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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.


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BFCSA: RBA weighs alternatives to a cut to the official cash rate

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RBA weighs alternatives to a cut

Australian Financial Review Apr 29, 2019 2.24pm

Christopher Joye


Industry participants believe the central bank and banking regulator are considering a targeted alternative to a cut to the official cash rate, which would involve lowering the minimum 7.25 per cent interest rate banks use when assessing a home loan borrower’s repayment capacity by 50 basis points to 6.75 per cent.

This would improve the average home buyer’s borrowing capacity by more than 5 per cent and increase demand in the weak housing market, which was a key driver of the low March quarter inflation numbers (newly built house price inflation declined by 0.2 per cent while rental inflation was very soft at 0.1 per cent).

In December 2014 the Australian Prudential Regulation Authority (APRA) introduced the minimum 7 per cent interest rate on all home loan serviceability tests as a part of its suite of “macro-prudential” constraints to cool ebullient housing activity, which ultimately precipitated the correction that commenced in late 2017.

According to mortgage brokers, more than 90 per cent of banks apply a further 0.25 per cent buffer to this minimum benchmark.

With Australia’s 10-year government bond yield only 1.8 per cent, financial markets are not pricing in any material RBA rate hikes for a decade (this yield proxies the average RBA cash rate over the next 10 years plus a term premium to compensate for interest rate volatility).

The average discounted new home loan rate in Australia has been just 4.5 per cent since the RBA’s last interest rate cut in August 2016 with many borrowers paying as little as 3.4 per cent today.

A standard two percentage point buffer above contemporary discounted home loan rates implies that a prudent serviceability test could be carried out at a much lower 6 per cent level, well below the 7.25 per cent level assumed by most lenders.

Mortgage brokers say that reducing the minimum serviceability rate from 7.25 per cent to 6.75 per cent would boost the maximum borrowing capacity of a two-income household earning gross wages of $160,000 annually from $870,000 today to $915,000.

There are several reasons why this more targeted approach to supporting the weakest component of the Australian economy may be preferred to an outright cut to the Reserve Bank of Australia's cash rate.

·         First, the federal budget is now in surplus on all key measures and there are good grounds for policymakers to assume that fiscal rather than monetary policy is better placed to provide any extra stimulus, especially when the latter is approaching its conventional limits. Inevitable pork-barrelling as part of the looming election further reinforces the case for the RBA to wait and see what role fiscal policy has to play.

·         Second, commodity prices remain very high, and notably above Treasury’s conservative budget assumptions, which means the budget will likely continue to deliver larger surpluses than are presently expected.

·         Third, recent economic data out of the US has surprised on the positive side with first quarter GDP growth of 3.2 per cent (annualised) beating all forecasts (consensus was much lower at 2.0 per cent). It is likely that once presidents Trump and Xi agree on a trade deal, global growth will rebound after a period where it has been stymied by tariffs and the trade impasse between the world’s two largest economies.

·         Fourth, if the RBA cuts its cash rate further below the current record 1.5 per cent low, it will fundamentally undermine deposit-takers’ net interest margins, which could threaten financial stability at a time where banks’ returns on equity face a multiplicity of headwinds. The interest margins banks realise on their transaction accounts, which normally charge no interest, are constrained by a 0 per cent lower bound. Put differently, it is unlikely that banks will start charging negative interest rates on these accounts to preserve the spread between the cost of sourcing funding via these deposits and the interest rates banks earn on their loans.

·         Finally, there is an argument that the RBA should preserve its monetary policy ammunition – and further cuts to borrowing rates that are already at historical lows – for a time when the Australian economic faces a real crisis, such as a long overdue recession.


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