Buy Now Pay Later – the hidden danger potentially stopping you from owning your own home

/in , /by

The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but leading mortgage brokers are warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.

This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.

Utilising this payment method may potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.

RBA keeps interest rates on hold at 1pc

/in , , /by

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash
rate at the historic low of 1 per cent.
Having cut rates at its June and July meetings, the market had largely anticipated the
decision.
However, it may just be a pause with expectations of a cut next month hovering around 50
per cent, and full 25 basis point move priced in by November.
RBA governor Philip Lowe again conceded he was disappointed with sluggish economic
growth and rising unemployment, which in turn was feeding into low income growth.
Dr Lowe said the unemployment rate is expected to decline over the next couple of years to
around 5 per cent, marginally down from its current rate of 5.2 per cent but well short the
RBA’s ambitious target of 4.5 per cent for full employment.
The RBA also has cut its GDP growth forecast to 2.5 per cent for this year, but still expects
the economy pick up a bit in 2020.
There was no direct reference to the recent deterioration of relations between the US and
China, apart from repeating the previous observation that the increased uncertainty generated
by the trade and technology disputes is affecting investment.

5 Myths (and 5 Truths) About Selling Your Home

/in , , /by

1. I need to redo my kitchen and bathroom before selling

Truth: While kitchens and bathrooms can increase the value of a home, you won’t get a large return on investment if you do a major renovation just before selling.

Minor renovations, on the other hand, may help you sell your home for a higher price. New countertops or new appliances may be just the kind of bait you need to reel in a buyer. Check out comparable listings in your neighbourhood and see what work you need to do to compete in the market.

2. My home’s exterior isn’t as important as the interior

Truth: Home buyers often make snap judgments based simply on a home’s exterior, so curb appeal is very important.

“A lot of buyers search online or drive by properties before they even enlist my services,” says Bic De Caro, a real estate agent at Westgate Realty Group in Falls Church, Virginia. “If the yard is cluttered or the driveway is all broken up, there’s a chance they won’t ever enter the house — they’ll just keep driving.”

The good news is that it doesn’t cost a bundle to improve your home’s exterior. Start by cutting the grass, trimming the hedges and clearing away any clutter. Then, for less than $50, you could put up new house numbers, paint the front door, plant some flowers or install a new, more stylish porch light.

3. If my house is clean, I don’t need to stage it

Truth: Tidy is a good first step, but professional home stagers have raised the bar. Tossing dirty laundry in the closet and sweeping the front steps just aren’t enough anymore.

Stagers make homes appeal to a broad range of tastes. They can skilfully identify ways to highlight your home’s best features and compensate for its shortcomings. For example, they might recommend removing blinds from a window with a great view or replacing a double bed with a twin to make a bedroom look bigger.

Of course, you don’t have to hire a professional stager. But if you don’t, be ready to use some of their tactics to get your home ready for sale — especially if staging is a trend where you live. An un-staged house will pale when compared to others on the market.

4. Granite and stainless-steel appliances are old news

Truth: The majority of home shoppers still want granite counters and stainless-steel appliances. Quartz, marble and concrete counters also have wide appeal.

“Most shoppers just want to steer away from anything that looks dated,” says Dru Bloomfield, a real estate agent with Platinum Living Realty in Scottsdale, Arizona. “When you a design a space, you need to decide if you’re doing it for yourself or for resale potential.”

She suggests that if you’re not planning to move anytime soon, decorate how you’d like. But if you’re planning to put your home on the market within the next couple of years, stick to elements with mass appeal.

“I recently sold a house where the kitchen had been remodelled 12 years ago, and everybody thought it had just been done because the owners had chosen timeless elements: dark maple cabinets, granite counters and stainless-steel appliances.”

5. Home shoppers can ignore paint colours they don’t like

Truth: Moving is a lot of work, and while many home buyers realize they could take on the task of painting walls, they simply don’t want to.

That’s why one of the most important things you can do to update your home is apply a fresh coat of neutral paint. Neutral colours also help a property stand out in online photographs, which is where most potential buyers will get their first impression of your property.

Hiring a professional to paint the interior of a 2,000-square-foot house will cost about $3,000 to $6,000, depending on labour costs in your region. You could buy the paint and do the job yourself for $300 to $500. Either way, if a fresh coat of paint helps your home stand out in a crowded market, it’s probably a worthwhile investment.

  • Mary Boone (Zillow)

RBA keeps interest rates on hold at 1%

/in , /by

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash rate at the historic low of 1 per cent.

Having cut rates at its June and July meetings, the market had largely anticipated the decision.

However, it may just be a pause with expectations of a cut next month hovering around 50 per cent, and full 25 basis point move priced in by November.

The Upside of Being Pre-Approved

/in , , /by

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. https://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

/in , /by

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

/in , , /by

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%

/in , , /by

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

/in , /by

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

/in , /by

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.