In November 2011, after intense lobbying by the banks, the Australian Government announced they had amended regulations to allow the Australian banks to issue covered bonds, while still ensuring the relative security or priority of deposit holders.

This announcement made its way into the financial pages and also received a small amount of media coverage. Peter Fullerton, Senior Credit Analyst from Schroder Investment Management lifts the bonnet to see what all the fuss is about and outlines his findings in this article.

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It will not come as a surprise to any of you, especially the first home buyer, that Australia has one of the most expensive property markets in the world. Capital city house prices have more than quadrupled and household debt has tripled since 1990.

The recent annual Demographia survey of house prices across seven English speaking nations places Australia up front, with the exception of land starved Hong Kong, Australia remains the highest cost housing market in the Anglo world. Out of the 325 metropolitan markets around the world, Sydney was the 3rd most expensive and Melbourne the 5th with other major cities not much better. In the US, many bustling metropolises like Atlanta, Dallas and Houston have house prices much less than one third of those seen in Melbourne and Sydney.

As a result of Australia’s very expensive property market, homeowners really notice any slight increases when interest rates are raised. In fact, such is the expense and percentage of the family annual salary that mortgage repayments devour, talk of interest rate drops and RBA’s 2.30pm announcement takes on unprecedented importance – many investment houses will run a ‘book’ on which way rates will move!

Following on from this in more recent times, is the general public feeling of utter helplessness when our major banks fail to pass on any rate cuts. While we have some relief now with low interest rates relative to days gone by (think 1990s when rates where high double digits), most projections show that interest rates will rise again and many people may start to feel stress from their mortgage, if the GFC is not already placing a strain on their monthly budget.

This article is designed to provide some helpful tips on how to beat rate rises and avoid mortgage stress.

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With the current volatility in global markets, many investors are making nervous decisions and selling their growth investments for cash. Like others, they are retreating to the sidelines and are merely watching and taking no action. Both of these strategies can potentially be damaging financially, because a declining market may well offer investment opportunities.

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