No change in Cash Rates

/in , /by

Following its monthly board meeting, the Reserve Bank of Australia (RBA) announced that it has held the official cash rate at 1.5 per cent. All 31 economists surveyed predicted the RBA’s verdict, citing uncertainty in domestic and foreign markets. Over 90 per cent of brokers surveyed also predicted a rate hold.
Prior to the RBA’s announcement, economist at Corinna Economic Advisory Saul Eslake noted that while economic growth is “above trend”, weaker than expected labour market and inflation indicators would dissuade the central bank from lifting the cash rate.
“[The] RBA has made it increasingly clear that it is in no hurry to start raising rates,” Mr Eslake said.
“Although economic growth is now running ‘above trend’, unemployment and underemployment are still higher than the RBA wants, and inflation is lower than the RBA wants, and it expects progress on both of these fronts to be only ‘gradual’.”
Mr Eslake also claimed that the RBA “seems unconcerned” by out-of-cycle rate increases from lenders, including three of the big four banks.
The US’ new wave of tariffs on Chinese imports, and the effect that rising funding costs may have on Australian mortgage rates, could also have an influence on the RBA’s economic forecasts.
“On an international level, [President Trump’s] trade tariffs on Chinese imports may create a drag on global growth, which may impact on the Australian economy and jobs,” the spokesperson said.
Further, despite also predicting a rate hold, senior economist at AMP Capital Shane Oliver warned: “While economic growth ran above trend over the year to the June quarter and growth should be supported by business investment, infrastructure spending and exports going forward, uncertainty remains around the outlook for consumer spending, house prices are likely to fall further and wages growth and inflation remain low.”
1300HomeLoan managing director John Kolenda also made reference to the continued uncertainty brought about by the financial services royal commission, stating that the RBA should “help navigate” the economy “through these uncertain times”.
He added: “The royal commission is still a factor and we have other elements such as the US-China trade war, downward pressure on the property market and the federal election looming which all influence consumer confidence in a negative way, troubling our economic conditions.
“Lenders have already raised their rates out-of-cycle. If the RBA followed suit that would only be detrimental to consumer confidence in a falling housing market.”

How to escape mortgage stress

/in , /by

Understanding your borrowing capacity

First of all, it’s important to understand how much you can realistically afford to borrow for a home loan. Consider Reviewing your income, expenses, other financial commitments, potential loan details and number of dependents to get an understanding of how much you can afford to borrow.

Remember, what you can save for a deposit will play a huge part in determining the amount you can borrow. For some full -documentation loans, the loan to-value ratio (LVR) is around 80%, which means you need to come up with the remaining 20% in the form of a down payment. Other home loan products allowing greater than 80% LVR tend to come with higher interest rates or fees. On top of this, it’s important to fully understand the costs involved in taking out a mortgage and owning a property. Some major expenses include stamp duty, mortgage insurance (which is generally payable if you need to borrow more than 80% of your property value), establishment fees, ongoing repayments, any loan fees and repairs/maintenance. You can use online calculators to get a feel for how much you can afford to borrow.

Knowing your potential borrowing capacity can help to ensure that you borrow within your means, which means you’ll be in a much better position to service your ongoing mortgage repayments and the other associated expenses.

Factor in 2-3% on top of your current repayments

Once you’ve taken out your home loan, it’s important to draw up a budget and consider a buffer of at least 2-

3% on top of your existing repayments to account for interest rate rises. While the cash rate is at a low of 1.5%, it’s expected to rise as early as next year so it’s important that variable rate mortgage holders incorporate a potential rate rise into their budgeting.

Anticipating interest rate rises and planning ahead may help you avoid mortgage stress as it could help with coping with higher interest rates and the more expensive repayments that come with this.

Re-think your existing debt

Your mortgage is arguably the biggest financial commitment you’ll make in your lifetime and it’s a debt you’ll be managing for up to 30 years. This could mean making some adjustments to your other personal finances to free up your cash flow and to reduce mortgage stress. For instance, if you have multiple credit cards, you may want to consider moving your plastic debt onto a single card via a credit card with a 0% interest balance transfer promotion. If you repay the debt during the interest-free promotional period, you’ll dramatically reduce your interest costs. However, just be mindful of the revert rate that will apply once the promotional period ends.

Consider refinancing your mortgage

If you don’t think you’re getting the best bang for your buck on your mortgage, then think about switching. Refinancing to a lender that offers an interest rate that’s even 0.25% lower than what you’re currently paying could mean thousands of dollars in savings over the life of your mortgage.

However, an interest rate is not everything in a home loan and it’s important to be mindful of the establishment costs and ongoing fees associated with a new home loan.

Ask your bank for assistance

If none of the above options is possible and you’re experiencing mortgage stress, ask your bank for support. You can apply for Hardship Assistance –which may involve a temporary change to your loan obligations to give you a chance to get back on your feet financially. Your bank will assess your circumstances and if it’s appropriate, may be able to help by, for example, providing a temporary reduction or deferral of your repayments.

In Summary

Repaying a mortgage is an enormous financial commitment that can cause some households a world of stress, so to ensure it doesn’t interfere with your livelihood, consider the above tactics to remain in control of your mortgage debt. A little financial discipline can go a long way to ensure that you’re in a sound position to manage your repayments and to eventually achieve full home ownership.

Bessie Hassan/Finder.com.au

 

Investing in Property with a Friend

/in , , /by

Have you ever heard the expression, ‘no friends in business’? It’s an oldie but a goodie.

This is the attitude you should bring when considering buying property with a friend.

Many good friendships have gone under the bus, and lots of people have taken a bullet to their credit rating by not giving this decision adequate thought.

So, what are the risks involved with co-ownership, especially when you purchase with a friend?

What if one wants to sell?

One of the biggest problems with co-ownership is when one owner decides they want to sell the property, but the other owners don’t agree.

This often ends up in court, and the process can be costly and upsetting for everyone. And needless to say – the friendship probably won’t survive.

Buying could be harder in the future.

It might seem like the dream scenario to invest now with your best friend.

But if you decide in a few years to purchase a home to live in, the lender will assess your financial commitments based on the whole loan for the first property, not just the portion that you agreed to cover.

This could make it very difficult for you to get another loan.

You could be left holding the baby.

If something happens and your friend is unable to make their repayments, you could be left in the difficult situation of repaying the entire loan by yourself.

Coupled with your other living expenses, you might not be in a position to cover the whole amount yourself.

But there are some ways that you can reduce the risk, if you are keen to purchase property with a friend.

  1. Put a legal will in place. It’s important to make arrangements for what will happen to your assets if you pass away or become incapacitated.
  2. Draw up a co-ownership agreement. If you can think about any issues that might possibly come up in the future, and have an agreement in place to solve them, you’re less likely to wind up in court trying to work things out.
  3. Choose the right structure – tenants in common, or joint tenants. Tenants in common can own a different portion of the property, and they need to specify in their will who will inherit their portion if they die. Joint tenants jointly and equally own the property, and if one person dies, their share automatically goes to the other(s) regardless of the instructions in their will.
  4. Choose the right person. It’s important to discuss your financial goals and values before you enter into this sort of arrangement. You need to feel comfortable knowing that your friend will be financially secure enough to keep up their end of the bargain – otherwise you might be left trying to cover the repayments alone.

It’s important to think about your own relationships as well, if your partner is keen for you to buy a house together next year, you might want to think about how this first investment might impact your borrowing power.

 

Interest rates still on hold at record low of 1.5% as economy looks set to slow

/in , /by

Increases over the last week by the likes of Westpac and Suncorp were a factor in the RBA’s decision to leave official rates on hold for yet another month at 1.5 per cent. It marks the longest ever run of interest rate stability in Australia, with the last movement (a cut) happening back in August 2016.

During its last meeting on 7 August, the RBA board had examined an economy in generally good health, with steady growth in retail sales and employment, housing prices continuing to come off the boil (except in the booming Hobart market) and overall growth expected to sit just above 3 per cent in 2018 and 2019.

Of concern, though, is the ongoing drought gripping NSW and much of Queensland, which is impacting agriculture production and exports.

Inflation — a key driver of interest rate movements remains relatively subdued at 2.1 per cent and is expected to remain subdued for some time to come.

“Strong competitive pressures and low growth in wage costs had been placing downward pressure on retail prices for some time,” the board noted in its minutes.

The decision to keep rates on hold for yet another month had been widely anticipated, particularly since lenders have started hiking rates of their own accord, effectively blocking the RBA from doing so even if it had wanted to.

On Wednesday (29 August), Westpac became the first of the majors to raise rates, increasing all of its standard variable rates by 14 basis points. Suncorp followed suit two days later with a 17 basis point increase on variable home loans, and a 10 basis point rise on small business loans.

“There are plenty of factors keeping interest rates on hold, but top of mind is the fact that mortgage rates are already edging higher as lenders look to balance their profit margins against higher funding costs and a smaller deposit base,” noted Tim Lawless, head of research at property data firm CoreLogic.

“With the first of the big four banks announcing an out-of-cycle rate hike, the prospects for a higher cash rate have likely been pushed back even further; we could even see debate for a lower cash rate becoming more prominent.”

Likewise, it was unanimously expected by all 30 panellists from the finder.com.au RBA survey that official rates would remain on hold.

“The belief that the cash rate won’t budge combined with increased funding pressure from overseas has spurred Westpac, Suncorp and other major banks to hike mortgage rates out of cycle,” the comparison site’s insights manager, Graham Cooke, said.

“We expect this trend to continue, with the remaining of the big four and other lenders likely to follow suit in the coming days.”

 

 

Selling your House

/in , /by

Because selling your home in record time takes some elbow grease.

How far should you go when presenting your home for sale? Do you really have to get rid of all your family photos? Who has the time to bake a fresh batch of cookies in time for every open house?

There are some things that make a huge difference to potential buyers, and some that will just give you a headache for no reason.

If you’re a bit unsure what you should do to make your property appealing to buyers, don’t worry – just follow these 5 simple steps.

Step 1: De-clutter

It’s time to cut down on some of those kids toys, and it might be a good idea to find a temporary home for your newspaper collection. Buyers are looking for space and comfort, and nothing says ‘this house is too small’ quite like an overflowing bookshelf.

Try packing away some of the items that you don’t use very often. If you don’t listen to your CD’s very often, load them onto your ipod and pack them into boxes. It’s amazing how much nicer a home can seem when it’s tidy and clutter-free.

Step 2: Fix any small issues

Do you need to replace any light bulbs? Are the doorhandles showing a lot of wear and tear? Perhaps your screen door is torn because the dog was trying to get outside. This is the time to fix all of those little things you never got around to. This will show potential buyers that you have maintained the home, and they won’t be worried about nasty surprises.

Step 3: Consider staging

Do you still have the couch that your Auntie passed down when you were leaving home? Whilst it shouldn’t matter what your furniture looks like – the truth is that it can make a difference. If your belongings are a little bit rough around the edges, consider hiring or borrowing some nicer items for a few weeks whilst your home is open for inspection.

Step 4: Clean, Clean, and clean some more

It’s not always easy to keep your home spotless – especially if you have small children. But nothing will scare away potential buyers faster than dirty underwear on the bedroom floor, or last night’s Bolognese splattered all around the kitchen.

If you don’t have the time to clean thoroughly before every open house, consider hiring a cleaner for this short period of time. By putting in the extra effort, you could be rewarded with a quick sale, or a better price.

Step 5: Neat and tidy

On the day of each open house, spend a few minutes making the beds (hotel-style if you can) and putting away any items that don’t need to be lying around. Run a cloth over the benches one last time, turn on the dishwasher, and consider taking your dirty washing with you if you don’t have time to get it washed and put away.

If you receive an offer on the house today, you’ll be glad you went the extra mile. If not, you can come home and relax knowing that the housework is already done!

Two Years with no Official Rate Change

/in , /by

The Reserve Bank of Australia has held the cash rate at its historic low of 1.5% for the 24th consecutive month. It is the longest period of interest rate stability on record.

The Bank’s central forecast for the Australian economy also remains unchanged with GDP growth expected to average a little over 3% in 2018 and 2019.

Read more

How do I decide between a fixed or variable interest loan?

/in , /by

Unsure about whether to lock down your interest rate for a period with a fixed rate home loan, or take your chances with a variable rate home loan?

It’s a decision everyone faces – from first-home buyers right through to investors – at various points in a loan’s life.

Read more

Should you Upgrade your home ?

/in , /by

So, you’re thinking about upgrading your home. Maybe your kids are getting older now and it’s time to find a place with a big backyard.

Most new home owners will make the decision to upgrade before long – but for many young families, a lack of planning can spell disaster when upsizing the family home. Before you start shopping around for a real estate agent, take a few minutes to ask yourself a few simple questions.

Why do you want to move?

Be clear about your reasons for upgrading. Buying an enormous home won’t necessarily mean greater capital growth in the future. Sometimes the greatest growth is in the lower end of the market. If you want to upgrade simply to grow your property portfolio, consider purchasing an investment property instead.

Where do you want to be?

If you’re upgrading to give everyone some space, consider the area that you want to live in. You might be able to afford a much bigger home by moving an extra 15 minutes from the city. It all depends what sort of lifestyle you want to maintain.

What are the real costs?

Investigate all of the costs associated with upsizing your home. That means, not just the additional mortgage payments, but increased utility bills, perhaps a longer commute to work, more furniture to fill the additional space etc. It’s important to know exactly how much the move will cost you – not just the initial purchase.

What about interest rates?

Could you afford to borrow an extra $150,000 if the interest rates were 2% higher? Make sure you take into account some interest rate rises when you work out what you can afford to borrow. Although a lender might offer you the funds, that doesn’t mean that they know everything about your lifestyle and budget.

Will I change my lender?

You might take the opportunity to shop around for a better deal on a loan before you purchase your new property. It’s important to keep in mind though, there could be charges associated with paying out your current mortgage, and there will probably be some establishment fees involved in taking out a new loan. These fees should be part of your decision-making process.

It’s also important to ask your mortgage broker about Lenders Mortgage Insurance. LMI is generally payable when you borrow more than 80% of the purchase price. Depending on your purchase amount, LMI could add up to several thousand.

Did you answer all of the above questions, and still want to upgrade your home? Great! There’s nothing wrong with wanting to move on to greener pastures. But to avoid putting yourself under financial strain, it’s always important to do your homework.

 

Cash Rates Remain unchanged for another month

/in /by

The RBA has made its decision on the cash rate, choosing to hold it at 1.5%.

It has now been at this rate for 22 meetings and experts are not forecasting a change any time soon.

Predictions coming in over the weekend and yesterday had forecast this decision, with AMP Capital’s chief economist, Dr Shane Oliver, saying there was “no strong case to move either way”.

Most people are not predicting a change to the rate until late-2019.

Explaining why this would be the case, Tim Lawless, CoreLogic head of research, said, “Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range.

“With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated.  It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019.”

Despite the decision to hold, lenders have been increasing their interest rates.

Lawless added, “Focus is now moving to mortgage rates, where we are increasingly seeing upwards pressure from overseas funding costs. Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products.

“Larger banks, who are more reliant on domestic deposits to fund their home loans, have less exposure to higher funding costs. However, it is likely margin pressures are becoming evident across the big end of town as well. 

“Despite these early signs of some upwards pressure on mortgage rates, average variable rates remain almost 120 basis points below their decade average of 6.4%. Borrowers, particularly owner occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term.”

CCR is Coming

/in /by

From 1st July 2018, comprehensive credit reporting (CCR) will become mandatory, meaning banks will be forced to share detailed positive and negative financial history with other lenders.

Currently, most lenders only share negative information such as credit applications, defaults, overdue payments, bankruptcy and judgments. Under the new regime, they will now also have to share positive information, such as when you made all your repayments on time.

With CCR a more complete picture of an individual’s credit profile can be held on their credit file.

While some may raise concerns over the increased amount of personal financial information being given to parties with whom they have not had past dealings, the benefits of positive reporting will mean that it won’t take as long to establish a positive credit rating, and it will make it easier for customers to show that they’ve recovered and stabilised their situation after a negative event.

The introduction of positive information means a history of making regular payments, repaying a loan early or closing unused accounts, can help a borrower demonstrate their creditworthiness and ultimately be rewarded with a better deal from lenders.

Along with bringing positive changes for both lenders and clients, Australia switching to CCR will bring our credit reporting system in line with other OECD countries, many of which already having some form of positive credit reporting.