澳洲Australia property I don't get it? | Sydney


在澳大利亚 Hi everyone, After months of searching for my first IP I believe finally have the corage to put in my first offer. I would love some feedback Property: Duplex Asking price: $239,000 I believe it is worth $225,000 to $230,000 My Offer: $218,0 I am in Melbourne. Would like to buy properties interstate. How difficult is that to manage these properties. Any advise. 评论 Do you mean manage to find them or manage as in property manager? 评论 Manage to find a good property manager 评


If everyone is struggling from interest rate rises then why are the banks increasing their rates beyond the RBA rises? I know the spin we get is that they need to protect their shareholders from the increased cost of credit but wouldn't that create a decrease in demand for their loan products and therefore affect the amount of business coming through their doors? Wouldn't this affect negatively on their business and thus the shareholders?

Maybe they think that most Ozzies CAN afford the hikes and WILL continue borrowing?

:confused:  

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replicarockstar said: ↑
If everyone is struggling from interest rate rises then why are the banks increasing their rates beyond the RBA rises? I know the spin we get is that they need to protect their shareholders from the increased cost of credit but wouldn't that create a decrease in demand for their loan products and therefore affect the amount of business coming through their doors? Wouldn't this affect negatively on their business and thus the shareholders?

Maybe they think that most Ozzies CAN afford the hikes and WILL continue borrowing?Click to expand...
Of course increased interest rates will decrease bank business: that’s why bank shares have been hammered. But for them it’s better to sell your product at a higher price and sell less, then selling it for less and making less profit for each unit. They’re betting, then, that the decreased business from new borrowers will be less than the increased interest they get on ALL existing loans. Obviously new loan volume is much smaller than existing outstanding loans.

Use this to your advantage, RRS. When rates go up like this, some homeowners get into trouble. That’s opportunity for you.
Alex  

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When the banks source their money domestically, the RBA cash rate is used as the basis for their lending rates, hence the cash rate becomes the basis for other interest rates in the economy.

What's happened in the last few years is that there isn't enough money in the domestic economy to meet the insatiable demand for credit that Australian's seem to have. This means that the banks are increasingly having to go offshore for funds and, coupled with the concerns in the US credit market, this is leading to increased risk premia in interest rates - hence the banks are increasing by more than the RBA is.

Banks are just wholesalers of money. What they sell it to you for is largely determined by what they can buy it at themselves, and currently their costs are rising.

M  

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Mark_B said: ↑
What's happened in the last few years is that there isn't enough money in the domestic economy to meet the insatiable demand for credit that Australian's seem to have. This means that the banks are increasingly having to go offshore for funds and, coupled with the concerns in the US credit market, this is leading to increased risk premia in interest rates - hence the banks are increasing by more than the RBA is.Click to expand...
My thinking is that the banks didn't go offshore for funds because they had no choice: they went offshore for funds because it was CHEAPER. And demand for credit doesn't automatically create its own supply, because that just jacks up the price (interest). What we have had for the last couple of years has been a LOT of money available overseas. Think of it as a lot of money washing around looking for a hole to fill. Banks saw that, said we can borrow more cheaply from overseas and lend it to our customers cheaply (more demand if interest rates are lower), still make our spread, and everyone's happy.

At the moment, the cheap money from overseas is no longer as cheap. It's no different from a freight company having to raise prices because gasoline prices go up.
Alex  

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alexlee said: ↑
Banks saw that, said we can borrow more cheaply from overseas and lend it to our customers cheaply (more demand if interest rates are lower), still make our spread, and everyone's happy.

At the moment, the cheap money from overseas is no longer as cheap. It's no different from a freight company having to raise prices because gasoline prices go up.
AlexClick to expand...

Just so I understand, if that was the case why do lenders who fund their loand from OS credit (no deposit base) increase / decrease their rates when the RBA moves. Likewise why didnt the banks just ignore the RBA rate rises 18 months ago while credit was cheap.  

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Dis said: ↑
Just so I understand, if that was the case why do lenders who fund their loand from OS credit (no deposit base) increase / decrease their rates when the RBA moves. Likewise why didnt the banks just ignore the RBA rate rises 18 months ago while credit was cheap.Click to expand...
Overseas funding is generally based on a premium to the risk free rate, which is usually the official RBA rate. So as a US pension fund I might be willing to lend at 0.5% above the RBA rate. Obviously when the RBA raises rates I'm going to want more as well, since my risk free rate has increased. When markets aren't as good, I want a bigger premium to the risk free rate. That's what the banks are passing on at the moment. The banks can't ignore the RBA rate rises because their overseas funders don't ignore it either.

The banks HAVE been cutting rates when times were good. Used to be no one got discounts to the standard variable rate: now the standard variable rate that the newspapers quote is crap because no one pays it. Even banks with a deposit base fund using overseas sources, just not for their whole loan book.

Remember when we talk about cheap and expensive credit, the variable rates are usually priced off a risk free rate. I mean, if I can get 5% from government bonds, which is pretty much risk free, I'm going to want more from a riskier mortgage bond. So I want a MINIMUM of what I can get from the Oz government, + a risk premium. 'Cheap' and 'expensive' credit in this context refers to how big the risk premium is. The changing risk premium is why the banks have to move rates in excess of the RBA rate. And why they gave us rate discounts in excess of the RBA moves (i.e. discounts to standard variable) as well.
Alex  

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Thanks, Alex ! :D  

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Great explanation friends.

Keep up the great posts!

Thanks, Ian :)  

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This article pretty much sums up the predicament for the aussie banks at the moment, and why they are having to raise rates independant of the rba;

http://business.smh.com.au/cba-forced-to-dump-buyback/20080310-1yhs.html

Banks forced to halt buybacks and ration credit???

Who would have thought an article like this 8 months ago? We are in interesting times  

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