The closing stages of the 2010/11 financial year have produced one of the most productive quarters in ASL's 86 year history. With the RBA holding off rate rises in recent months, borrowers have acted fast as a hike may still loom in the not too distant future. A range of residential, commercial, construction and land deals were approved and settled during the quarter, with ASL working to find solutions for a diverse range of borrowers to assist them in achieving financial independence.
Here are some examples of the recent loan approvals from our finance department:
Location |
Sorrento, Vic |
Laverton, Vic |
Perth, WA |
Loan Amount |
$1,386,000 |
$2,707,000 |
$500,000 |
LVR |
66% |
60% |
45% |
Rate |
8.97% + Compliance Fee |
10.44% + Compliance Fee |
9.10% + Compliance Fee |
Purpose |
Equity release for divorce settlement |
Re-finance of six commercial units |
Equity release to assist land purchase |
For deals like these, or any other loan enquiries, contact our finance department today on
1300 275 275 and beat the impending rate rise.
Since 1 January 2011 ASIC has made membership of an external Dispute Resolution Service compulsory for all credit service licence holders. This has had minimal impact on ASL as it adopted Australian Standard ISO 100002-2006 (formerly AS 4269) | the Standard | in 2000, when it became a member of the Financial Ombudsman Service | FOS | and subsequently a founding member of Credit Ombudsman Service Limited | COSL | (being the only accredited service providers dedicated with skilled staff to handle external complaints relating to Financial Service Providers).
The Standard sets out a process for customer complaint handling in a positive and non-confrontational environment. Ultimately it leads to higher customer satisfaction, improved standards services and brand recognition to the service provider. The standard requires all complaints to be handled externally if the complaint is not resolved internally by the service provider.
Both FOS and COSL compete for business from service providers. The Age reported on 22 June 2011 that FOS received 23,790 complaints during the previous financial year from consumers and resolved 90% of them. Then in the March 2011 quarter FOS received 7,500 disputes and resolved less than half of them.
There is a strong emphasis on consumers to take advantage of this “free service”. The free service however, is a complimentary service funded by the respective financial service providers, including ASL.
The low membership fees charged by FOS and COSL are reflected in ASL's low management and compliance fees. However under the user pays system once a complaint is registered it attracts an Acceptance Fee of $50 (not within External Dispute Resolution Procedure | EDRP | terms of reference) or $150 (within FOS’ terms of reference). From here on the fees then escalate from $500 for Initial Case Management to $8,500 for Determination Level B (complex).
Each stage has a time frame and a cost associated with it – even if no work is conducted, the fee is charged because time has lapsed (even though the parties may communicate or resolve the complaint independently from FOS). The costs associated with the complaint (irrespective of who is at fault) are always paid by the service provider.
Currently external dispute resolution providers do not identify or release any specific data on disputes that involve systemic issues or serious misconduct. Consumer groups believe that the presentation of this information would make service providers more accountable.
While there may be benefits in “naming & shaming” financial services providers; the statistics that the consumer groups are requesting may not be a true reflection of the nature of a complaint and in turn the performance of the financial service provider. For example – the number of complaints lodged with FOS may reflect badly on the financial services provider if many of the complaints are invalid, or expressed as a percentage of total clients is a small number.
The change from voluntary to compulsory EDRP membership may heighten the risk of the EDRP losing its impartial umpire status if it substitutes the cloak of consumer advocate. The EDRP already is balanced enough in favour of the complainant, who cannot lose, for unlike the service provider, the customer is not bound by the umpires decision.
ASL has minimal complaints from it's investors and borrowers (and of those complaints nearly all are resolved internally). Unfortunately, where a number of consumers make mischievous claims resulting in an increase of FOS and COSL fees, the cost involved for service providers may ultimately be passed onto all consumers. This raises the question: Does the current structure of External Dispute Resolution Service need to be reviewed to ensure it achieves its desired purpose - to provide consumers with a cost effective means to resolve serious and actual disputes?
The Finance team are working hard and enjoying a busy and successful quarter, with a record number of deals rolling in recently. It seems that with rate rises looming, those who were perhaps assessing the option of borrowing in recent months, are now eager to turn thought into action. The deals have been diverse, as ASL endeavours to accommodate numerous types of loan purposes. Here are some of the recent loan approvals from our Finance Department:
Location: |
Elsternwick, Victoria |
Loan Amount : |
$1,100,000 |
LVR: |
55% |
Rate: |
9.07% Fixed + Compliance Fee |
Purpose: |
Straight re-finance of land |
Location: |
St Georges, South Australia |
Loan Amount : |
$900,000 |
LVR: |
60% |
Rate: |
8.94% Fixed + Compliance Fee |
Purpose: |
Assist purchase of property |
For loan enquiries like these, contact our finance department today on 1300 275 275 and beat the imminent rate rise.
The RBA decided on 3 May 2011 to hold the cash target rate at 4.75%. The decision to make adjustment coincides with the record breaking Australian dollar attracting US$1.10 for the first time since the Australian dollar was floated on 8 December 1983.
There is some speculation of a rate rise towards August 2011 but the RBA decision was based on inflation expected to fall as cost of goods fall and economy continues on its stable path.
While bank rates were lifted for bank borrowers by as much as 0.50% in 2010 the ASL base rate has not moved since May 2010 and will continue to remain steady whilst the supply of funds from investors remains steady.
The Global Financial Crisis, which ended a decade of irrational exuberance in tailspin, may be seen as the milestone change towards Responsible Living.
There is some suggestion that recent floods, earthquakes, and the Japanese Tsunami with risk of radioactive fallout is the reason for a 6.67% decline in retail spending. But with more research, the reason may be found to be rooted deeper in history.
The veterans with parents from the depression and two world wars were themselves frugal with their spending. They saved to spend. All this changed with the advent of the credit card in the late seventies when spending required no saving. Today, responsible lending policies enforced by government discourage irresponsible borrowing. A decline in credit card usage should be reflected in the decline in retail spending. The decline in credit card spending should reduce household debt which has fallen by 2% and rising household savings.
Retirement savings ravaged by the GFC meant comfortable retirement will become a frugal retirement, with retirement age having been extended further and further from the reach of the baby boomer. Government assistance to future retirees will be very limited.
Advertising to baby boomers has also reduced since many baby boomers do not have the ability or desire to part with discretionary amounts.
Government advertisements for years have encouraged responsibility for our health and safety by discouraging alcohol use, drug use, tobacco use and unsafe driving practices. This form of endorsement was extended to encourage vaccinations and health checks in the home and workplace for maintaining good health. More recently, climate change has encourage responsible use of water, electricity and petrol. So why should we use our earnings more responsibly?
Drought and floods have impacted on communities physically and forced changes to living standards. Future health care is not guaranteed. Interest rate income for savings is not significant and risk of rate movements creates uncertainty for borrowers.
Not only is the household challenged but so is government to act responsibly for the right reasons. Responsible retail buying will return as savings grow and household debt is not used to stimulate or contract the Australian economy. These changing times give rise to a need to exercise moderation, conserve both financially, physically and environmentally. They also create new challenges for those managing a future Australian economy.
ASIC on 31 March announced changes to the new responsible lending requirements to protect elderly borrowers from being barred from access to ongoing and future credit.
The original credit regulation was intended to protect consumers by making a loan unsuitable where no income stream was present from the borrower's personal resources to service the debt and default would constitute forced sale of the principal residence of the borrower.
The changes extend and broaden the interpretation of capacity to make repayments and the ability to rebut the unsuitability of the loan on assessment of the "relevance' of income and where reasonable enquiries are made about the borrower's financial situation, requirements and objectives.
The ASIC updates should remove the barriers for older borrowers to access credit. Particularly for those who have a sound financial objective or an ability to repay debt without necessarily demonstrating a personal income stream.
ASIC has confirmed on its new website MoneySmart the Australian Government intention next year to phase out commissions for financial advisers. ASIC is advocating a "flat dollar" fee instead of a "percentage fee" of the funds being invested. The proposal is at this stage has been advocated for financial adviser fee and not to management fees.
Investors may have difficulty with this concept. A flat fee reflects the actual cost plus a profit margin for the work performed for the transaction. Both the flat dollar fee and the percentage fee rely on the same data i.e. overheads, salaries, insurance, regulations fees, etc to achieve a profit line which is then expressed either as a unit of time fee or a percentage of the asset value.
The investor whatever fee is charged will want it reflected as a percentage of the invested amount. That percentage will be useful to compare the cost of the relevant adviser against other advisers and other professionals.
In daily transactions it is a common place to value the transaction as a percentage of the cost base. Estate agents appointed to buy or sell property charge a percentage on the sale price. Art auctioneers do the same. Tax and revenue collectors set percentage rates on the stamp duty buyers of real estate, GST on sale, income tax on profit. Annual reports disclose formulas disclosing the management fees as a percentage of the income earned or the assets under management.
Not all financial advisers have been remunerated on a commission. Fees based on a percentage of the investment amount have been used for many years by the few advisers who did not take commissions. They should be allowed to continue along side the ASIC preferred "flat dollar" fee to enable the investors in the market place to decide which fees suit investors best. Simultaneously both the invested "flat dollar" and the percentage fee can be monitored by ASIC to determine which is best for the investors in the long term. Ultimately advisers will not do the work if they are not paid fairly for the service they provide. It is possible that both have merit and should be available to investors.
Too many experts including the International Monetary Fund have repeatedly claimed for years that the Australian Housing market is inflated and predict a bubble will burst but people continue to buy or invest in residential property.
A recent RBA analysis of Australian household income and labour dynamics disclosed 73 per cent of the value of home loans in 2010 were in the hands of the households of the top 40 per cent income. In 2000 it was 69 per cent. The RBA also found that half of households were ahead of schedule on their loan repayments, giving them something of a buffer should they lose their income temporarily.
It should not be presumed that the wealthier households have invested all their money in their homes and are at risk for higher debt. The high income bracket that services the domestic loans do have access to other buffers in the form of investments or shareholdings in companies that they own and they can if needed fall back on accumulated wealth in their business vehicles. These business vehicles pay lower tax but have no CGT relief for owning residential property. If personal tax rates were lowered to the corporate tax rate of 30 per cent we may see debts in these wealthier homes reduced and the domestic market personal savings grow as strong as the business interests in Australia. Limiting future borrowings to good debt and future generations inheriting sound economic credentials in both business and domestic market.