The official cash rate remains at 1.5%. March 2018

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This marks the 19th consecutive month the RBA has kept the rate steady since it cut the official cash rate by 25 basis points in August 2016.

The move was highly expected by many brokers and economists. More economists and banks are changing their forecasts of interest rate hike this year – from two to one or none.

Last month, ANZ abandoned its previous forecast of two interest rate increases this year, and now expects no rate hike at all.

“We no longer expect a rate hike in 2018, following the greater than expected emphasis on the mid-point of the inflation target band and increased comfort on financial stability risks in the RBA Governor’s speech on Thursday evening,” said ANZ’s head of Australian Economics, David Plank.

RBA Governor Philip Lowe said in a speech on 8 February that interest rates would have to start moving up if the economy makes further progress in reducing unemployment and in having inflation return to the midpoint of the target range.

From its forecast of two rate hikes this year, NAB now expects only one in late 2018, citing weak growth in wages and the slow progress in bringing down unemployment. 

“It is not impossible that the RBA stays on hold for all of 2018 and raises rates in early 2019,” said NAB chief economist Alan Oster last week.

Meanwhile, ABC Bullion expects the next move in rates to be a reduction. Its chief economist Jordan Eliseo said that while employment data, business conditions, and growth figures are solid, there seems no obvious catalyst to turn around the record low wage growth. He also expects a slowing property market to weigh on confidence.

 

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

What happens when your fixed rate expires

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Do you know when your fixed rate term is coming to an end? Once it finishes, the bank is free to quietly switch you to a higher interest rate – unless you act fast! Think of how costly it could be if you simply let the bank choose your interest rate. If your bank charges you just 0.5% more than the competitive interest rates, this adds up to a significant amount over the term of your loan. You can save yourself a great deal of money and perhaps even cut years of your loan, if you are proactive about monitoring your interest rates and choosing the right option for you.

Switching to a variable rate

A variable rate can be a great option if you want to take advantage of low interest rates, or if you want the flexibility to redraw or make extra payments. When your fixed rate term expires, the bank will automatically switch your loan to the Bank Standard Variable Rate (BSVR). Do some research to find out whether this is a competitive rate; if not, you can talk to your bank and try negotiating a better deal. And if they do not offer you a competitive rate, you can switch lenders.

Lenders generally prefer to negotiate rather than lose a customer, while they don’t generally make their best offers to customers with a proven history of loyalty. So when it comes to your interest rate, stay alert and ask questions – keep your lender busy, trying to keep you happy!

Extend your fixed rate

One option is to ask the bank to re-fix your home loan, extending it for another one, three, five to ten years. The fixed rate is a good option for you, if you are planning to pay off your loan steadily over a long period of time, and you want each mortgage payment to be a regular amount, so you can budget your money precisely. Fixed rate protects you from rate rises and you could be paying less than the variable rate. However, there is also the risk that you could end up paying higher than the market rate if you are locked into an outdated fixed interest term. There may also be a break fee if you change or pay off your loan within the fixed period; this means the fixed rate is not a good option for anyone planning to sell their home.

Call us if you need assistance pinpointing the best and most competitive option for you.

 

Mistakes that could spell bad news for landlords

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No one likes to spend any more than they have to, but you always get exactly what you pay for. An insurance comparison expert has said that investors looking to cut corners financially could set themselves up for financial ruin in the future.

Abigail Koch, spokesperson at Compare The Market, said that investors need to keep in mind that, while a property is seen as an asset for them, for tenants, it is a home.

“Investors need to provide a rental home that is comfortable, safe and secure — and also complies with state leasing legislation — but at the same time they need to secure a good tenant who pays their rent and looks after the property,” Ms Koch said.

“When property becomes a business, the temptation is to cut corners in order to save on costs, but this could lead to financial losses in years to come.”

Ms Koch outlines her top seven mistakes by landlords that could lead to financial ruin:

  1. DIY property management

While agent fees are a cost that needs to be paid, Ms Koch believes that the cost is outweighed by bringing on board the level of expertise.

She suggests landlords can handle advertising, the lodgment of lease agreements and bond forms, the screening of tenants, inspection of the property, follow-ups on unpaid rents and organising of repairs through tradespeople.

“Landlords that manage their own properties without expertise and experience in these areas could risk paying more in the end, if they fail to do their due diligence and don’t comply with legislation,” Ms Koch said.

  1. Not screening tenants properly

Agents who do not thoroughly screen tenants could end up with a bad tenant, costing the landlord their time and money.

“Landlords should know if their property managers are checking that applicants can afford the rent, have a good credit record — including a history of on-time rental payments — are making reference checks and vetting applicants through a tenant database,” Ms Koch said.

  1. Not responding to tenant repair requests

Good tenants could break out of a lease early if their landlord ignores or refuses requests for urgent repairs, such as burst pipes, gas leak, or electrical faults, which can result in both a now-vacant rental property as well as the landlord being further out of pocket.

Ms Koch warned: “Landlords may also be required to pay compensation for any losses tenants have suffered as a result of the breach, such as a leaking pipe causing water damage to the tenant’s possessions.”

  1. Having an unsafe property

Landlords can face fines for failing to comply with state safety requirements, as they are responsible for providing a safe environment for tenants.

“Landlords should seek legal advice to make sure they meet all requirements under the law, including the installation of smoke alarms, having secure fencing around pools and spas, and adequate locks on windows and balconies,” Ms Koch said.

  1. Discriminating against potential tenants

Discriminating against someone is never the right thing to do, and landlords are no exemption. Landlords who are found guilty of rejecting potential tenants on the basis of ethnicity or age, while approving of another tenant, could be hit with hefty fines.

Ms Koch recommended assessing applicants based on credit history, how steady their income is, as well as their previous rental history, and warns not to judge an applicant based on criteria not related to the property at hand, such as “their age, gender, race, religion, marital status [or] disability”.

  1. Operating without insurance

“For houses, building insurance may cover the cost to repair your property if it is damaged by a storm, but if the damage makes your home uninhabitable, only landlord insurance would cover the loss of rent,” Ms Koch said.

“For apartments, landlords should check what is covered under their building insurance, as this may exclude liability within an apartment.

“Landlord insurance policies also cover additional risks, such as when the bond is inadequate to cover the costs of damage to a property by a tenant.”

Ms Koch recommended comparing insurance policies on insurance comparison websites in order to locate the most appropriate policy for a property.

  1. Asking for a comparably high rental rate

Landlords want to make as much money as they can, but Ms Koch warned that pricing rent significantly higher than comparable properties could result in fewer or shorter-term tenants, who may be less likely to take care of the property than long-term tenants, and cause higher repair costs.

This would also mean that landlords would be losing money during the tenant-less periods and paying for more advertising.

“As a rule of thumb, landlords should avoid increasing the rent more than once a year or by more than 5 per cent per annum, or they may risk losing their tenant,” Ms Koch said.

“Landlords should consult agents to determine the right market price based on similar properties in the area and also keep up to date with changes in the property market.”

– realestatebusiness.com.au , Sasha Karen

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

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

 

What are the costs of buying a home?

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Unfortunately, there are a number of fees and costs associated with buying a home. Here is a list of the more usual ones. Not all of them will apply to all situations.

Stamp duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state governments and also depend on the value of the property you buy. In NSW, stamp duty has been abolished for first home owners buying properties up to $650,000 and concessional rates applied to homes up to $800,000.

Legal and conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal requirements around your property purchase, including title searches.

Building inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property.

Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property.

Lender costs — Some lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees.

Moving costs — Don’t forget to factor in the cost of a removalist if you plan on using one.

Connection costs – though not huge, the various utility connection fees can give your cashflow a temporary hit.

 

What to consider before renovating

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The decision to renovate is a common sticking point for homeowners, who can spend hours weighing up the cost benefits.

Whether your motivation is to add value to your property or to add a touch of your personality to the home, renovations are expensive and debt often follows.

By working with a mortgage broker, you will be able to find solutions that benefit your long-term goal, rather than hindering plans.

While a broker can’t assist you with forecasts on future property values, he or she can help you reassess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt.

Laying the foundations

With a broker to assist, the next step is to investigate how much you need to borrow. Work out the specifics of your renovation, what the average cost to renovate is in your area and how much you are eligible to borrow. You should aim to spend no more than five per cent of your property’s value on renovation.

If renovations are likely to take over your living quarters you may need to also consider the additional cost of accommodation for the renovation period.

Get bang for your buck

Once you decide to renovate, if you are trying to add value to a house to resell, it is important to look at the rooms and areas that will add the most value. These are average renovation prices; however prices will fluctuate based on the city and suburb.

  • Kitchen

If you are a fan of the show The Block, you will know kitchens sell houses. According to realestate.com.au, the average renovation cost you should be spending on a kitchen is between $12,000 and $16,000.

  • Bathroom

The average bathroom space in Australia is six square metres. Look to spend around $9,000 – $12,000 as the bathroom is a highly trafficked space and needs to appeal to a wide variety of investors.

  • Other areas

An extra bedroom or a deck outside both add appeal and improve the standard of living for the homeowners.

Finishing touches

The final hurdle to look at is the council fee. The council can charge you up to $2,000 for an application fee, although prices can vary. After speaking to a broker and finalising the renovation, make sure you allow an extra 10 per cent in your funds, to cover any unexpected costs.

Deciding on the type of loan

If after the assessment and investigation you decide to renovate, there are three types of loans to consider when funding the cost. and renovate your house: a line of credit loan, a construction loan or increasing your existing home loan.