Christmas is Nearly Here!! Is this a good thing??

With Christmas nearly upon us the time to spread the joy is knocking on the door. The question is, will the joy that we spread now come back and bite us where it hurts?

In short yes! With many of us relying on credit cards to carry us through this insane shopping season we often don't factor in that we need to pay this debt off and when the bill arrives in January along with the usual household expenses it can all seem too much. Especially if you have a home loan to juggle as well.

We can all too easily get caught up in the madness which is Christmas and yes it is great to be able to buy your loved ones a lovely present but do we actually sit back and consider the stress this will put us under when we actually have to pay for them all? No, and this is why you need to think carefully about what it is your actually spending, here are some tips on how to better manage your Christmas spend:

1. Set a firm budget on all the presents you need to buy
2. Plan months in advance and start saving towards this budget so you use cash you have and not credit
3. If you see a present that is on special even months before Christmas grab it now and keep it aside, this way you break up the spend required and save yourself some money in the process
4. Try to ensure you have enough funds available in January to cover all the bills and at the same time plan out what your bills will be for January so you save towards this as well
5. Keep in mind that buying a present is not about outdoing anyone in the value of the present, Christmas is not a competition

Being in the finance industry I often come across many people who approach me for assistance not long after the new year has begun and they ask me to help them lower their debt. There are many ways in which people can help themselves and the most common is that of consolidating their debt into either a low rate personal loan or into their home loan.

The point I make with all of my clients is that it is a great idea to consolidate debt and if they are serious about making a long term difference then as part of the debt consolidation process they need to cut up the credit card! More info at www.aussiewisefg.com.au

In the most they don't take too kindly to this suggestion but once I highlight the fact that if the card is still there then the likelihood is that they will again rack up the debt in a short space of time. If this happens and it most likely will, they will simply end up with another debt by way of a personal loan or a higher home loan repayment AND have to deal with a burgeoning credit card debt as well so they will actually be worse off then before.

Remember that Christmas is meant to be a joyous time and if approached in the right way shouldn't cause more stress in the new year simply to enjoy a few days of celebration.

Above all else, remember that Christmas is a time of celebration of another kind for many people so retain your focus on this and remember that buying presents is not the only aspect of Christmas we need to celebrate.

RBA Drops Rates - What does that mean for my Home Loan?

The RBA recently dropped its cash rate by a quarter percent and although this is a positive move forward it does little for someone with a home loan when on average the savings equate to around $40 per month.

The RBA have touted that they will be decreasing interest rates again a further 3 or 4 times across the coming 12 months, then and only then will the home loan market be able to breathe a sigh of relief. When the average person all of a sudden has a further $200 to $300 per month will the market start to grow again, these savings will help compensate for the higher cost of fuel and in turn day to day living.

There have been rumours that the RBA may decrease interest rates again prior to Christmas, now is this to help people with home loans? I don't believe so, the real reason this move would happen is to inspire some confidence in the general market leading up to the crazy Christmas shoppign season.

You see if people believe that they have more available funds because of home loan repayment savings then human nature dictates that the first thing one does is to go and spend it! This may sound insane but is it a ploy to inject some life into the struggling retail sector, if the RBA does decrease home loan interest rates then the most likely result would be a stronger Christmas trading season for all retailers.

The flow on effect of this is that jobs will remain in place and potentially grow within the sector itself. Mums and Dads will be happy as they are able to buy those items they couldnt afford a few months ago and the average Australian has a smile on their face.

When the general populous is happy then consumer confidence increases and this has an impact across all market spaces.

As far as the home loan market is concerned there is a long way to go before a real positive impact is felt through the RBA's decrease in interest rates, I forecast that this is at least 6-8 months and 4 decreases away.

When it comes to home loan providers and the property market there is still a dim light there although the tough times will remain for another 2 years at least until we see the growth truly come back.

For more information on home loand and other financial products please visit my website which is www.aussiewisefg.com.au and you can contact me there.

Global Liquidity Crisis & The Australian Home Loan Impact

Months ago we heard reports from the US about how lenders were impacted greatly due to the high level of defaults and the growing amount of mortgagee auctions. People were losing their home; they were crying out that the bank sold my home from under me. On the other hand the lenders were crying poor too saying they had to sell to recoup losses.

The reality of why this occurred lays equally on both the lenders and the borrowers shoulders, firstly the lenders were providing finance to borrowers on a low doc basis (low documentation) where evidence of income is limited to non existent and also providing in excess of the homes valuation by way of borrowings. For example if a house were worth 300k the lenders would often lender 320k on the property.

This would leave the borrower in a negative equity position along with the banks!

In saying that, some responsibility must be taken on the borrowers behalf as well. Common sense should prevail but rather than do some basic math on what’s owed versus the value of the home, most borrowers would be happy to put themselves in a negative equity position.

Now there are many reasons that lenders did this ranging from keeping up with the Jones’ and having that new SUV or Plasma TV to borrowing good money after bad to continue to make home loan repayments which simply created a vicious cycle of debt on debt.

The one question many forgot to ask is ‘Can I actually afford this?’ it’s also a question that the lenders should be asking too.

Many months down the track, the ramifications of these poor lending practices are being felt around the globe. In particular the Australian market has suffered a major slow down in the property sector with interest rates increasing and lending policies tightening up dramatically.

This is not such a bad thing although people are asking ‘Why are we suffering because of what the US lenders did?’ This is a fair question to ask too, with the answer not being as clear as one would think.

The reality of why there is a global liquidity crisis is that because if the actions of US lenders and their lending policies the securitised lending market has collapsed. Securitised simply means that an investor has cash funds they are willing to invest which will be secured against property.

The direct impact of the US property and lending crash has seen investors flee the market and the ones who remain have placed strict parameters on whom, where and how much they will lend. From an investors perspective this is a logical way to react and I personally would be doing the same thing.

So how come it has affected Australia’s lending policies and home loan market? Simple, funds which were once available to invest in securitised lending are now all but gone, this has restricted the options available by second tier and non bank lenders. The funds which are available to the market nowadays is coming at a higher cost based on perceived risk which has been driven by the negative US economy and in particular the home loan and property market there too.

My company has seen these changes occur over several months now with many non bank lenders and mortgage originators closing their doors and or merging with other companies to maintain economies of scale.

Unfortunately the home loan market and Australian borrowers are suffering as a result with the impact of higher interest rates and reduced capacity to borrow as a direct result of this. As a flow on the property market has slowed down although we are not seeing the regression we had during the ‘recession we had to have’ in the early 90’s.

There are signs of life again and in the next blog I will be touching on these signs and highlighting areas to look for as an indicator to better times ahead.

For information on home loans and the latest interest rates hop onto my company website which is www.aussiewisefg.com.au and stay tuned to my regular blogs for updates on the financial state of play.

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State of the Home Loan Market & the Australian Economy

It’s interesting to note that although home loan interest rates have recently been dropped by a quarter percent that the state of the property market is still poor. Why is this? It’s pretty simple really, not only have home loan interest rates increased substantially over the last several years but the cost of fuel and inflationary pressures have had an impact too.

When you combine these factors and the flow on effects of higher fuel prices which trickle down to the food we buy and other goods which require transport to reach the retail sector there is a considerable amount of strain placed on the household income.

What was once ‘disposable’ income has now become essential to simply maintain a reasonable lifestyle and in a lot of cases put food on the table.

So when will this all change? Not for a while yet, although the home loan interest rate has decreased for the first time in several years there is simply not enough income liberated from this to breath life into consumer confidence levels.

The market will bounce back as it always has done although this will take several months to occur, what we will see is the RBA (Reserve Bank of Australia www.rba.gov.au) cutting interest rates in the new calendar year two to three times. Once this happens there will be enough income liberated for people to start feeling confident in opening their wallets and spending again.

The flow on effect will be felt in the retail sector and in the property market, jobs will be created and money will start to flow within the economy again.

What this means for the home loan market is an increase in overall enquiries and home loan settlements. Time and time again I have seen this occur in the industry and with every downturn there is an eventual upturn, it is a matter of when not if and it all comes down to time and timing of economic factors which all have an impact.

Aussie Wise Finance Group has been through the ups and downs of fluctuating economies and will again be there when the market moves into positive territory. To find out about me and my organisation simply follow this link to www.aussiewisefg.com.au or you can give me a call to have a chat.

Bookmark this blog as I will be regularly updating it with market goings on and will run a special in a few weeks on the sub prime crash or as is known in the industry the current ‘liquidity crisis’…. More on that soon….