Factors that determine the amount you can borrow

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Factors that should be considered when borrowing for home loans.

Normally, banks  err on the  conservative side when determining how much to lend to a client. They must also consider the best ‘business   interests’ of the bank, are you a good credit risk.   All the while ensuring that you are capable of making the monthly repayments on your home loan. In other words they will take an objective view of your home loan application. Now, there are a number of factors that will determine how much you can borrow from your home loan to buy a certain property.

It is best to know what these are so you know how much you can borrow for your home loan.   These factors are:  

    * Your income and commitments

    * Your lifestyle and living expenses

    * Your property

    * Your loan interest rate, the term and type

    * Any assets you offer as security (for example, another property)

    * Your credit history


1. Your income and commitments

Before going ahead with a loan, it is important to have your repayment capacity assessed. If you are applying for the loan jointly with another person, your repayment capacity may be greater, which can mean greater borrowing power. Your commitment level takes into account all debts currently outstanding, including credit and store cards, personal loans, and car hire purchase or lease agreements, and any other ongoing payment commitments.  The important thing is you are also going to need a deposit.  Depending on where you bank you will need between 5% and 10%  of the price of the property.   If you have a larger deposit you are in a better position with the bank to have your loan approved.  

2. Your lifestyle and living expenses

You’ll need to take a close look at your living expenses, to ensure you can realistically afford the repayments and maintain a standard of living you are comfortable with. 

3. Your property

The amount you can borrow depends on the value of your property. This value is determined by your lender, and is not necessarily the advertised or purchase price of a property.  It is unlikely the property value would come in at a higher amount than the contract price, but it can and does come in lower.  If it is significantly lower usually but not always over 10% the bank will reconsider their position as to whether to advance the money or not.  While this may seen disappointing as it could be the house you have your heart set on.  A good way of looking at is if the property is valued at less than you have agreed to pay for it the you are paying too much in the current market.


4. Your loan interest rate, the term and type

The amount you can borrow may also depend on the interest rate and the term of your loan. The lower the interest rate, the lower your repayments will be. A longer-term loan will mean lower repayments, while a shorter-term loan will save you on interest over the life of the loan but give you higher repayments as well. You need to think carefully about what is most important to you.

5. Any assets you offer as security

 The more security you offer for the loan the better position you are in.  If you have other property/ies you can use the equity in these to secure the new loan.  If you are just starting out then you will need to do a detailed list of all assets you have this can include but is not limited to jewelry, motorbikes, caravans, superannuation, shares and investments etc.


7. Your credit history

Your credit history is also very important and will be checked by a lender when assessing your loan application. It takes into account your previous record of repaying loans and credit cards.

If you are unsure about your credit history, it is worth checking before applying for a loan. From there, you can take steps to improve or correct it if necessary – for example, by clearing an unpaid debt. To obtain a copy of your credit reference report, you can contact Veda Advantage Ltd at the following address:

Public Access Division

Veda Advantage Ltd

PO Box 964

North Sydney

NSW 2059


Ph: (02) 9464 6000



If you want to know more about other information regarding how much you could borrow from your home loan and documents that it needs, feel free to email Julie@novastarfinance.com.au

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Relocating a House. Plan Wisely!

When the government REALLY gets serious
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Tips of House Moving and how much would it costs


Home removals are generally very big, expensive, and timely procedure. The costs and expenses should be considered thoroughly to prevent unforeseen expenses and cost blow outs. This isn’t as simple as moving a filling cabinet it’s moving a house, and it may be two storey or more. When undertaking a home removal the first thing you will do is find the right company. Here, experiences REALLY counts! Then you have to talk to your local government and inform them of what you are doing. Make sure you cover all the requirements of all authorities.

This is going to involve driving a house down a road, at a very slow speed, so they may have to divert traffic.

Aside from the expenses and whom you have to contact with, you also have to check to see if the house can be actually transported without interfering with the local infrastructure and power lines. Low hanging power and phone lines can be a severe problem when trying to move a home if you have not planned ahead. After you’ve taken care of all the logistics for moving this thing, and you’ve hired your company it’s time to watch them work. Watch closely this is going to be interesting.

Now, the very first thing a home removals company will do is disconnect all your utilities and any wires going to the house and then determine the size of your home, and where the pressure points are on the house. Once they have gathered all of the information required for the job they will then start with the home removal. It is better to stay out of the way to avoid delays.

Next step would be lifting your home off of its foundations, and several feet into the air. This will be accomplished by disconnecting any restraining bolts or bars holding your home down and using hydraulic lifts to lift the house. This takes some time as they have to properly balance the lifts and make sure everything is level. After the have lifted it high enough they will then move it to the flat bed.

After being lifted and moved to the flat bed the truck will then start it’s slow, careful, and perilous journey to your homes new destination. If your home is modular, or too large for one truck it may be separated into two different pieces (or even more) for easier transport and repositioning. This will be a slow process but it will get to its destination in one piece.

Then the house will be moved into position and mounted on its new foundation.

The outcome of house moving can have a smooth or alternatively and very bad result. So, before moving your own house, better make sure you have decided it thoroughly because its expenses are way too large should be considered. Most of all, seek out qualified and experienced contractors


For more information or assistance contact Julie@novastarfinance.com.au


Visit us at www.novastarfinance.com.au



Can’t make your Payment? Act! Don’t Hide; there is an answer!

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What to do if I am struggling with my Mortgage Repayments?


If you are in the verge of missing your mortgage repayments, then call your lender now and make some arrangements. Most Lenders don’t want to foreclose on your property and will be willing to work with you IF you communicate with them.

One option to consider, if you simply cannot cover your mortgage payments either now or in the near; future is to consider selling, downsizing or renting.

If you have figured out why you are unable to make your house payments, putting your home up for sale may be your best option. By putting your home up for sale this may preserve your credit rating and keep your credit history intact. Also, you may be able to move into a much cheaper place that is affordable and will help you regain control of your life and your finances.

Consult a mortgage professional to see if there are any other options available.

If you haven’t got any solutions for your repayments, then the last thing that you want to do is declare bankruptcy. The new laws that have gone into effect recently make this option even less appealing than before (and it never was appealing!) — and less effective in getting you out of your financial straits. The decision to sell your home might be quite stressful, but much less so than the alternatives.

If you sell your home, there might be a chance that the appreciation on your home might give you enough cash to start over again with a clean slate. Clean credit files are VERY important.


I you have any questions or need some assistance; contact Julie@novastarfinance.com.au

Visit us at www.novastarfinance.com.au 

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Mortgage Broker? … He /She could be your best friend for LIFE!

Stuck inside on a rainy day - home office
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Tips for Choosing the best Mortgage Broker


If you plan on buying a new home and or refinancing your current home then it is best to work with a reputable mortgage broker. When choosing a mortgage broker, you should into account their experience and what they can do for you in order for you to have a worry free finance application experience.

A mortgage broker can save you a lot of time because they know and understand the pro’s and cons of the different loan products. It is their day to day work, just like yours!

Usually their services are free or at least based upon a successful outcome for you. They know the mortgage market inside and out and can give you expert advice regarding the mortgage loans for options available to you  and can arrange all the paperwork necessary for a secure the mortgage. When looking for a mortgage broker, there are a few things that you need to take into account before actually hiring your broker.


A broker with a range of lenders is sometimes a better bet. If a broker has only one or two lenders that they have relationships with, you may miss out on other options that might meet your needs.


Some lenders will pay greater commissions than others. Make sure you know the commission the broker is getting as this may cloud their judgment when obtaining a solution for you.


Make sure you know up front and in writing what fees, if any, you may incur using a broker. Don’t ever rely on a verbal agreement as you could find yourself in a ‘he said, she said’ scenario.


A good broker will have a standard methodology for selecting mortgage solutions. Ask the broker what Professional Organizations and or industry bodies they are members of.


Find out the actual cost of the loan (including the amount being borrowed and ongoing costs). That way, you can do your own comparison of the solutions being offered to you. Some loans may seem wonderful at first but their ongoing costs can be crippling. Be skeptical if the broker can’t provide this information. Make sure you know what the early exit cost will be!


Speak to friends, family and colleagues about their experiences with brokers. If a broker comes highly recommended, then you’ve got a better chance that your experience with them will be equally positive.

Get online and start searching around, mortgage brokers are excellent to work with, when you find a broker that will work for you, so start searching!

If you need more information (or a good Broker) contact Julie@novastarfinance.com.au

Visit us at www.novastarfinance.com.au

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Want to Own a Home Unit? Strata Title! Body Corporate! Tell me MORE!

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our apartment block
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If my property is a unit, do I have to pay for Body Corporate Fees?


When you buy a property and if it is a unit, there are certain conditions that you may want to take into account.  One example of this kind of property is an apartment unit, wherein a strata report is essential.

Now, a strata report is a report on the history of the building, all recent repairs undertaken, any disputes or areas under investigation, monies in the bank to cover repairs and maintenance and the likelihood of any special levies, as well as general information on insurances, by-laws, harmony etc.

Most apartment blocks are managed by a body corporate, which is responsible for renovations, levies, insurance claims, structural defects and legal disputes. A strata report will ensure the corporate body has sufficient funds, and assess the likelihood of renovations and special levies which could cost you more in future.

In other words, a body corporate fee (often called a levy) includes your share of the buildings ongoing costs and is required to maintain and the upkeep and the appearance of the building and its surroundings. It is created as a simple way of sharing your costs. It would be a unmanageable  if everyone  tried to separate the insurance and the maintenance of the their individual part of the building.

Body corporate fees are usually made up of 2 parts, namely the Administration Funds and the Sinking Fund. The administration fund usually goes to the day to day upkeep of the property while the sinking fund is saved for the larger maintenance issues such as the outside painting of the building, roof restoration etc.

With that said, there would be a body corporate manager that would be appointed for the administration and the collection of fees. But, they will not make the decisions, they work on behalf of committee and implement the committee decisions, but they are there to help insure the lawfulness of committee decisions.

Now, the Committee is usually made up of a selection of apartment owners that choose to be part of the committee and have been elected by the votes of the owners of  apartments in the complex.

Sometimes  people will think of body corporate fees as an expense but the good side on to it is that you will get what you pay for.  For a rule of thumb, the larger the unit and the better views that you have in your unit property (larger gardens, more facilities, a large pool etc.) the more the insurance, maintenance and upkeep.

 If you would like more information; contact julie@novastarfinance.com.au

Visit us at www.novastarfinance.com.au

Public Housing Under Construction, Queenstown, Singapore


Get your “Dream House” checked so it’s not a Nightmare!

James Stageberg House (1981)

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Is It Important to Have House Inspections before Buying one?

Buying a home is an expensive process and there are many hidden or extra costs that you may not have factored in.  One of these is the building and inspection.  It is the purchaser’s responsibility to make sure the contract states that you will obtain a building and pest inspection within 7-14 days (or whatever time you stipulate).


The contract is not unconditional until finance has been approved and there is satisfactory building and pest inspection.  That means it is ‘satisfactory’ to you.  Importantly then if there is a significant structural problem with the building that could cost ‘000’s to repair or there has been evidence of flea, termite or cockroach infestation then this gives you a reason to reconsider your purchase.   With pest infestation even though the pest may have been treated it is important, especially with termites to make sure there has been no recurrence. 


It is not a waste of money to pay for a building and pest inspection.  Imagine buying a home only to move in and find that the wiring needs replacing.  Or that you have termites in your fence and that needs replacing. 


A little known fact and one that over 905 of households are not aware of is that you should endeavor to have a pest inspection every 12 months and a full building inspection every 3-5 years.  The cost far outweighs the investment you are trying to protect.



Physical inspections of the house that you want to buy is one of the most important procedures in the process of home-buying and it should be one of the conditions that one should take upon closing the sale. There are two major options that you could try before buying one, formal and informal inspection. In this way you will be able to prevent stress and spending a lot of money in the future.


Typically a building inspection on your home is a physical examination of the heating and central air conditioning systems, electrical systems, interior plumbing, the roof and foundations, attic and basements, visible insulation, walls and ceilings, floors and windows. Some inspections may also include major appliances and outdoor plumbing. The typical cost of an inspection varies depending on the area, size of the home, and services the inspector is providing.   It is fair to say that it is not an excessive cost and should come in well under $1000 for both the building and pest on a typical home.  


A written report should be provided after each inspection.  Make sure you keep these in a safe place for future inspections, it can often be helpful.





Consider Special Inspections

Depending on the property and your personal sensitivities, you may want to arrange specialized inspections for hazards from floods, earthquakes, and other natural disasters. The same goes for environmental health hazards such as mold, asbestos, and lead. And if the general inspection revealed problems with the roof, foundation, or other areas that are hard to access or potentially expensive to repair, you may also want to hire a specialized inspector.

After the Inspections Are Completed

If the inspection reports show the house is in good shape, you can proceed with the purchase, knowing that you’re getting what you paid for.

If the inspections bring problems to light — such as an antiquated plumbing system or major termite damage — you can negotiate to have the seller pay for necessary repairs or to lower the purchase price, or you can back out of the deal, assuming your contract is written to allow you to do so.

For more information please email Julie@novastarfinance.com.au


Collier House (demolished) from HABS
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Latest Commentary on Home Prices

Home prices soar to record highs in August

Monthly home prices

1. Australian home prices soared to record highs in August, underpinned by low interest rates, grants to first home owners and growing confidence about the job market.

2. The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – lifted by 1.9 per cent in August, the eighth consecutive monthly gain. Over the past year, Australian dwelling prices have risen by 6.6 per cent – the strongest gain in 15 months.

3. Across all capital cities, dwelling prices are higher than a year ago. The RP Data-Rismark Hedonic Australian Home Value Index is now 3.8 per cent higher than the previous peak set in February 2008.

4. Higher-priced suburbs are now showing stronger price gains than cheaper suburbs. Both top-end and medium-price home prices have risen 8.2 per cent since the start of the year with prices in cheaper suburbs up 7.5 per cent.

What does it all mean?

1. It is a simple case of supply and demand. Demand for homes is being spurred by super-low interest rates, the fastest population growth in 40 years and grants to first home buyers. At the same time, Australia continues to experience an under-supply of homes through lack of building over recent years. Demand is out-stripping supply of homes, and as a result prices are rising.

2. If home prices were just rising in the cheaper suburbs then you could put the gains down to the grants to first home buyers. But prices in upper-end suburbs are now rising at a faster pace than cheaper locales.

3. For the two-thirds of Australians that either own or are buying homes, the solid growth in home prices is clearly good news. Rising home and share prices are lifting wealth levels and consumer confidence – both factors that should underpin spending levels in coming months.

4. No doubt the coming rate hikes and lift in home building will serve to restrain growth in home prices. But it is still a case that population growth is outstripping housing supply by a big margin. And a raft of barriers on the supply-side such as zoning requirements and access to finance are preventing developers and investors from entering the market.

5. Governments, industry bodies and financiers need to come together to address the barriers that exist. If action doesn’t occur to lift the supply of dwellings then Reserve Bank fears of a housing bubble could end up being realised.

6. CommSec expects home prices to rise by around 8 per cent over the coming year, a rate of growth in line with longer-term averages. Strong fundamental demand for homes will continue over the year but affordability will soften as the Reserve Bank lifts interest rates to more ‘normal’ levels.

7. The RP Data-Rismark index utilises Australia’s largest property database and measures prices of houses and units so it is clearly the most accurate measure of dwelling prices and one that the Reserve Bank closely monitors.

What do the figures show?

1. The RP Data-Rismark Hedonic Australian Home Value Index rose by 1.9 per cent in August, the eighth consecutive monthly gain. House prices lifted by 1.8 per cent with unit (apartment) prices up by 2.1 per cent.

2. Over the first eight months of 2009 capital city home prices rose by 7.9 per cent. Over the year to August dwelling (home) prices were up 6.6 per cent – the strongest annual increase in 15 months.

3. House prices in August were up 6.0 per cent on a year ago with unit prices up 8.3 per cent.

4. In August, Melbourne dwelling prices rose by 2.7 per cent followed by Sydney (up 2.1 per cent), Canberra (up 1.9 per cent), Brisbane (up 1.4 per cent), Adelaide (up 1.3 per cent) and Perth (up 0.6 per cent). Dwelling prices fell by 0.8 per cent in Darwin after soaring by 3.1 per cent in July.

5. Over the past year, Darwin dwelling prices recorded the strongest gain, up 17.9 per cent, followed by Melbourne (up 9.5 per cent), Canberra (up 8.6 per cent), Sydney (up 7.4 per cent), Brisbane & Adelaide (both up 3.8 per cent) and Perth (up 1.8 per cent).

6. RP Data-Rismark calculates the median capital city house price across Australia at a record high of $514,416 with the median unit value at a record high of $418,806.

7. According to RP Data-Rismark, returns on Australian dwellings (accumulation index), grew by 11.7 per cent over the past year, the fastest pace in 15 months. The gross annualised rental yield for units of stands at 14.1 per cent while house rental yields stand at 10.9 per cent.

What is the importance of the economic data?

1. The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 170,000 sales during the first eight months of 2009 (and over 129 million data records in total). Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.

2. The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index.

1. Rising house prices serve to lift consumer confidence and wealth levels. However rapid increases in home prices lead to weaker housing affordability.

What are the implications for interest rates and investors?

1. The strong lift in home prices increases the risk that the Reserve Bank will lift rates later this year rather than early next year. CommSec still expects the Reserve Bank to deliver the first rate hike in February 2010, but the chance of a move in November or December has risen to around 40-45 per cent.

2. The lift in home prices in response to strong fundamental demand will lead to greater home building and renovation activity. The strong lift in home prices improves prospects for consumer and housing-dependent companies.

Source Savanth Sebastian, Economist, CommSec


Interest Rates: They Might be Hitting Bottom

Rates hit bottom but hikes not imminent

Reserve Bank Board meeting

•    The Reserve Bank (RBA) has left the cash rate unchanged at a 49-year low of 3.00 per cent.
•    The RBA has removed its easing bias (inclination to cut rates). For the past two meetings, the RBA indicated that there was scope to cut interest rates further. Now the RBA says that monetary policy is “appropriate given the economy’s circumstances.”

What does it all mean?
•    You know that the domestic and global economies are doing better when the Reserve Bank stops talking about further rate cuts. The $64 million question is when will the RBA start removing the massive stimulus in place?
•    This is the hard part for policymakers. It’s easy to cut rates when you know the economy needs a kick along. It’s a far harder task to judge that the economy has recovered sufficiently to allow rates to start lifting again to more ‘normal’ levels. But it’s clear from the latest statement that the economy is not at that point yet. CommSec doesn’t expect rate hikes to begin until 2010, but it is far too early to define a time for the first move.
•    The RBA has carefully crafted its latest statement. While the Bank has made it clear that rates have bottomed for now, it is certainly not suggesting that rate hikes are imminent. The RBA says that credit conditions are difficult, that risks to the global outlook have not disappeared and that domestic inflation should fall further.
•    The RBA has clearly toned down its upbeat rhetoric, making sure it doesn’t give the impression that it will be hiking rates any time soon. While economic conditions “have been stronger than expected” the RBA is warning of some hangover effects as the government’s stimulus spending works its way through the system. The RBA would want to ensure that the economy could stand on its own two feet, that is, without being propped up by the Government, before deciding to lift interest rates.
•    The last rate cut was in April 2009, and with the RBA now signalling that further rate cuts are unlikely, speculation centres on when the first rate hike will occur. In December 2001 the RBA cut rates to a low of 4.25 per cent and then issued the first rate hike six months later in May 2002. In the two previous cycles the gap between the last rate cut and first rate hike was a little longer. It was a break of 11 months in 1999 and a gap of just over 12 months in 1994.
•    As the Reserve Bank Governor said last week, there are no rules with monetary policy. It has been noted in the past that monetary policy is art, not science. Interest rates are at 49-year lows and the longer that they remain super-low, the greater the risks of imbalances developing such as a housing bubble. But the RBA doesn’t want to derail an economic recovery in Japan style.

Interest rate decision and past cycles
•    The Reserve Bank has kept interest rates on hold at a 49-year low of 3.00 per cent.
•    The cash rate of 3.00 per cent is the lowest since February 1960 when the short term money market yield averaged 2.94 per cent.
•    Consistent data on short-term money market rates extends back to August 1961. Before August 1961 there were minimum and maximum short-term money market rates. In February 1960 the simple average cash rate stood at 2.94 per cent.
•    Before the first rate cut back in September 2008 there had been twelve rate hikes in the cycle extending back over five years (since May 2002), the last occurring on March 5 2008. Over that period, rates lifted 3 percentage points to 7.25 per cent. In the period since, cash rates were sliced by 4.25 percentage points – the most aggressive easing cycle ever undertaken.
•    Monetary policy is clearly expansionary. Now the Reserve Bank is deliberating how and when to start removing monetary stimulus. The Reserve Bank has indicated that the “normal” or neutral cash rate is around 5.25 per cent. A neutral cash rate means that monetary policy is neither expansionary nor contractionary.

What are the implications for interest rates and investors?
•    A period of interest rate stability lies ahead – clearly positive for the economy. A period where there is less focus on the monthly Reserve Bank meeting will allow people to get on with their lives.
•    The RBA hasn’t indicated that rate hikes are imminent. But if the improvement in economic conditions continues then rate hikes will gradually draw nearer. Borrowers shouldn’t wait until rate hikes are imminent, but rather start planning now for higher rates ahead.
•    Financial market pricing points to the first rate hike occurring in 6-9 months.
•    The Reserve Bank will have a lot of work to do in coming years in getting monetary policy settings back to “normal”. Borrowers should expect that eventually cash rates will need to rise around two percentage points.
•    The latest RBA Board statement should prevent consumers and businesses from getting too far ahead of themselves. The RBA is working on the principle that recovery will take time, with many challenges ahead.
•    The RBA has indicated when rate hikes will occur – when the global economic recovery becomes durable, and that requires balance sheets getting back to normal. Unfortunately there is no further detail on what this means.

Source Savanth Sebastian, Economist, CommSec


Our Country’s Balance Sheet

Household wealth slides to 3½-year low

Financial accounts

•   The financial wealth of Australians stands at just over $36,000 – a 3½ year low. The recovery in share markets should ensure that wealth levels stabilise in coming quarters.

•    Company balance sheets have strengthened over the March quarter with a sharp fall in liabilities. Company Net Assets stand at $42.9 billion – the highest reading in two years.

Foreign (net) purchases of Australian shares amounted to $20 billion in the March quarter. And the share of Australian listed shares held by foreigners has soared to a 12-year high of 41.9 per cent.

What does it all mean?
•    The global turmoil in financial markets over the last 18 months has resulted in Australian households recording the biggest slide in financial wealth in recent times. The latest figures show that the average Australian has lost almost $23,000 since wealth levels hit record highs just 18 months ago. The net value of financial wealth held by the average Australian stands at just over $36,000 – now back to levels that existed around three years ago.

•    While household wealth levels continue to be eroded, company balance sheets have been strengthened over the March quarter. The high cost of borrowing and the unpopularity of high gearing levels have seen domestic companies pay down debt significantly, with liabilities falling by almost $11 billion in the quarter. Importantly net assets stand at the highest in two years – a result that should give investors a degree of confidence in domestic companies.

•    Foreign investors have become more prominent investors in our companies. At the end of the March quarter, foreigners owned almost 42 per cent of the companies listed on the Australian sharemarket, the highest share in 12 years. And in the March quarter alone, foreigners made over $20 billion in net purchases of Australian equities. The strength of Australian companies together with the cheaper Australian dollar no doubt have both acted as strong drawcards for foreign investors.

•    Importantly the slide in wealth is expected to ease in coming quarters. The almost 30 per cent rally equity markets  in recent months, coupled with low interest rates and government handouts should ensure that wealth levels start to stabilise. Importantly the pickup in business and consumer confidence will help to support activity and spending levels in coming months.

•    The volatile global environment has seen a rush to more safe haven assets. With a record $1.5 trillion in notes, coin and bank deposits being held in the March quarter. The high level of money in cash could lead to a flood of money flowing into other asset classes once risk tolerance improves.

What do the figures show?
•    The net financial wealth of Australian households fell in the March quarter for the sixth consecutive quarter to a 3½ year low.

•    Financial assets of households (such as shares, bank deposits) fell by $23.6 billion or 1.1 per cent in the March quarter to a two-year low of $2,093 billion. Financial liabilities of households grew by $15.5 billion or 1.2 per cent to a record $1,306 billion.

•    Overall, net household financial wealth (assets less liabilities) fell by 4.7 per cent or $39.1 billion to $786.6 billion at the end of March. Over the past year, financial wealth has fallen by 24.9 per cent – the second biggest decline since records were first maintained in 1988

•    Net household wealth per capita fell from $38,148 to $36,183. Wealth is down 26.3pct on a year ago and only up 10.1pct over the past decade.

•    The household debt to liquid assets ratio rose by 3.2 percentage points to a record high of 153.9 percent in the March quarter. The ratio shows that households do not have sufficient readily liquefiable assets to cover outstanding debt, highlighting a degree of vulnerability to an economic downturn.

•    The share of foreign (non-resident) holdings of Australian listed shares rose from 40.3 per cent in the December quarter to a 12-year high of 41.9 per cent in the March quarter (highest since September 1996). Non-residents (rest of the world) acquired a net $20 billion of Australian equities in the March quarter.

•    Financial assets at Australian non-financial companies fell by $0.2 billion to $669.9 billion in the March quarter and liabilities fell for the third straight quarter, down by $10.9billion to $626.9 billion. Net assets stand at $42.9bn – the highest in two years

•    The value of currency & deposits totalled a record $1.54 trillion in the March quarter, out-stripping $939.8bn in shares.

What is the importance of the economic data?
•    The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.

What are the implications for interest rates and investors?
•    The financial accounts data is essentially backward looking and the Reserve Bank would be well aware of the sharp fall in wealth levels over the last year. Importantly signs of stability in the global economy, improved share market conditions and generational low interest rates should help to stabilise activity over the second half of 2009.

•    Australians may have been concerned about a domestic recession, but foreigners haven’t been holding back in buying shares, recognising the good value ‘down under’. Our economy is in good shape, companies are generally well managed and Australia will be a major beneficiary from future industrialisation in China.


IMF commentary on Australia; we’re looking pretty good!

The Reserve Bank of Australia should provide the first line of defence for the economy, should it be necessary, the International Monetary Fund (IMF) has claimed, and should take extra caution when it moves to lift the cash rate.

In a consultation paper on the Australian economy released yesterday, the IMF praised the government’s stimulus policy but emphasised that the RBA still had scope to lower the cash rate to revive the economy if necessary.

“We welcome the quick implementation of targeted and temporary fiscal stimulus. The stimulus provides a sizeable boost to domestic demand in 2009 and 2010 that will cushion the impact of the global recession,” the IMF said.

“There is scope for further fiscal stimulus if the outlook for growth weakens, although we would advise using monetary policy as the first line of defence.”

The IMF also warned against raising the cash rate too hastily.

“In view of the still fragile state of the global economy, the RBA should be more cautious than normal in tightening. The return of the cash rate to neutral can wait until there are clear signs that a sustainable recovery is underway.”

The paper also noted that while global events had slowed Australia’s economy the downturn had been milder than in most other advanced economies.

The IMF is projecting GDP of -0.5 per cent in 2009 and positive growth of 1.5 per cent in 2010. This is in line with OECD forecasts earlier this week of -0.4 per cent in 2009 – the mildest of all 30 OECD economies – and 1.2 per cent in 2010.

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