The Upside of Being Pre-Approved

If you’re house hunting, chances are you’ve got every new property listing alert set up to reach your inbox the second it’s listed. You’re probably chasing agents and spending your weekends running from opening to opening. It’s an exciting experience but can be daunting. After all, buying a house is one of the largest investments you may ever make.

Keeping a level head and being realistic about what you can afford will certainly help guide the houses you should be inspecting. That’s where finding out how much you can borrow before you step foot into that dream home will ensure you’re on the right path from the start.

As well as managing your own expectations, in the current climate, securing finance for a home loan is much more difficult than it has been in the past. It requires a lot of thought in advance and is not as simple as just filling in an application form.

Pre-approvals don’t lock you into one product, they just give you comfort around your borrowing capacity. http://brickhill.com.au/borrowing-power-calculator/  Lenders now use benchmarks to safeguard against the future, so just because you can afford to make the repayment for a certain loan amount now, that doesn’t mean the bank will lend you that much. The amount you are pre-approved for is likely to be a reasonable amount that is reflective of your current and future income and expenses.

Pre-approvals are typically valid for 90 days, so you have plenty of time to house hunt. Even then at least one extension can be arranged in many circumstances. Armed with your pre-approval, you know what your price range is.

Having a pre-approval in place usually means that you’ll have better negotiating power when looking to purchase. Sellers often take pre-approved buyers a bit more seriously which may give you priority in the buying process. Further, you’ll have some bargaining power as you can offer a shorter settlement knowing your loan approval is already in place.

As a word of caution, if your circumstances have changed or likely to change, such as changing jobs, having children, spending your deposit, you should discuss with your broker or lender whether your pre-approval is still in place before you commit to a purchase. As the unconditional approval will require a valuation of the property, it is also preferable to have this completed before you sign the contract or at least have a “subject to finance” clause included.

Reserve Bank cuts cash rate to record low of 1 per cent

The Reserve Bank (RBA) has slashed official interest rates again – the first time in 11 years it has cut in consecutive months – in another attempt to revive the sluggish economy.

The RBA cut the official cash rate from 1.50 per cent to 1.25 per cent at its June meeting, and despite expectations it would wait until early August to cut again, it moved sooner, with another 25-basis-points cut at its meeting on Tuesday taking the cash rate to the historic low of 1 per cent.

A lender with a mortgage of $500,000 could expect to see about $74 shaved off their monthly repayments, or almost $27,000 across the life of a 30-year loan – assuming lenders pass on the full 0.25-point cut.

The last time the RBA cut the rate in consecutive months was in 2008 when it was slashed at five consecutive meetings from 7.25 per cent in August 2008, to 3.25 per cent in February of 2009.

Economist with Deloitte Access Economics, Nicki Hutley, said lenders were facing both social and financial pressure in their decisions on how much of the cut to pass on the customers – if any.

“I think they will be under pressure, after the Hayne Royal Commission to pass on some of the cut, yes,” Ms Hutley said.

“But they are in an invidious position because they will also need to cut rates for depositors. The impact from the lower mortgage rates is much bigger, of course, but [deposit] rates are so ridiculously low that they don’t have much room to move.”

Bridging Loans

Finance to buy your new home before the old one is sold

Many, if not most, homeowners find their new dream home before they are able to sell their current one. Unfortunately, finding that home and finding the funds to purchase it are two very different things.

In a perfect scenario, we would all be able to precisely match up the dates that we sell our existing home and purchase a new one, aligning the end of one mortgage with the start of another. But reality, with its price fluctuations, varying auction clearance rates and general unpredictability, often intrudes to make the transition between properties an exceedingly stressful one.

Helping to “bridge” the timing gap are bridging loans.

What are bridging loans?

A bridging loan is when you require finance to purchase a second property with the intention of selling the existing one. A bridging loan is typically an interest only payment home loan with a limited loan term. The extent of the bridging loan is calculated on the equity in your current property.

It is an additional home loan that you take out on top of your current home loan until the property is sold and the loan can be closed. This means during the bridging period you have two loans and both loans are being charged interest.

Bridging finance is not for everyone. It pays to have built up at least 50% of your existing home’s value in equity before you attempt a bridging loan. Otherwise, you may end up paying a prohibitive amount of interest.

How do bridging loans work?

The size of your commitment on a bridging loan is calculated by adding the value of your new home to the outstanding mortgage on your existing home and then subtracting its likely sale price. What’s left is referred to as your “ongoing balance” or end debt, which represents the principal of your bridging loan.

Bridging loans are interest-only, so during a bridging period of six months interest will be compounded monthly on your ongoing balance at the standard variable rate. The interest bill will then be added to the ongoing balance when you sell your house. This amount becomes the mortgage on the new property.

While the interest rates on bridging loans are now comparable with ordinary mortgages, you will still essentially be carrying two mortgages. Additionally, you won’t actually be paying anything off during the bridging period. The longer you take to sell your existing home, the higher your interest bill, and hence your new mortgage, will be.

What are the risks?

Before taking any steps toward a bridging arrangement, it is essential to do your sums to make sure you can afford a bridging arrangement in the first place. If so, there is still a critical question that needs to be addressed.

“How long will you be able to look after two loans for?” One of the biggest issues in bridging finance is not to overestimate the likely sale price of the existing property, which could quite possibly fall short of the amount required to pay out the bridging loan.

As with all residential property transactions, it is important not to let your emotions get in the way – a challenge to many homeowners who see their home in a considerably more flattering way than most buyers will is to be prepared “to meet the market.”

Bridging loans are still subject to the usual array of mortgage-related costs.

However, the greatest risk is that your property will not sell within the bridging period. If structured correctly and based upon realistic timeframes and price estimates, bridging finance can ease the pressure of matching up settlement dates and give you time to sell your existing property while securing your new one.

Although there are risks, they can be mitigated. Give us a call on 1300 252 088 to discuss your options and strategies.

Interest Rate cut to an all-time low of 1.25%

The Reserve Bank has cut the official cash rate for the first time since August 2016. This is what the new record low means for you. The historic move was announced by RBA governor Phillip Lowe this afternoon, ending weeks of frenzied speculation.

The announcement means the cash rate will be slashed by 25 basis points, from a record low of 1.5 per cent.

It was the worst-kept secret in Australian economic news in recent weeks, with pundits universally agreeing a rate cut would be the inevitable outcome of the RBA’s June board meeting.

But many Australian economists predict this is just the first of several cuts headed our way, with a second 25 basis point reduction believed to be on the cards as soon as August. Meanwhile, some even predict up to four cuts to 0.5 per cent by 2020, as the central bank scrambles to kickstart Australia’s stalling economy.

The decision comes in the midst of uncertain economic times, both within Australia and across the globe. Locally, Australia is grappling with a recent increase in the unemployment rate, stagnating wage growth and weak inflation. The housing market has also softened, although the rate of house price falls has slowed down, with mortgage lending practices also loosened.

There are also troubling trends occurring globally, including the US-China Trade War, the Venezuelan crisis, Brexit and Chinese debt.

THE REACTION

Financial markets had fully priced in a 0.25 percentage point cut, and the Australian share market was trading flat this afternoon as investors waited for the central bank’s decision.

CoreLogic head of research Tim Lawless said he expected the focus to now turn to mortgage rates. “Mortgage rates for owner occupiers are already around the lowest level since the 1960s and lenders are generally expected to pass on most, if not all of the cash rate cut to mortgage interest rates,” he said.

“Lower mortgage rates, together with the likelihood of lower borrower serviceability assessments if APRA delivers on a relaxation to the base serviceability rate later this month, as well as renewed confidence following the federal election, are likely to see an improvement in housing market activity.”

However, he questioned just how effective the rate cut would be.

“With credit policies remaining tight, the stimulus of lower rates isn’t likely to be as effective in kick starting the housing market as what we have seen in the past,” he said. “Borrowers are facing much closer scrutiny on their income and expenses as lenders become less reliant on HEM (Household Expenditure Measure) benchmarks, and comprehensive credit reporting is providing lenders with greater transparency around borrower debt levels and credit standing.

“Overall, the latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values, but we aren’t expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate.”

Meanwhile, Real Estate Buyers Agents Association (REBAA) president Rich Harvey said APRA’s proposed relaxation of the home loan lending rules would be even more helpful for borrowers than today’s rate cut.

“This will have an even greater impact on increasing a borrower’s capacity which will eventually filter its way into the economy and support the property market,” Mr Harvey said.

“While today’s interest rate cut will give borrowers more mild relief from bank interest, the major benefit is that it helps stimulate demand for borrowing and injects confidence into the property market.

“On the flip side it also demonstrates the economy is sluggish and needs monetary policy to generate more activity.”

OTHER IMPACTS

The rate cut will affect almost all Aussies to a certain degree, even those without a mortgage.

Those with savings in the bank will notice less monthly interest coming in, while self-funded retirees will also see their income take a hit.

People who have invested in shares will likely win, as RBA interest cuts usually translate to a share market rally. The cut will likely lower the Aussie dollar, which is good news for people heading overseas on a holiday, and for the export industry.

And given it is designed to encourage spending, it could also give a welcome boost to retail and small business owners.

Now that the official cash rate has been cut, attention will turn to the banks and question whether Australia’s financial institutions will actually pass it on in full.

Treasurer Josh Frydenberg is believed to have already personally asked Australia’s leading financial institutions to pass on the entire rate cut.

How Your Credit Score May Affect Your Loan Application

When you’re making big financial decisions, such as applying for a personal loan or even simply switching telco providers, it’s important to understand the impact your credit score has and how it’s in turn affected.

Creditors and lenders sneak a peek at your credit score and credit report before they approve (or sometimes deny) your applications. Every time a business contacts a credit bureau to request your credit report for further insight into your financial history, this can have an impact on your credit score too.

Why? Well, firstly your credit score itself is determined based on the information held within your credit report. Information such as credit enquiries – how many applications you’ve made over the last 5 years. Even if your credit score isn’t brought down by too many applications, those applications will become a part of your credit history and remain there for 5 years.

Too many applications for credit can be seen as a sign that you’re struggling financially. Providers may worry you’re taking on too many new accounts or “churning” credit cards – that is, applying for new cards to take advantage of low balance transfers or other sign-up offers. A card issuer may reject your application if they think you’ve applied for too many other cards recently, even if you didn’t take up those offers.

The following changes and applications typically involve a credit check:

  • Switching your mobile phone service
  • Switching utilities or internet service
  • Switching your financial institution or mortgage lender
  • Applying for buy now, pay later finance
  • Applying for a credit card
  • Applying for a personal loan
  • Applying for a mortgage
  • Applying for a balance transfer on credit card
  • Applying for a car loan

What you can do instead

It’s always smart to make new applications sparingly. When you’re considering opening new accounts or changing providers, do all of your research first and find your chosen provider before applying to them alone. Definitely avoid making any new applications if you’re getting your finances in order for a major application, such as a home loan or a business loan.

The good news is, so long as you’re responsible with your loan repayments (i.e meeting your regular monthly repayments every month) these positive actions may positively influence your credit score over time.

Knowing and understanding your credit score is an important part of staying on top of your finances. Your credit score is what some lenders may look at when deciding if you’re a good loan risk. Take advantage of free offers to monitor your credit score .

The upsides and downsides of home loan debt consolidation

All your debts in one basket – Why home loan debt consolidation could be the right move.

A lot of small debts can balloon into one big headache. A simple way to get things under control could be to refinance your home loan to consolidate debt. So – is it right for you?

What it is

Simply put, debt consolidation is combining all your debts – credit cards, car loans etc. – into one single debt with a single monthly payment. When they are individual loans each of them has their own specific interest rates, conditions and balances – so rolling them all into one loan is both efficient and easy to manage. 

But before you head down the debt consolidation route, here are some of the upsides and downsides to help you make a well-informed decision.

The upside

  • Instead of several times a month, pay once. Managing your debt becomes a lot easier when you pay down all your credit cards – as well as any interest you owe – with one repayment every week, fortnight or month over a fixed amount of time
  • One fixed rate and term. This gives you certainty over payment amounts and keeps you disciplined in paying down debt
  • Less to pay each month. You may end up paying slightly more overall but stretching the term on your loans means that you could well be spending less each month.

The downside

There are always pros and cons to any loan decision. Here are some of the cons of using a home loan for debt consolidation:

•    You could accumulate more debt. When you consolidate debt, you free up credit. This might make you think you can spend more and, as a result, you end up with even more debt than you had before

•    Pay more overall. A loan with a longer term can help you reduce your monthly repayments, but a longer term means more interest overall

•    Your credit score could take a hit. In the event you don’t keep up with the single monthly repayments on your loan, you could end up hurting your credit score or be in serious financial hardship.

If you’d like more information talk to us today about how we may be able to put you in touch with a lender that can help you consolidate your debts. 1300 252 088.

Disclaimer: Original content source: Pepper Money. It is designed to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy.

No Change! RBA keeps the rate the same

While economists have been divided on whether a cash rate cut was to be expected this
afternoon, the odds for an alteration ahead of today’s meeting were the highest they’ve been
since the rate last moved in August 2016. 


However, the Reserve Bank of Australia has announced that the rate will remain on hold at
1.5%.


Given the election set to take place at the end of this month, it is less surprising that the RBA
would hold off on instituting a change. Both the government and opposition are promising
tax cuts intended to boost household finances, encourage spending and stimulate the
economy at large.


According to CoreLogic head of research Tim Lawless, “The flat CPI reading for the March
quarter wasn’t enough to drag interest rates lower, although the likelihood of a cash rate cut
over coming months remains high.”


“While inflation remains below the RBA’s target range, labour markets generally remain
relatively strong, supported by New South Wales and Victoria, and the decline in housing
values has lost some speed over recent months,” he added.
RBA Governor Philip Lowe said the board would be “paying close attention” to the labour
market at its upcoming meetings, hinting any sustained up-tick in unemployment could lead
to a rate cut.


“The inflation data for the March quarter were noticeably lower than expected and suggest
subdued inflationary pressures across much of the economy,” he said.
The statement revealed the bank does not expect inflation to get back up between its target
band of between 2-3 per cent before 2020.


“The main domestic uncertainty continues to be the outlook for household consumption,
which is being affected by a protracted period of low-income growth and declining housing
prices,” Dr Lowe said.
He said the house price adjustment was continuing. Prices dropped by 10 per cent last year in
Sydney and Melbourne, according to CoreLogic, with analysts predicting a similar drop this
year.


“The demand for credit by investors in the housing market has slowed noticeably as the
dynamics of the housing market have changed,” he said.
Economists and the business community have been divided on the wisdom of cutting already
low rates in the lead-up to an election.
The RBA has intervened in a federal election campaign to change borrowing rates only twice
in Australian history. It ultimately decided to keep the status quo despite the Australian
Bureau of Statistics reporting lower than expected retail trade figures.

Home owners will now have to wait until June to see if they will get relief from rising cost-
of-living pressures, as the central bank gives itself time to assess the impact of the policies of
an incoming Labor or Coalition government.

Buying in Partnership

How would you like to double your deposit and double your income to buy your first property? Sounds pretty good doesn’t it? That’s the reason why many young homebuyers are now working together with a partner, friend or relative to break into the property market.

Although there are some excellent benefits to entering a property partnership, there are some pretty nasty horror stories out there too – so you need to make sure you protect yourself against the worst.

Make sure you have similar goals for your property purchase.

Do you both agree on how long you would like to keep the property for? Do you want to rent it out, or will you be living there together? Make sure everyone is on the same page before you enter into any contracts.

Buy with someone who is at a similar stage in life.

If you buy with a family member who has a baby on the way, you might be asking for trouble. Likewise, buying with a sibling who is too young to appreciate the importance of keeping up financial commitments could be just as much of a recipe for disaster.

Take a moment to check your financial compatibility.

You will be responsible for the loan if the other party becomes unable to pay, so take the time to have some open discussions about money, and make sure you are both equally committed to paying things on time and keeping track of the bills.

Decide if you want to be housemates.

If you plan to live together in the home, make sure you both agree about things that could cause arguments such as having pets in the house, allowing partners to sleep over, housework and other potentially touchy subjects.

Get Legal Advice.

Find out about your options legally if something was to go wrong, and decide whether you want to be Joint Tenants, or Tenants in Common. This might depend on whether you will pay an equal share of the deposit and loan repayments.

Create a formal agreement.

Get a formal agreement drawn up that covers as many issues as you can think of. Hopefully you won’t have any problems, but it might be helpful if you already agree on the solution ahead of time.

Property partnerships can turn into nasty legal battles when parties don’t agree on important issues, such as whether or not to sell the property. If you can thrash out some of these issues now you will save yourself a lot of worry in the future.

Keep records of spending.

Make sure you keep it even and try to keep records of who paid for what, just in case you have problems down the track.

Hopefully your property partnership will be a very positive experience, and if you follow these steps you should be well on your way to being a great team.

RBA holds cash rate at 1.5% yet again

The Reserve Bank has kept the official cash rate at a record low 1.5 per
cent for a 32nd straight month, as widely anticipated by economists.
The decision at Tuesday’s April board meeting means the cash rate has
not moved in 32 months.
The rate, which reflects what the central bank charges commercial banks
on overnight loans and influences all other interest rates, was last cut in
August 2016 and hasn’t been hiked since November 2010.

Some Common Home Buying Blunders

Your home is likely to be the biggest purchase you make, so it’s something you want to get right.

Mistakes can be stressful and costly. Here are the biggest ones buyers make and some tips to help you avoid them.

1) Letting your heart rule your head.

It’s often easy to be dispassionate about an investment property but when it comes to your own home, emotions can run high.

Buyers often make the mistake of falling for features in a home or loving a certain location, only to find, once they move in, they have compromised on what they really need.

Arm yourself with a list of non-negotiables – the features you simply must have now or soon down the track, such as extra bedrooms for a growing family, office space for a home business or proximity to public transport.

If a property doesn’t tick all of your must-haves, keep hunting.

You should also decide whether or not you want to renovate or have a lot of time for maintenance. Heritage properties can win over hearts but often require deep pockets and lots of upkeep. Similarly, a fixer-upper in your price range and preferred location may end up being a money pit you can’t really afford.

Look beyond fancy fit-outs and styling – the furnishings will go with the vendors.

Stick to the buying basics – location, price, layout and condition – to decide if the property is right for you.

2) Believing the selling agent is working for you.

Real estate agents are paid by the vendor with commission from the sale. The higher the sale price, the more they put in their pocket.

Don’t fall for sales spiels that tempt you to spend more than you can afford or settle for a property that doesn’t meet your needs.

Some buyers are levelling the playing field by hiring their own agents to find a property and negotiate the sale. Fees for buying agents vary, but generally they charge for their time, plus take a commission from the sale. If you have no time to house hunt, it may be worth the extra cost.

3) No homework.

There is no such thing as too much research when it comes to property. You should set aside several weeks to get around to as many properties as possible, narrowing your search to three target suburbs when you are ready to buy.

Check out recent sales of comparable properties in the area and build on this research as you go, keeping in mind property prices can move fast in a boom.

You should also find out if there are any amenities and infrastructure planned for the area, such as new roads, public transport, hospitals or schools, which can boost real estate prices.

Another key question is how long the property has been on the market.

If looking for an investment, research rents and what the area has to offer tenants, such as a lively restaurant or cafe scene and reliable public transport.

4) Starting the hunt without loan approval.

Knowing how much you can afford will take a lot of stress out of your search. A pre-approved loan sets a boundary so you can focus on properties in your price range and gives you peace of mind that you will be able to move fast when you find the right one.

Give us a call on 1300 252 088 to make sure you have this all in place.

5) Buying beyond your means.

It can be tempting to stretch your budget for what seems like the right property, especially if interest rates are as low as they are now.

But rates are cyclical and what goes down, eventually goes up. If you are extending to afford a property while interest rates are low, you are going to struggle to make your mortgage payments when they start to climb.

It’s wise to calculate your repayments should rates rise by two to three per cent and build that reserve into your budget. That way, you have some comfort when the cycle eventually turns.

6) Not getting the property inspected.

According to NSW building advisory service Archicentre, only one in 10 buyers gets a professional building and pest report on a property before they buy it. Most inspections cost a few hundred dollars, a small price to pay for peace of mind on a purchase as significant as a home.

A licensed inspector can check for pests, such as termites, and building flaws or issues, such as wood rot or rising damp, all of which have the potential to cause costly dramas if unchecked.

Always ensure the sale contract is subject to getting the all-clear on the building inspection. If something surfaces, you can either back out of the purchase or negotiate a lower price to compensate for the required repairs.

7) Not getting the sale contract checked.

The contract you sign when you hand over a deposit is legally binding, so have it scrutinised by a lawyer or conveyancer.

They will check it for any sale or zoning conditions that could disadvantage you, such as restrictions, or covenants that may be imposed.

A lawyer or conveyancer can also check property documentation, such as sewer diagrams, to make sure there are no issues with any renovation or extension plans.

Your legal expert can also help adjust the contract terms for your benefit, such as negotiating a longer settlement period if required.