees withdrawn from their accounts every two weeks “indefinitely.”

“The Hydra Group has been running a brazen and illegal cash-grab scam, taking money from consumers’ bank accounts without their consent,” said CFPB Director Richard Cordray. “The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking, and we are taking decisive action to prevent any more consumers from being harmed.”

When consumers or banks challenged the unexpected deposits and withdrawals, Hydra officials produced fake paperwork that they claimed authorized the transactions, the CFPB alleges.

The Hydra Group did not immediately respond to request for comment.

How Consumers Got Drawn In

The CFPB says trouble began for consumers when they entered their personal information into websites that promised to match borrowers with payday lenders. The Hydra Group uses information bought from those firms to access consumers’ checking accounts to illegally deposit payday loans and withdraw fees without consent.

Its collection of roughly 20 businesses includes SSM Group, Hydra Financial Limited Funds, PCMO Services and Piggycash Online Holdings. The entities are based in Kansas City, Mo., but many of them are incorporated offshore, in New Zealand or the Commonwealth of St. Kitts and Nevis.

Including some payday loans that were authorized by consumers, over a 15-month period the Hydra Group made $97.3 million in payday loans and collected $115.4 million from consumers in return, according to the CFPB.

The CFPB lodged its complaint against the Hydra Group and requested a temporary restraining order in the U.S. District Court for the Western District of Missouri on Sept. 9, 2014.

The Hydra Group was also sued by the FTC. Over one 11-month period between 2012 and 2013, the defendants issued $28 million in payday “loans” to consumers, and, in return, extracted more than $46.5 million from their bank accounts, the FTC alleged.

Other Allegations From the CFPB:

Some consumers have had to get stop-payment orders or close their bank accounts to put an end to these bi-weekly debits. In some cases, consumers have been bilked out of thousands of dollars in finance charges.Consumers typically get the loans without having seen the finance charge, annual percentage rate, total number of payments or payment schedule. Even where consumers do receive loan terms upfront, the Bureau believes they contain misleading or inaccurate statements. For instance, the Hydra Group tells consumers that it will charge a one-time fee for the loan. In reality, it collects that fee every two weeks indefinitely, and it does not apply any of those payments toward reducing the loan principal.Even in the cases where consumers consented to loans from the Hydra Group, the defendants violated federal law by requiring consumers to agree to repay by pre-authorized electronic fund transfers. Federal law says repayment of loans cannot be conditioned on consumers’ pre-authorization of recurring electronic fund transfers.Even when consumers successfully close their deposit accounts, the Bureau alleges that in many cases the Hydra Group sells the bogus debt to third-party debt collectors. Though there is no legitimate basis for the debt, consumers are still contacted and pursued for loans they never agreed to.

If you’re having issues with a payday loan scam (or any kind of financial scam), it’s important to watch your bank and credit card statements for unauthorized activity, and to work with the financial institution to shut down accounts that are being accessed illegally. It’s also important to keep an eye on your credit reports for unauthorized debts and to watch your credit scores for big changes that could indicate a problem on your credit reports. Consumers are allowed one free credit report annually from each of the three major credit reporting agencies. They can also sign up to monitor their credit scores for free using a resource like

More from
The Truth About Payday Loans6 Payday Loan AlternativesHow to Use Free Credit MonitoringLoansFinancials IndustryCFPBpayday loansbank accounts […]

M&A Boom Eludes Loan Desks as Companies Favor Stock

Syndicated loan bankers in Europe are missing out on the biggest boom in mergers and acquisitions since 2007 as companies shun the market to fund transactions with stock.

Deals more than doubled to $479 billion in the last three months compared with the same period in 2013, while loans funding takeovers totaled $57 billion, according to data compiled by Bloomberg. Companies used stock for more than 60 percent of ventures compared with an average of 14 percent since 2008.

“There hasn’t yet been as much M&A financing activity as the market would have wanted,” said Keith Taylor, head of loan syndicate for Europe, Middle East and Africa at Barclays Plc in London. “That’s partly a function of corporate borrowers having a high proportion of cash and stock deals that require less financing.”

Europe’s syndicated loan market has shrunk by almost half since 2007 as banks held back lending to meet new capital rules and as borrowers sought alternative sources of funding. With the global value of shares climbing to a record $65.6 trillion, companies are taking advantage of higher stock prices to fund mergers and acquisitions.

Holcim Ltd.’s $40 billion merger with Lafarge SA, the largest deal in Europe this year, was paid for entirely in stock. And while Bayer AG’s proposed purchase of Merck & Co.’s consumer care business is backed by $14.2 billion of syndicated loans, $12.2 billion of that is to be refinanced with bonds, according to banks arranging the debt.

Bond Financing

Borrowers are heading to the bond market because it offers cheaper pricing and looser restrictions, according to Ranbir Singh Lakhpuri, a London-based portfolio manager at Insight Investment Management Ltd., which manages the equivalent of $506 billion. Borrowing costs for junk-rated companies fell to a record 3.56 percent in Europe in May, while average yields for investment-grade debt bottomed at 1.47 percent last week, according to Bank of America Merrill Lynch index data.

Billionaire Patrick Drahi’s Altice SA and Numericable Group SA raised more than $16 billion in the high-yield bond market in April to fund the acquisition of Vivendi SA’s SFR unit, according to data compiled by Bloomberg. That allowed him to cut the amount of cash borrowed from banks to $6.4 billion from about $8 billion, Bloomberg data show.

Leveraged Loans

Loans to fund leveraged buyouts declined to $20 billion in the last quarter, down 15 percent from the same period in 2013, according to data compiled by Bloomberg. Issuance of junk-rated bonds jumped to $70 billion from $26 billion, Bloomberg data show.

The dearth of new loans has resulted in a “savage compression” in pricing as banks compete for deals, Peter Ellemann, the London-based head of European loan syndications at Australia & New Zealand Banking Group Ltd., wrote in a report in April.

Interest margins for investment-grade borrowers narrowed to an average 0.78 percentage points more than benchmark rates this year, the least in seven years, data compiled by Bloomberg show. Margins on leveraged loans in euros fell to 4 percentage points from 4.53 percentage points a year earlier.

“No deals have failed this year in the loan market, which is helping drive pricing down,” said Sean Malone, the London-based head of Europe, Middle East and Africa loan syndications at Mitsubishi UFJ Financial Group Inc. “Borrowers have access to almost limitless funds from all parts of the capital markets.”

‘Demand Problem’

Europe’s bankers are left recycling old loans, with about 80 percent obtained by investment-grade companies in the last three months being used to refinance existing debt, Bloomberg data show. Almost all were revolving credit facilities, where money repaid can be borrowed again. Because such deals often remain undrawn, they’re less lucrative for banks than term loans and M&A financing.

“A lot of deal flow and volume has been a reworking of existing deals rather than newer, event-driven activity that would be more exciting and remunerative for the market,” said Barclays’s Taylor.

To help revive the market, the European Central Bank last month introduced a 400 billion-euro liquidity plan that’s designed to offset capital regulations. It allows lenders to borrow cheaply from the ECB to encourage them to extend new loans to businesses.

The ECB’s actions will have a limited effect on the leveraged or corporate syndicated loan markets, according to Roland Boehm, the Frankfurt-based head of Commerzbank AG’s debt capital markets loans unit. “We don’t have a supply problem. Credit demand is the problem.”

To contact the reporters on this story: Stephen Morris in London at; Sally Bakewell in London at

To contact the editors responsible for this story: Shelley Smith at Jennifer Joan Lee, Michael Shanahan


Why are students using payday loans? | The Free Financial Advisor

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There appears to be a rising trend that shows that more and more students are taking out short term loans. Research by the National Union of Students (NUS) shows that up to 46,000 undergraduates are using what they term high risk debt (which includes payday loans, cheque cashing and doorstep loans). They suggest a number of reasons for this which relate, in the main, to funding their living costs and fees. .

Some highlights from their research show:

the weekly cost of student accommodation has nearly doubled in 10 years (£60 – £118); 50% of students worry about meeting basic living expenses like rent and utility bills; over third of students receive no family financial support.

These stats show it is not a typical student lifestyle being funded via a payday loan, but the essentials.

So worried are the NUS about the risk of spiralling debt problems in the student , that they are calling on a ban of all payday lenders from advertising in student magazines, student residences and on campuses.

Payday loan giant Wonga took the unprecedented step of not advertising to students last year and removed all pages from their website in 2012 that could have been construed as targeting students. This has not, however, currently stopped other companies trying to.

Students themselves, has also taken a novel approach and launched their own “payday loan” company specifically for the student market. Unlike normal lenders they have a number of interesting features:

no rollovers; a 10 day grace period – in case of student loan problems; a fixed cap of interest – you can never owe more than 50% of what you borrowed; a lower rate of interest.

So even the students themselves see that there is a need for access to short term finance, and they feel they are able to offer a more competitive and student friendly service themselves.

What does the industry say?

The Consumer Finance Association, which represents some of the main payday providers, said students would need to be in regular employment to qualify for a loan from a reputable lender, and that simply banning advertising in campuses would not remove the issue.

The new financial watchdog, the Financial Conduct Authority (FCA), has issued new regulations for payday lenders which came into force in July and include:

restrictions on the number of rollovers ( many times a loan can be extended); wealth warnings on ads; more rigorous testing on affordability.

The aim is to remove the less than reputable loan providers from lending.

Other options for help

Students are being advised to think carefully before logging on and applying for a payday loan. There are a number of alternatives students could look at first.

Some universities have access to learning funds where students can apply for funds if they are struggling to pay for their studies.

Other finance products such as an 0% credit card or 0% student overdraft may help cash strapped students in the short term and means they are not actually having to pay back interest on the borrowing.

Credit Unions are another source of low cost small term finance loans – more information is available here:

The Bank of Mum and Dad could be an option before turning to a payday loan for students. Or, those that live close enough can lean on them in other ways to help reduce their living costs. Asking for a loan or moving back home to keep debt down is not a bad idea.


As you can see there are a number of reasons why students are turning to payday loans and why it is a worrying trend in some people’s eyes. That said, payday finance is not the only option available to students who need a short term injection of cash.

About the author: Emily Green is a freelance personal finance writer living in Hong Kong. She loves travelling and is planning to relocate to New Zealand within the year.


Westpac Bank Profit Up 8% on Loan Growth, Wealth Management

Westpac Banking Corp. (WBC), Australia’s second-biggest lender by market value, reported a 8 percent increase in first-half cash profit on loan growth and wealth management income.

Cash profit, which excludes one-time items, increased to A$3.77 billion ($3.5 billion) in the six months to March 31 from A$3.51 billion a year earlier, the Sydney-based lender said in a statement today. That beat the A$3.64 billion mean estimate of five analysts surveyed by Bloomberg. Net income rose to A$3.62 billion from A$3.29 billion.

Chief Executive Officer Gail Kelly, who favored profitability rather than market share over the past two years, is now focused on volume growth to recoup business lost to the bank’s peers. Momentum in mortgages was steadily improving, Westpac said in a presentation March 14.

“Westpac has managed margins with just a 1 basis point drop from the preceding half despite lending competition,” T S Lim, Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “The key for them going forward is to ensure volume growth does not erode margins.”

Wealth Management

The bank boosted its interim dividend to 90 Australian cents a share from 86 cents a year earlier. That missed the mean estimate of four analysts surveyed by Bloomberg for a dividend of 96 cents.

Westpac’s Australian Financial Services unit, which includes its retail and business banking operations, posted a 12 percent rise in cash profit from a year earlier. Earnings were driven by a 21 percent increase in profit at its wealth management unit and a 10 percent rise for its retail and business bank. Its institutional bank’s profit dropped 4 percent as the previous year benefited from one-time items. Westpac is the country’s second-largest mortgage lender behind Commonwealth Bank of Australia. (CBA)

Its New Zealand business delivered a 17 percent increase in profit.

The value of Westpac’s Australian mortgages climbed 5 percent in the six months, the bank said in today’s statement. That was below total Australian home lending growth of 5.9 percent in March from a year earlier, Reserve Bank of Australia data show.

Demand for mortgages is increasing after the central bank dropped its benchmark interest rate by 225 basis points since late 2011 to a record low of 2.5 percent and banks cut mortgage rates to a 4-1/2 year low.

Tier 1 Up

Charges for bad debts in the second half decreased to A$341 million from A$438 million a year earlier, the lender said.

The bank’s cash net-interest margin, a measure of lending profitability, dropped 8 basis points to 2.11 percent. Westpac’s employee count increased to 36,494 from 36,000 a year earlier, the lender said, and its cost-to-income ratio climbed to 41.2 percent from 40.9 percent.

Westpac’s core Tier 1 capital ratio, a measure of its ability to absorb future losses, was 8.8 percent, under the local regulator’s version of Basel III guidelines, compared with 8.3 percent as of Dec. 31. It will finalize its preferred capital range by Sept. 30 and is considering issuing additional Tier 1 capital security, it said in today’s statement.

Australia & New Zealand Banking Group Ltd. (ANZ) posted an 11 percent rise in first-half cash profit on May 1. National Australia Bank Ltd. (NAB) reports May. 8. Commonwealth Bank of Australia, the nation’s largest lender by market value, reports quarterly profit on May 14. CBA’s fiscal year ends in June, compared with September for its main competitors.

Westpac shares, which touched a record of A$35.99 on April 29, have climbed 7.7 percent this year, the biggest gainer among the four largest banks. That compared with a 2 percent rise for the benchmark S&P/ASX200 index.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at

To contact the editors responsible for this story: Chitra Somayaji at Iain McDonald, Edward Johnson


ANZ New Zealand records biggest first-half profit gain among units of Australian lender

ANZ New Zealand records biggest first-half profit gain among units of Australian lender

Thursday 1st May 2014

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ANZ New Zealand posted a 27 percent gain in first-half cash profit, recording the biggest gain among the four operating divisions of Australia’s third-largest lender after growing its home loan book and cutting costs.

Cash profit, which excludes non-core items, rose to $887 million in the six months ended March 31, from $697 million a year earlier, the Auckland-based lender said in a statement. Statutory profit rose 31 percent to $853 million. Operating income rose 8 percent to $1.9 billion and operating expenses fell 5 percent to $725 million.

ANZ New Zealand is the nation’s biggest lender, having merged its operations with National Bank last year and phased out that brand. Its commercial operations were the biggest contributor to statutory profit, rising 14 percent to $377 million, while retail banking profit rose 25 percent to $222 million.

Its ANZ Wealth unit, which accounts for 25.8 percent of New Zealand KiwiSavers, lifted earnings to $121 million from $38 million, while earnings from its institutional arm slipped 2 percent to $163 million.

Cash profit for Melbourne-based parent Australia & New Zealand Banking Group rose 11 percent to A$3.52 billion, beating estimates in a Bloomberg survey. Net income climbed 15 percent to A$3.38 billion.

The parent’s results record a 38 percent gain to A$546 million in cash profit from New Zealand, the biggest quarterly growth among its divisions. That was driven by “above system growth in mortgages, a reduction in credit impairment charges (reflecting strong improvements in credit quality across the lending book), a 6 percent decrease in operating expenses and favourable foreign exchange translation.”

Cash profit from Australia rose 5 percent to A$1.48 billion and earnings from international and institutional banking rose 14 percent to A$1.37 billion. Global wealth earnings climbed 11 percent to $226 million.

The company will pay a first-half dividend of 83 Australian cents, or a total of A$2.3 billion, up 14 percent from a year earlier.


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Borrowers could save more than $90,000 interest

Borrowers could save more than $90,000 interest

Wednesday, 2 April 2014, 3:45 pm
Press Release: Canstar

02 April 2014

Borrowers could potentially save more than $90,000 interest costs on average home loan
CANSTAR releases annual home loan star ratings report today, assessing 95 home loans from 10 lenders.

After a three-year breather, the cash rate is finally on the rise again, with the Reserve Bank of New Zealand (RBNZ) announcing a 0.25% increase to 2.75% in March. Combined with last year’s high-LVR volume capping, loan conditions are becoming more challenging for would-be and recent buyers. Nevertheless there are healthy savings for borrowers who are prepared to negotiate, with analysis of 95 home loans by financial research and ratings organisation, CANSTAR, finding a difference of 59 basis points on current floating home loan rates.

On a $300,000 home loan over 30 years, a 59 basis point difference equates to potential interest cost savings of $93,000 over the life of the loan, as well as potentially cutting the term of the loan by more than four years.

“I think it can be a shock for home buyers when they realise the total cost of their mortgage over the long term,” said Derek Bonnar, CANSTAR General Manager – New Zealand. “Even in our current low-interest environment, the difference between the highest and lowest floating mortgage rate equates to $113 per month on a $300,000 loan and potentially much greater savings if borrowers negotiate the lower rate but keep their repayments at the same level.”

Loan sizeInterest rateMonthly repaymentTotal repayment over life of loan (30 years)$300,0006.19%$1,835$660,766$300,0005.60%$1,722$620,005Saving $113 per month$40,761If borrowers negotiate low rate but keep repayments at higher level…$300,0005.60%$1,835$567,333,Saving $93,433
Source: CANSTAR. Based on $300,00 loan with 80% LVR over 30 years. Rates on CANSTAR database.

“The interest rate on your home loan remains one of the biggest factors affecting the cost of the loan over its lifespan,” said Mr Bonnar. “For households, keeping their repayments slightly higher when negotiating a low rate could potentially mean a fantastic overseas holiday, or retiring a year earlier. It is well worth the effort.”

CANSTAR makes home loan comparison easy. The Home Loan Star Ratings, released today, compares 95 home loans from 10 lenders across five categories of floating, fixed rate and line of credit loans for both residential and investment purposes. The star rating report is a useful way for mortgage holders to assess how their current lender compares, as well as to narrow down products worth investigating further.

“Across the five loan categories assessed, several mortgage providers stood out as offering 5-star value,” says Mr Bonnar. “These included Kiwibank, achieving a 5-star rating in four of the loan categories, followed closely by Westpac, with a 5-star rating in three categories. SBS Bank achieved 5-star ratings in both the Residential Fixed and Investment Fixed categories and ANZ were 5-star rated in the Line of Credit category.”

“The best value mortgage for each home owner is going to depend on their individual situation, but with potentially many thousands of dollars to save, taking the time to shop around is a great return on investment.”


© Scoop Media


Home loan affordability worsens

Home loan affordability worsened across most of New Zealand in February as median prices rose and interest rates started rising, the Roost Home Loan Affordability reports show.

A 3.2% rise in the national median house price in February from January drove most of the deterioration. The Reserve Bank’s decision to raise the Official Cash Rate by 0.25% on March 13 is expected to further worsen affordability this month.

Banks are passing on the increase to floating mortgage borrowers and averaged fixed mortgage rates have risen 0.6% in the last seven months in anticipation of the Reserve Bank’s tightening. The Reserve Bank’s imposition of a speed limit on low deposit mortgages in October has also cooled activity and prices in the housing market in recent months.

But banks remain keen to lend to those with deposits of greater than 20% and brokers report banks returning to the market for those with deposits of less than 20% as the dust settles after the high Loan to Value Ratio (LVR) speed limit’s introduction five months ago.

“Some banks have returned to offering deals to those with higher LVRs and a broker can help borrowers navigate between the banks for the best deal,” said Roost Home Loans spokeswoman Colleen Dennehy.

The Roost Home Loan Affordability reports show national affordability worsened to 58.7% in February from 57.0% in January after the national median house price rose to NZ$415,000 from NZ$402,000. Average floating mortgage rates were unchanged in February from January, but up a couple of basis points from a year ago. They are expected to rise around 25 basis points in March.

The Roost Home Loan Affordability reports for February showed affordability for regular home buyers worsened in 17 cities, including all of Auckland, Wellington and Hutt Valley, Christchurch and Queenstown. Affordability improved in 7 cities, including Nelson, Dunedin and Tauranga because of lower median house prices.

It remained toughest for first home buyers on the North Shore in Auckland. It took 103.0% of a single median after tax income to afford a first quartile priced house on the North Shore in February, up from 101.6% in January.

Fixed mortgage rates, which more than 50% of new borrowers now use, have risen around 25 basis points since mid December and are rising again in March. The Reserve Bank is forecasting it will raise rates by 2.5% or 250 basis points by early 2017.

Housing affordability has become a major economic and political issue over the last year. The Reserve Bank and Government agreed on a toolkit of ‘macro-prudential’ controls in May that would see the central bank impose limits growth in high LVR mortgages and force banks to hold more capital. Central and local governments are also moving to address housing supply shortages. The Reserve Bank’s speed limit was applied on October 1 and it said in its March quarter Monetary Policy Statement it appeared to have worked to reduce house price inflation by around 2.5 percentage points.

For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – there was an worsening in affordability in 20 of the 24 regions covered.

It took 48.1% of a single first home buyer’s income to afford a first quartile priced house nationally, up from 47.3% a month earlier. The most affordable city for first home buyers was Wanganui, where it took 21.8% of a young person’s disposable income to afford a first quartile home. The least affordable was the North Shore of Auckland at 103%.

Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.

For working households, the situation is similar, although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 38.4% of their after tax pay in February to service the mortgage on a median priced house. This is up from 37.3% the previous month.

On this basis, most smaller New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group. This household is assumed to have one 5 year old child. For first-home buying households in the 25-29 age group (which are assumed to have no children), affordability nationally worsened to 23.2% of after tax income in households with two incomes required to service the debt, up from 22.8% the previous month. The lower quartile house price rose to NZ$280,000 from NZ$275,000 the previous month.

Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.

Roost Home loan affordability for typical buyers

General/New Zealand Report:


Lack of Cash is Not an Obstacle to Property Investing, Teaches Rick Otton


Rick Otton Shares Seller Finance Strategies During His Property Training Event

A new Commbank survey revealed that 47 percent of 1000 home buyers have admitted to have bought or are currently planning to buy an investment property

(PRWEB) March 08, 2014

A new Commbank survey revealed that 47 percent of 1000 home buyers have admitted to have bought or are currently planning to buy an investment property ( reported on 27 February 2014).

The study also found that property investors choose properties based on their distance to key amenities and the value of their home loan repayments.

“This is what people do in a boom – invest, so I’m no longer surprised to hear stories about increased investor activity these days. Aussies are now gaining their interest with the real estate market again, since house prices just keep on jumping up every minute and they want a piece of the action,” commented Rick Otton, a sought after property coach around Australia.

“The downside of this, however, is that cash-rich investors get to have a much bigger slice of the real estate market, because traditional investing requires a lot of cash to buy property,” he said.

Mr. Otton then shared that cash-strapped property investors shouldn’t feel desperate about their chances of entering the property market, because there are other ways to buy houses for sale without spending a lot of cash.

“When you want to invest, but you don’t have the money demanded by the bank or traditional sellers, thinking creatively will help you enter the property market without waiting a long time to save up cash or even applying for a new home loan. In thinking creatively, you’ll open your mind to different possibilities and start to realize that there’s not just one way to enter the real estate market,” Mr. Otton commented.

“One of the most common ways of entering the market creatively is through piggybacking somebody else’s home loan. Now that the new Credit Act will take effect, expect banks to tighten their requirements for home loan applications, so less people can qualify for a loan. Rather than face the heartbreak of applying for new home loans, home buyers could look for old home loans that they could take over and help sellers, who no longer want their old debts, in the process,” he explained.

For more info on seller finance, visit to order a free copy of Rick Otton’s Power Property Profits Pack.

About Rick Otton

For over 23 years property millionaire Rick Otton has built an impressive real estate portfolio using innovative strategies that he has developed – strategies in which transactions are made without the need for traditional bank-type loans.

He constantly refines his techniques as he buys and sells properties through his We Buy Houses business which operates in Australia, New Zealand and the UK.

A gifted speaker and educator, Mr. Otton conducts regular one-day free seminars across Australia, which build on the the concepts he shares in his 2012 book ‘How To Buy A House For A Dollar’, voted by Money Magazine and Dymocks Book stores as one of the Top 10 Most Popular Finance Titles for 2013.

He regularly records and publishes iTunes podcasts via his channel Creative Real Estate.

His innovative low-risk, high-reward approach to Australian real estate investing has been featured in a variety of television programs and magazines, including Today Tonight, Hot Property and Australian Property Investor.