The RBA has left the official cash rate on hold at 1.5% (no change since August 2016)

In a move that was widely predicted, the RBA decided to maintain the current official cash rate at its record low of 1.50 per cent. The cash rate last moved in August 2016, ticking down.

As lenders continue with their out of cycle rate increases and with the growing probability that the government’s bank levy will be passed onto customers, the Reserve Bank of Australia today decided to leave the official cash rate unchanged.

In continuing to adopt a wait and see approach the RBA took into account the latest set of mixed economic data. Unemployment has fallen from 5.9% to 5.7% and retail spending was up 1% in April but there are signs that the housing markets in Sydney and Melbourne are slowing and economic growth data due out tomorrow is expected to be lower.

Most experts believe the rates will not move until 2018, with a few predicting late 2017.

 

For a copy of the RBA’s announcement please see:

http://www.rba.gov.au/media-releases/2017/mr-17-12.html

 

Five Things First Home Buyers Need to Know

First Home Buyers, before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.

  1. Think about why you want to buy a home

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.

  1. Research potential properties and loans

Knowing the market is crucial, so do some research on the areas you are targeting, check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.

Then, when you talk to your finance broker about applying for pre-approval on the right type of loan, ask for their help to work out what you can afford in terms of repayments.

  1. Factor in other costs involved

Depending on the property, there can be a number of additional costs, so ask your finance broker what other payments you will face. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance. How have the proposed changes in the 2017 NSW budget improved my position?

  1. Think about your future

Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?

  1. Get professional help

With so many things to consider, getting professional help is highly recommended. There are many experts in the industry and it is in your best interest to use them for tasks such as property checks, pest checks and any other legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.

 

Call us on 1300 252 088 to discuss how the NSW 2017 budget changes will save you money

Loans involving family & friends

Has a family member or friend asked you to be a ‘co-borrower’ or guarantee a loan for them? Before you say yes, think carefully – you could lose not only your money, but valuable assets such as your house or car.

What is a guarantor or co-borrower?

Co-borrower

You are a co-borrower if you sign a loan with someone else.

In most instances both you and the other co-borrower are jointly and individually liable for the debt. If the person you borrow the money with is unable to pay their share of the loan, you will be responsible for repaying the full amount outstanding.

Guarantor

If a credit provider is not willing to give a loan to a person on their own, they may ask for a guarantee. If you sign a guarantee for a friend or family member, you are known as the ‘guarantor’ of the loan.

When you sign your name as a guarantor, you are legally responsible for paying back the entire loan if the other person cannot or will not make the repayments. You will also have to pay any fees, charges and interest.

As a guarantor you don’t have the right to own the property or items bought with the loan.

Reasons you might have to say no

Think very carefully before guaranteeing a loan. Is there another way you could help without becoming a guarantor? For example, could you contribute to a deposit so that a guarantee is not needed?

Consider how you will pay back the loan if your friend or family member can’t. Can you afford the repayments? Do you have savings you can use or assets you can sell to pay the debt? If you do have to use your own money or assets to pay off someone else’s loan, you could be risking your financial future.

What about your relationship with the borrower if something goes wrong? It may be better to say ‘no’ now and avoid damaging your friendship.

The effect on your future loans and credit report

You will need to tell your credit provider about any loans you are a guarantor for, when you apply for credit. They may take into account the loan repayments on the loan you have guaranteed when they assess your ability to repay a new loan. This may stop you getting a new loan even if the person who’s loan you are guaranteeing is making the repayments.

You may end up with a bad credit record if you and the borrower can’t pay back the guaranteed loan. The loan will be listed as a default or non-payment on your credit report, making it hard for you to borrow money for several years.

You may also affect your credit score, a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit worthiness.

If you provide security, such as a mortgage on your home, to guarantee someone else’s loan, you may not be able to use your home as security for your own loan. You may even end up losing your home if you don’t pay out the guaranteed loan.

You may also be made bankrupt by the credit provider. Even assets you haven’t offered as security for a guarantee may then be sold to pay the outstanding debt.

Questions you must ask before you sign the loan

Before you guarantee a loan, ask the credit provider the following questions.

  1. What type of loan am I guaranteeing?

Be very careful about guaranteeing a loan that has no specific payback time, such as an overdraft. This kind of loan could potentially go on forever.

  1. What should I check if I am asked to guarantee a business loan?

Find out everything you can about the business. Ask for a copy of the business plan to understand how it intends to operate. It’s also important to look at the business’ financial state. For example, check past financial statements and speak to the business’ accountant to make sure the company is in good financial health and has good prospects.

  1. Is the guarantee for a fixed amount of money, or is it for the total amount owing?

You are better off guaranteeing a fixed amount because you will know exactly what you owe. If you sign a guarantee for the total amount owing, you will be legally responsible for what the borrower owes now and in the future. This could include interest, fees, charges and penalties. If you think there has been an increase in the amount you agreed to guarantee without your consent, seek legal advice straight away.

  1. Exactly how much am I guaranteeing?

The guarantee should clearly describe how the amount of money you owe will be calculated if the worst happens and the borrower does not pay. If you are not comfortable with the amount, ask if you can reduce it.

  1. Do I have to put up assets as security?

If the loan is not for personal, household or domestic purposes, you may be asked to put up an asset such as your house as security. This means the credit provider can sell your house to pay the debt if the borrower defaults on their loan.

  1. What should the loan contract tell me?

Get a copy of the loan contract from the credit provider. It should tell you:

  • The amount of the loan
  • The interest rate, fees and charges
  • Whether the loan is secured (where the borrower has to put up an asset, such as their house, as security)
  • How long the borrower has to repay the loan
  • The amount of the repayments

ASIC’s Moneysmart

Interest Only Loans: – Is it a ticking bomb?

Why are APRA and the RBA so concerned?

The common aim with property investors is to create long term wealth by amassing a property or few then allowing the real estate market to increase whilst keeping expenses low. An easy way to attack this strategy is by structuring the investment loan as interest only (keeping the loan repayments to the bare minimum) meaning that the principal remains the same with the forecast that house prices will continue to rise. With paying off only the interest portion of the loan, if the trend on increased housing prices continue to rise, then so will the equity in the property (equity is the difference between the value of the home and the amount owing on it).

Ok, so this common investment strategy seems to make sense, right?

This can be a good strategy to work towards and with high tenancy rates, increasing property prices and historical low interest rates all looks good.

The concern of The Australian Prudential Regulation Authority (APRA) which oversees banks, credit unions, building societies, general insurance and more, is one of a market where many investors potentially could fall into mortgage stress and overall financial difficulty. You might be asking yourself how could this happen with high property prices and low interest rates?

If property prices started to decline (like they have done in a few mining towns and regional areas around the country), depending on the loan amounts, we could see people left with properties which are worth less than what they owe on them. Not to mention in a negative market comes an increase in tenant vacancy rates which obviously makes it more difficult to rent out the investment home let alone with a decent rental agreement.

Now the issue is that if the above scenario occurred (which it has done in certain areas) and we’ve had people who’ve used the majority of their equity to purchase another one or two properties, along with the reduced property prices and a slowing rental market, could see these investors potentially fall into some financial difficulty and this is where we start to see an increase in mortgage stress.

Let’s not forget that the principal does need to be repaid at some point in time and will see an increase in repayments going from interest only to principal and interest, which can be a challenge in a declining market.

On a $400,000 investment loan with a rate of 4.5% (over a 30-year term) and an interest only period of 5 years has a monthly repayment of $1,500. When the interest only period ends, the repayments change to include the principal which increase it to $2,283 per month. That’s an increase of $783 extra per month that needs to be accounted for to start reducing the principal portion of the loan. What if interest rates increased by 1%? Well that then adds an extra $334 per month that needs to be repaid, just in interest!

Dino Pacella

Reserve Bank of Australia: Again, no change in cash rates

2nd May 2017

As lenders continue with their out of cycle rate increases the Reserve Bank of Australia has kept the official cash rate on hold at 1.5% for the ninth month in a row. This decision was widely anticipated by economic and finance experts across the country given the current national and international environment.
This follows new data released yesterday that indicates the strong Sydney and Melbourne property markets may be close to peaking following APRA’s intervention into the levels of interest only and investment lending the banks are funding.

It also appears the Reserve Bank is waiting to gauge the impact of next Tuesday’s federal budget on overall economic sentiment.

 

For a copy of the RBA’s announcement please see:

http://www.rba.gov.au/media-releases/2017/mr-17-09.html

Why does my broker ask for so much documentation?

No one likes paperwork; however, providing your broker with the right documentation will save you time and money.

What information will your broker ask you to provide?

When you ask to enlist the services of a broker, they will probably ask you for the following documentation:

  • Identification, including photo ID such as driver licence
  • Income verification documentation such as recent payslips
  • Birth certificate, if you are applying for a government funded first home owner grant

Depending on the lender you would like your broker to apply to for your loan, you may also be asked to provide:

  • A recent PAYG summary
  • A notice of assessment from the Australian Taxation Office
  • Tax returns
  • Proof of your contribution toward the transaction, such as savings or deposit statements
  • Purchase contracts for a home loan, including building contracts, or plans if building

Why is this information important?

While it may seem that you are climbing the Mount Everest of paperwork, a broker will ask for all of this to ensure they are protecting you and that they get the best possible deal.

Gathering various forms of documentation allows brokers to do a fact find, which is an important part of the loan process, by which brokers ensure that they match a client with a loan that helps them achieve their property goals, whether that is buying a home to live in, one to renovate and sell, or a long-term investment, and one that matches their financial positions.

Brokers do not want to put prospective loan clients into a situation where they cannot afford to repay their new loan commitments.

Will a bank ask for the same documentation?

If you apply for a loan with a bank that you do not currently have an account with, they will require much of the same information as a broker would.

Although borrowers may be able to reduce the paperwork by applying for a loan with their current bank (which will already have a lot of information on file), this means they will be constrained by the products and rates that the bank offers and risking missing out on alternatives provided by other lenders.

The benefit a broker has compared to an individual bank, is the broker has access to most banks and lenders across Australia. Lending policies and pricing vary greatly across the lending market so why limit yourself to just one when you are making your enquiries.

Saving you time and money

A broker can usually tell a client within 10 minutes whether they have a chance of obtaining loan approval.

Brokers have access to bank loan affordability and serviceability calculators, which show clients’ potential borrowing capacity. Depending on the size of the funding required, and the loan to valuation ratio, these days the banks are extremely competitive.

If a client is not yet in a position to obtain a loan or has a credit issue on their file, such as a default, having a broker on-side can be invaluable. A broker can guide the client with a view of getting the default removed, or waiting until the default drops off the client’s credit file.

Most brokers are accredited to gain access to client’s credit files these days, which is an extremely important issue due to the banks’ risk scoring.

In a nutshell, a broker will shop around to get the best possible deal for you, their client.

 

What is rent-vesting? Could it be for you?

Many people are feeling locked out of the housing market as prices in the areas they want to live become increasingly unaffordable. However, sometimes the best way to approach something is from the side, rather than from the front.

More and more young couples and families are figuring out that the key to achieving their dream of owning property is to take an alternative approach – rent where you actually want to live, and buy where it is most affordable and then rent out that property.
Investing before purchasing your own home may seem like a backwards approach, but it can be the smartest way to gain property ownership in the current economic climate.

Why are Aussies rent-vesting? 

There are several advantages to taking the so-called ‘rent-vesting’ route, the primary one being that you can enter the property market sooner and start building wealth as an investor.

Because the property is cheaper, the deposit needed may be lower (but obviously, you would need to check with your lender) and you thus don’t have to spend years saving, which can only be a good thing. A large amount of potential home owners get caught in the trap of renting and being unable to afford a deposit for a home of their own, so by lowering the deposit goal, more people would be able to reach their savings goal while they are renting.

Buying an investment property first also means you don’t have to compromise on location and price when buying, as you don’t have to buy within your ideal area. The focus is solely on affordability and the value of the property as an investment that can help you save for the property you really want.

The key drawcard for homebuyers is the fact they don’t have to sacrifice the lifestyle they want in order to work towards buying their dream home – they can live near the city or beach or the good social amenities while using this investment property to save.

If it is an option for you, buying several cheaper investment properties can potentially be a way to build wealth quicker than buying one more expensive home.

The game plan

Increasing numbers of first homebuyers are strategically building property portfolios in order to get where they want to be.

If researched and planned with care, rent-vesting can be a great way to break through the affordability barrier. But it might be a good idea to consider these things before investing:

  • Can you really afford it? Just because it is cheaper to buy this property than the one you really want, it doesn’t mean you can automatically afford it.• Have you done thorough research into which areas have low prices to
  • Buy but also have solid rent rates and a strong likelihood of increasing in value?  It is wise to take your time considering which property would be the most likely to help you achieve your goals.
  • Are you being flexible about what you want from this investment property without being too lenient? Strike a balance and find a property with a promising outlook.
  • Have you talked to your financial adviser or broker? Get a really solid understanding of how much you will need to save and what impact this investment would have on your financial situation.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That’s why it’s important to not only check the right rates, but make sure that you’re getting the right features in your home loan. Get help choosing the right home loan.

Tips that will help you slash your mortgage payments

 

Your mortgage is one of the biggest financial commitments you’ll ever make—and it’s one that will last years.

Ill-informed decisions can easily cost you hundreds of thousands of dollars over the lifespan of your home loan. This translates to less money for savings, your children’s education, retirement, and living expenses.

Most borrowers are surprised to find out that a low interest rate is not the most significant factor in reducing the overall mortgage cost and payment period.

 

If you want to be debt-free sooner, then check out these tips:

  1. Review your home loan at least once a year.

Home loans generally become uncompetitive after a few years. With new products being added to the market regularly, it pays to do a review of your home loan at least once a year to determine if your current loan still meets your priorities. You may discover that there is a better product out there that would help you save on interest charges, gain access to better services, and increase your home loan amount.

2. Overpay your mortgage.

Making payments weekly or fortnightly can help you clear your home loan much faster. This tactic can also save you thousands of dollars in interest charges.

 

Use the calculator https://brickhill.com.au/extra-repayment-calculator/ to see how much interest you could save by making extra payments.

        3. Don’t focus solely on interest rates.

The interest rate isn’t the only factor that influences the total cost of your home loan. In fact, going for the lender that offers the best initial interest rate doesn’t mean you’ll get a cheaper loan.

Interest rates can change soon after your loan starts, and you can quickly end up with a very expensive and uncompetitive rate. Moreover, there are additional fees that can make a loan more expensive than it seems.

Additional fees might include:

  • application fees
  • valuation fees
  • establishment fees
  • legal and settlement fees
  • rate lock fees
  • lenders mortgage insurance
  • early pay out fees
  • discharge fees

In other words, if you want to objectively assess the overall cost of your loan, you’ll need to look at the bigger picture.

4.        Avoid going directly to a lender.

Lenders like it when you walk into their doors without being referred to by a broker, as they can pocket the commission they would normally have given to the broker. There is no financial saving to you by going direct to a lender as the broker’s services to you are at no cost to you.

If you deal directly with a bank, you won’t be able to ask a mortgage broker for more in-depth and comprehensive advice. Other lenders may provide loan products that are better suited to your finances and priorities, and you close yourself to these possibilities by going to just one lender.
By consulting an experienced mortgage broker with a wide range of lender contacts, you could gain access to better deals than are currently available on the market.

 

-Your Mortgage (Michael Mata)

Understanding your credit file

Reserve Bank of Australia: No change in cash rates for another month.

4th April 2017

At its board meeting today the Reserve Bank of Australia decided to leave the official cash rate unchanged.

As widely predicted, the RBA has kept rates on hold as it continues to work in unison with the regulators to stem concerns around the growth of the Sydney and Melbourne property markets.

Assisting the RBA not to make the call to increase rates was the out of cycle rate increases we have seen from lenders over the last week. In many ways, these have done the RBA’s job for the moment.

Also, weighing on the RBA’s decision not to move rates higher was the continued uncomfortably high unemployment rate and the fact inflation remains within its target range.

Regardless of whether rates move up or down, my role as your mortgage broker remains unchanged. I’m always on hand to ensure you still have the right financial solution for your current circumstances.

If you’d like to have a chat about what today’s news means for you and your finances, please don’t hesitate to get in touch.

 

For a copy of the RBA’s announcement please see:

https://www.rba.gov.au/media-releases/2017/mr-17-07.html