Want to help your kids buy property

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The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand. We tell you how.

  1. Parent-to-child loan

A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding arrangement, administered by an independent third party. At the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.

  • Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower.
  • Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down, in that the spouse could try to claim some of the loan proceeds as an asset of the relationship to which they are entitled. There are also tax considerations for both parties.
  1. Family guarantee

If your child doesn’t have enough security for a mortgage, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%. It’s also known as a guarantor loan.

This can be a temporary arrangement until your child has paid down the loan to an acceptable level.

  • Benefits: You have the option of guaranteeing only a portion of the loan.
  • Drawbacks: If your child defaults, your assets are at risk.
  1. Becoming a co-applicant

You can help your child secure a loan if you sign on as a co-applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets in its borrower’s assessment.

  • Benefits: Your child can obtain a loan with a low income.
  • Drawbacks: If your child stops making repayments, you’re responsible for making them. If you can’t make the repayments, it will affect your credit rating.
  1. Gift

When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.

  • Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.
  • Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.
  1. Assistance in kind

If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees, or help with stamp duty.

  • Benefits: You can give practical financial assistance.
  • Drawbacks: The amount of money you provide may be more than what your child ends up spending. For example, you might want to contribute $20,000 but the services cost $15,000. In this case, the rest of the amount is subject to the terms of a gift or loan.

Make sure you’re well informed about your options when giving or lending money so you can remain in the best position to help your child become a home owner. You can contact your mortgage broker to discuss the right financial arrangement for your family.

 

– Loan Hub

The Reserve Bank of Australia has held the cash rate at 1.50% on their last meeting of the year

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The Reserve Bank of Australia has held the cash rate at 1.50% at their December meeting. This is the 15th consecutive month the RBA has held the cash rate, after cutting to the historic low of 1.50% in August 2016.

Once again, the RBA’s result was correctly predicted by the experts polled.

There are plenty of reasons for the RBA to leave the cash rate where it is. Overall house prices were flat in November and Sydney has seen a drop in prices over the last few months. Rates can’t really get much lower than where they are and tightening restrictions on interest only and investment lending currently make it harder to get those types of loans. This effect is similar to a rate rise in some respects.

And with mortgage debt a major cause of stress in Australian households, a rise in the cash rate could have troubling effects on Australian borrowers.

The Reserve Bank doesn’t meet in January, so the bank will make its next cash rate decision on 6 February 2018.

Family Planning: Applying for a home loan with a baby on the way

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A new baby completely changes your life. Are you also prepared for how a new baby might affect your chances of buying a home? Here are some things to consider before you submit your application.

When a lender assesses your home loan application, they look at your income, assets, debts and expenses before deciding whether they think you can make the repayments. Those figures are likely to change when you have your first child. That means your eligibility for a home loan could also change.

Changes to your income

A lender needs to know that your income will cover your mortgage repayments, even while someone’s taking time off work to be a new mum or dad.

If you’re the primary carer and you plan to leave employment temporarily or indefinitely, the loss of your income will affect your household income. When you’re applying for a loan and planning to take an employment break, you may need a letter from your employer confirming your return-to-work income.

Both parents may be eligible for parental leave. In many cases the parental leave pay will be lower than your regular income. To get an idea of what your new income will be, figure out how much parental leave you plan to take. Also speak to your employer to find out whether they offer any additional entitlements. A financial planner will be able to discuss your personal situation, including any tax benefits you might qualify for.

Cost of raising a child

When you calculate your expenses, you’ll need to factor in the cost of raising your child. As a guide, a University of Canberra study estimated that low income families spend on average 7.4% of their earnings to raise a child aged 0–4, whereas high income families on average spend 4.6%.

Whatever your income, when you have a child your ongoing expenses will go up. This means you’ll have less money to make home loan repayments, so the amount you’ll be able to borrow may be less.

Cost of the loan

Before deciding on a home loan product, research the likely cost of the loan and the size of the repayments.

The following items will affect your repayments:

  • The amount you borrow.
  • The length of the loan; the average home loan is 25–30 years.
  • The interest rate.
  • Whether the interest rate is fixed, variable or combined.

Your financial commitments

A mortgage is a financial commitment – and so is a baby. When you’re preparing to take on both at the same time, it’s a good idea to look at the whole picture.

First, assess your current financial situation by pulling together information about your income and expenses, including any existing loans. What repayments can you afford?

Then, using this information, adjust the amounts to reflect your income and expenses after having your child. What does that do to your home loan repayments?

Although raising a child will be an added expense, you may find that you can reduce your discretionary costs – such as dinners and holidays.  Depending on how much you can reduce, this may even give you about the same financial capacity. Or perhaps you can still afford to service a mortgage but may not be able to borrow as much as you first thought.

You’ll need to decide whether a mortgage is a worthwhile debt, given that your household income and expenses will change when your baby comes along.

Do you want to start a family now, or do you want to build a nest? An informed decision might make both possible if you understand the financial changes a child will bring.

– Your Loan Hub

Cash Rate Unchanged

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Following its monthly board meeting, the Reserve Bank of Australia has today announced the official cash rate for November. 

The RBA has again chosen to keep the cash rate at 1.5 per cent, a move predicted by most industry experts.

None of the surveyed experts predicted a rate change, despite some economic indicators showing signs of a slowdown.

Chief economist at ABC Bullion Jordan Eliseo correctly predicted that these slowdowns would not be enough to influence the RBA to impose a rate cut.

Mr Eliseo said: “Despite concerns about a slowdown in retail sales growth over the last few months, the RBA still appears confident in the outlook for the Australian economy, though [its] rhetoric around tightening policy has changed appropriately.”

Tips for Achieving Financial Security

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When it’s time for you to retire, will you be able to afford it? Almost all of the research conducted on the subject, over the last few years, shows that most individuals are unable to demonstrate financial readiness for their retirement years. This only serves to underline the fact that saving for retirement is a challenging process that requires careful planning and follow-through. Here we review some helpful tips that should help you on your way to a comfortable retirement.

  1. Start as Soon as You Can

It is obvious that it is better to start saving at an early age, but it is never too late to start – even if you are already close to your retirement years – because every penny saved helps to cover your expenses.

If you save $200 every month for 40 years at a 5% interest rate, you will have saved significantly more than an individual who saves at the same rate for 10 years. However, the amount saved over the shorter period can go a long way in helping to cover expenses during retirement. Also, keep in mind that other areas of financial planning, such as asset allocation, will become increasingly important as you get closer to retirement. This is because your risk tolerance generally decreases as the number of years in which you can recuperate any losses goes down.

  1. Treat Your Savings as an Expense

Saving on a regular basis can be a challenge, especially when you consider the many regular expenses we all face, not to mention the enticing consumer goods that tempt us to spend our disposable cash. You can guard amounts you want to add to your nest egg from this temptation by treating your retirement savings as a recurring expense, similar to paying rent, mortgage or a car loan. This is even easier if the amount is debited from your pay check by your employer. (Note: If the amount is deducted from your pay check on a pre-tax basis, it helps to reduce the amount of income taxes owed on your salary.)

Alternatively (or in addition), you may have your salary direct-deposited to a checking or savings account, and have the designated savings amount scheduled for automatic debit to be credited to a retirement savings account on the same day the salary is credited.

  1. Save as Much as You Can in a Tax-Deferred Account

Contributing amounts earmarked for your retirement to superannuation or a tax-deferred retirement account deters you from spending those amounts on impulse, because you are likely to face tax consequences and penalties.

  1. Diversify Your Portfolio

The old adage that tells us that we shouldn’t put all of our eggs in one basket holds true for retirement assets. Putting all your savings into one form of investment increases the risk of losing all your investments, and it may limit your return. As such, asset allocation is a key part of managing your retirement assets. Proper asset allocation considers factors such as the following:

  • Your age – This is usually reflected in the aggressiveness of your portfolio, which will likely take more risks when you’re younger, and less the closer you get to retirement age.
  • Your risk tolerance – This helps to ensure that, should any losses occur, they occur at a time when the losses can still be recuperated.
  • Whether you need to have your assets grow or produce income.
  1. Consider all of Your Potential Expenses in Your Financial Plan

When planning for retirement, some of us make the mistake of not considering expenses for medical and dental costs, long-term care and income taxes. When deciding how much you need to save for retirement, make a list of all the expenses you may incur during your retirement years. This will help you to make realistic projections and plan accordingly.

  1. Budget

Saving a lot of money is great, but the benefits are eroded or even nullified if it means you have to use high-interest loans to pay your living expenses. Therefore, preparing and working within a budget is essential. Your retirement savings should be counted among your budgeted recurring expenses in order to ensure that your disposable income is calculated accurately.

  1. Periodically Reassess Your Portfolio

As you get closer to retirement and your financial needs, expenses and risk tolerance change, strategic asset allocation must be performed on your portfolio to allow for any necessary adjustments. This will help you ensure that your retirement planning is on target.

  1. Reassess Your Expenses and Make Changes Where Possible

If your lifestyle, income and/or fiscal responsibilities have changed, it may be a good idea to reassess your financial profile and make adjustments where possible, so as to change the amounts you add to your retirement nest egg. For instance, you may have finished paying off your mortgage or the loan for your car, or the number of individuals for which you are financially responsible may have changed. A reassessment of your income, expenses and financial obligations will help to determine if you need to increase or decrease the amount you save on a regular basis.

  1. Consider Your Spouse

If you are married, consider whether your spouse is also saving and whether certain expenses can be shared during your retirement years. If your spouse hasn’t been saving, you need to determine whether your retirement savings can cover not only your expenses, but those of your spouse as well.

  1. Work with an Experienced Financial Planner

Unless you are experienced in the field of financial planning and portfolio management, engaging the services of an experienced and qualified financial planner will be necessary. Choosing the one who is right for you will be one of the most important decisions you make.

 What we’ve discussed here are just a few of the factors that may affect the success of your retirement plan and determine whether you enjoy a financially secure retirement. This advice is of a general nature and should be discussed with a qualified financial planner.

Your financial planner will help you to determine whether you should consider other factors.
By Denise Appleby – Investopedia

How to speed up your home loan approval

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Asking how long it takes to get a loan approved is like asking how long a piece of string is. Every application is unique, so the time between your first contact with your bank or broker and approval can never be predetermined. There are, however, some things you can do to help hurry your application along.

Although very rare, same-day loan approvals are possible depending on the lender’s criteria, the complexity of the deal and turnaround time.

If you’re not prepared, it could take up to a month. The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball.

Whilst a finance broker will help you take all the necessary steps to ensure a fast home loan approval, there are simple ways you can help hurry the process along before your first meeting with your broker.

Disclose all information

To avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers. Provide all the supporting and necessary documents upfront to your broker, and convey as much detail as possible in relation to your requirements and objectives and have good, current information on your financial position. The broker will need to not only have your full financial details but will also need to take reasonable steps to verify it.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution, and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, as long as it’s accepted by your chosen lender – but check with your broker first.

To ensure your application avoids any unnecessary delays, give us a call to discuss your requirements and objectives.

Reserve Bank keeps interest rates on hold at record-low 1.5pc

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The Reserve Bank of Australia has left official interest rates on hold as expected after its monthly board meeting. RBA Governor Philip Lowe said the central bank decided to leave the cash rate unchanged at a record low 1.5 per cent.

The decision to leave rates unchanged for a 13th consecutive meeting was widely expected by financial markets. A Bloomberg survey showed all of the economists polled expected rates to remain on hold for the rest of the year.

However, market pricing has a hike of 25 basis points priced in as a near certainty within the next 12 months.

Recent economic data in Australia has been mixed, with strong employment data offsetting disappointing retail sales and lacklustre economic growth.

Strong growth in full-time employment this year and upbeat comments from Governor Lowe have economists tipping a greater chance of hikes than cuts.

In recent weeks, ANZ and NAB have predicted two rate hikes next year, while JPMorgan abandoned its earlier predictions of two more cuts.

The RBA has continued to hold rates steady despite interest rate hikes from the US Federal Reserve and the Bank of Canada this year.

It also comes after the Australian dollar hit a two-year high of US81.25 cents last month.

– October 2017

 

Joint bank accounts – Should you open one?

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When a couple gets married or has been in a relationship for several years, it is common to operate out of a joint bank account. So, is this beneficial? Is this the right way to go about things? Is it offensive to tell your partner that you would prefer to keep your accounts separate?

A significant portion of relationship breakdowns can be directly related to disagreements about money and spending habits. In fact, day-to-day arguments about finances between couples are more common than it needs to be.

Is A Joint Bank Account a Good Idea?

This purely depends on your situation. If you have a boyfriend or girlfriend, having a joint bank account is not always a good idea; particularly if you don’t have too many shared expenses. However, if you live together and/or have children together, then a joint bank account may be a good idea.

If you are married, there is a high likelihood that you will share many expenses. Generally, a high level of shared expenses will often give more cause to having a joint account – purely from a simplified financial perspective. Also, once you are married, all assets, regardless of who ‘owns’ them or whose name they are in, are generally considered ‘marital assets’ and by law will be effectively owned by both of you anyway.

In saying this, the most important thing to consider when determining if it’s better to have a joint bank account is that you and your partner are on the same page financially.

  • Do you share similar spending habits on a daily basis?
  • Do you have the same respect for money as each other?
  • Have you spoken about the things that you would like to save towards?
  • Is it possible one of you will spend more than the other and create tension in the relationship?

Is a Developer’s Incentive a Good Deal

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Developers generally offer incentives because they need to get pre-sales in what could be a slow or oversupplied market, which in turn enables them to get a project up and running. Offering incentives is a marketing tactic.

The problem for buyers is that they could end up overpaying for a property and then having issues with obtaining finance because the valuation does not match the contract price.

The incentive is usually offered in lieu of reducing the purchase price. So, if the developer offers to pay stamp duty or give a $30,000 car, buyers might feel like they’re essentially paying $30,000 less for the property, but they’re paying the price on the contract which could be too much as the incentive is built into the price.

If you buy a property for $500,000 with a $30,000 incentive, you might think you’re paying $470,000, which is probably its true market value, but you’ve still contracted to buy the property for $500,000.

When the valuers acting for the lenders assess whether they will give you finance, they don’t take the incentive off the price – they look at the contracted price and the valuation must come up to par for a buyer to get finance. The problem is that since the property is probably worth less the valuation, it may not be high enough for the bank to lend to you.

Put simply, valuations can fail to stack up because the property is only worth the price minus the incentive, but you’ve contracted to pay the full price.

It should also be remembered that the incentive received is not transferable, so that if the buyer looks to on-sell in the short term, he risks suffering a capital loss until(if) the value increases above the contracted price.

RBA leaves rates on hold at 1.5 per cent

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The Reserve Bank board has kept its cash rate on hold at a record low of 1.5 per cent for the 13th consecutive month, amid a host of signs that the economy is picking up.

Treasurer Scott Morrison told the Coalition party room as the board was meeting that job advertisements were growing strongly, climbing 13 per cent in the past year.

Jobs growth was the strongest it had been since 1978, employers’ wages bills had climbed 1.2 per cent in the June quarter and non-mining investment had climbed 2.6 per cent.

The Australian Bureau of Statistics will provide a full accounting of the June quarter on Wednesday with the release of the national accounts at 11.30am. Market economists are expecting growth of 0.7 to 0.9 per cent, a jump from 0.3 per cent in the March quarter.

Although a further cut in the cash rate looks unlikely for the present, an easing in the CoreLogic measure of house price growth to near zero in Sydney and Melbourne in August appears to remove one of the arguments for an increase.