RESOURCES

Cash rate cuts
 
Following the 6th of June rate cut of 0.25%, the Reserve Bank of Australia (RBA) again cut interest rates to a record low of 1% on the 2nd of July.
 
Great news if you've got a mortgage. For example, if you have an average $400,000 loan and your bank passes on the full 0.25% rate cut you could save about $700 a year.
 
But if you're saving for your first home, or living on savings in retirement, the cut isn't great news: Australians stand to lose $1.3 billion in interest per year from term deposits and savings accounts if banks pass on the full cut.
 

Brexit

Britain's exit from the European Union may influence Australians in the wealth-building, consolidating and retirement phases of life.

 As AMP Capital senior economist, Diana Mousina, said: “the main impact on Australia will be from volatility and loss of investor confidence in financial markets.”

US-China trade war

The trade battle between the USA and China puts Australia in a sticky spot, as Treasurer Josh Frydenberg summarised: “China is our number one trading partner and the United States is our number one investor”.

 If the dispute escalates, KPMG warned around 60,000 Australian jobs and nearly half a trillion dollars could be lost over a decade.

Slowing growth

All of these events are occurring against a backdrop of slowing growth.

As the International Monetary Fund reported, global economic activity slowed significantly in the second half of last year.

Beyond the doom and gloom

Okay, so you may not be feeling overly optimistic right now.

The good news is that with a good financial plan in place your household can enjoy stability and certainty, regardless of economic headwinds.

Hands up, who loves health insurance? Let’s be frank, most people have it as a grudge purchase. So, if we don’t love it, why are we paying for things we don’t need? I recently got our notice that premiums are going up and there is a change in what is going to be covered. So, I am doing a review.

Because a lot can change in a year – your needs may have changed, the insurance market has most certainly shifted and living expenses continue on an upwards trajectory.

For example, in 2018 some banks put their interest rates up, which can put extra stress on the family household budget.

So, let's take a look at the steps you can take to complete a health insurance policy checkup now.

1. Review your policy

When conducting a health insurance checkup, the obvious starting point is to pull out the details of your existing policy.

Specifically, identify what level of cover and inclusions you're getting and whether the mix is still right for you, and look at how much you're paying. This will give you a good baseline for comparison.

2. Comparing inclusions and limits

There are three common ways to take out private health insurance in Australia – as private hospital cover, extras cover or combined cover (hospital plus extras).

- Hospital cover

Most health insurance providers offer a range of hospital cover policies.

At the basic level, you'll likely be covered for common hospital treatments and Medicare recognised services. But you'll probably face waiting periods, plus exclusions or restrictions around cardiac and cardiac-related services, plastic surgery, rehabilitation, psychiatric services and palliative care.

At the top of the range, you're more likely to be covered for pregnancy and birth-related services, obesity and weight loss surgery, joint replacements and renal dialysis. There may, however, be waiting periods associated with these procedures.

- Extras cover

Extras cover is usually for services that are provided outside a hospital, and which Medicare does not generally cover. There's often an annual limit to cover under each category of treatment and waiting periods.

Your entry level cover tends to be for the most common procedures – things like preventative dental treatment, optical appliances, physiotherapy, chiropractic, osteopathy and preventative tests.

At the top end of the scale, you may be looking at receiving some cover for services such as hearing aids and speech processors, home nursing, antenatal classes and postnatal services.

3. Comparing costs

You can start by comparing premium costs between different providers and their various policy levels.

Don't forget to compare your additional costs – excesses for hospital admission, co-payments for hospital accommodation, and gap-fees when insurance doesn't cover the total cost of treatment.

For additional savings, look to see if you can secure cheaper cover if you pay premiums months in advance, or if you combine hospital and extras cover.

Finally, take note of any costs or penalties associated with switching providers.

According to CoreLogic’s latest Home Value Index report, interest rate cuts and renewed confidence in the property market are already having a flow-on effect around Australia. So, what does this mean for the short-term future?

What happened in May and June?

• - Improved stability in the Federal Government following the election. 

• - Announcement from APRA that borrower serviceability assessments are likely to improve. 

• - RBA cut the interest rate to a new record low.
  

What was the result?

• - With the smallest month-on-month decline since March 2018, the pace of decline of dwelling values continues to ease. 

• - The market saw a positive month-on-month movement in Sydney and Melbourne. Hobart, regional South Australia and the Northern Territory also saw positive movement.

• - Auction clearance rates are on the rise with results above 70% across the capitals. This implies a better fit between buyer and selling pricing expectations.
  

What’s to come?

• - Tight credit conditions will continue to have a negative impact on market activity. - Lenders are less reliant on household expense benchmarks and prospective buyers should expect continued scrutiny. 

• - Borrower debt profiles are becoming more transparent, meaning lenders have greater visibility of total debt levels relative to incomes. Borrowers applying for debt that is more than six times their income may find it increasingly difficult to secure a loan. 

• - Overall, there are positive indicators in the housing market but most regions are still experiencing weak housing market conditions. 

What would help?

• - Firming of labour market conditions outside of NSW and Victoria and broad strengthening in economic conditions more generally. 

• - Lower interest rates.

• - Pressure is ramping up on federal and state governments to ramp up investment in key infrastructure projects which will create jobs, make affordable housing more accessible and more desirable. 
  

In a nutshell, market sentiment improved throughout June and is on the rise as buyer confidence increases. However, with lenders gaining access to more information than ever before, prospective buyers may still face intense scrutiny when applying for loans.