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Investing in a holiday home

Credit reporting regulations

To fix or not to fix?

Buying off the plan

Buying a home with family or friends

 

Welcome to our newsletter

At its monthly board meeting, the Reserve Bank of Australia (RBA) decided that the official cash rate will remain on hold at 2.50 per cent for the month of October. This decision was widely predicted, with the RBA’s monetary policy appearing to be having a positive effect, as consumer and business confidence shows an improvement and the real estate market continuing to recover.

‘Overall, global financial conditions remain very accommodative’ RBA governor Glenn Stevens said. ‘Changes in the outlook for US monetary policy have increased volatility in the financial markets, but long-term interest rates remain very low and there is ample funding available for creditworthy borrowers’ he said. While the news is positive overall, according to Mr Stevens, the Australian economy has been growing a bit below trend over the past year in line with the economy adjusting to lower levels of mining investment and unemployment rates edging higher. This could be good news for property buyers as further cuts to the official cash rate at future RBA meetings cannot be ruled out as a result.

‘There has been an improvement in indicators of household and business sentiment recently’ Mr Stevens said ‘though it is too soon to judge how persistent this will be. Inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the lower exchange rate.’

The Australian dollar rose recently, but is still 10 per cent below its level in April. Mr Stevens said ‘a lower level of the currency than seen at present would assist in rebalancing growth in the economy’ and this may also have an effect on the RBA’s decision to cut rates further in future.

‘The easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values.’ He said. ‘The full effects of these decisions are still coming through and will be for a while yet. The pace of borrowing has remained relatively subdued to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in saver’s behaviour in response to declining returns on low-risk assets.’

Based on Australian Bureau of Statistics housing finance commitments data, the number of mortgage commitments for new housing rose by more than 50 per cent over the 12 months to July this year and with the RBA encouraging record low interest rates, the outlook remains positive for property buyers and investors.

Sydney and Melbourne property markets appear to be driving a national recovery. Sydney housing auction clearance rates have been at or above 80 per cent for most of the year and Melbourne’s have hovered around 70 per cent and are rising. Sydney property prices have climbed 8.2 per cent in the past 12 months and those in Melbourne 5.3 per cent, with the average capital city home price rising 1.6 per cent to $500,000 in September alone.

Despite increased activity in the construction sector, housing stock levels remain low which together with historically low interest rates, is a major factor in increasing home prices. Research released during the week shows the total number of properties on the market is down 28.9 per cent in Sydney and by 13.8 per cent in Melbourne from the same time last year.

The rapid increase in home prices has given rise to speculation regarding a property price ‘bubble’. However, most analysts agree that this is unlikely given that housing supplies are also on the rise and this should help to keep housing price rises in check.

For more information about how the current low interest rates may affect your financial position and property investment decisions, contact us today.

Sincerely,
Dimuth Samarasinghe (Sam)


Australia’s new comprehensive credit reporting regulations

How will they affect you? In March 2014, Australia will be subjected to new rules and regulations with regard to our credit reporting system. These rules and regulations will affect how banks and lending organisations go about approving loans and credit facilities for every day consumers like you and me.

The new regulations are designed to give lenders access to more information about your credit history so they can more accurately assess your credit worthiness and reduce the risk of you defaulting on a loan or credit card.

What’s new?

As of March next year, lenders will be able to review your repayment history as far back as December 2012. They will be able to make a more detailed assessment of your financial situation and use the information to calculate their risk.

In the past, lenders were only able to access a limited amount of information such as major credit infringements and view any credit application enquiries. They were not able to find out whether your credit application was approved or declined, or find out if you made your repayments on time.

In the future, as well as serious credit infringements, lenders will be able to see the last 24 months of your credit repayment history on all open credit accounts in your name. That means they will be able to see your payment history on your rent, telecommunications accounts including your mobile phone, your energy and water bills, credit card payments, personal loan and mortgage repayments and so on.

The information they can access about you will include the amount of credit accounts you have open, the date the accounts were opened/closed and your repayment performance on each account. They will be able to use this evidence to decide whether or not you have too much debt and can afford to take on more.

Why the changes?

These changes are being made so that lenders can get a better idea of your financial situation and therefore make a more informed decision about your capacity to repay your loan. The changes are designed to reduce the number of people defaulting on loans and therefore lower the costs of credit for everyone. In terms of benefits to the consumer, this should help to reduce interest rates on lending facilities like credit cards in the long term.

What does it mean for you?

If you are not very conscientious about keeping up to date with your bills, you may give a lender the impression you are a bad credit risk when you are not. A payment that is as little as five days late could show up on your credit history report as a credit infringement.

So it is now more important than ever to keep your finances in order. If you pay your bills on time, this reform will be of benefit to you because lenders and credit providers will be able to see you as a model borrower, helping your chances of obtaining a loan or credit facilities.

Protect your credit rating.

In light of the new comprehensive credit reporting rules, a few simple precautions will help to ensure you maintain a good credit rating. First of all, always pay your bills on time. Organising to pay your bills using your bank’s automatic payment system is a very good idea. You can also get applications for your mobile phone that remind you to pay your bills on time.

Be aware, educated and informed when helping others to obtain credit in case they default. If you are a renter, make sure you pay all of your utility bills when you change residence and if you are living in share accommodation, ensure your name is removed from any bill commitments when you leave.

Last but not least, regularly check your credit report. We can help you with this, and doing so will help you keep track of the information lenders can access about you. You can also take action if any mistakes are recorded by accident.

If you would like more information in relation to how these changes may impact you, please call the office.


To fix or not to fix? Fixed interest rates explained

Home loan interest rates are currently at their most competitive levels for some time. We are seeing loads of options for home buyers, in particular some great fixed rates. So should you lock in to a fixed interest rate mortgage or are you better off with a variable rate loan? What are the pros and cons of getting a fixed interest rate loan now?

The benefits.

The major benefit of a fixed interest rate mortgage is stability. You can usually lock in your interest rates for a period of one, two or five years and be protected from interest rate rises during your fixed interest rate period. It means you know exactly how much your monthly mortgage repayments will be and this makes money management easier.

Fixed interest rate mortgages are popular with first home-buyers and first time property investors for this reason. Fixed rates are a great idea when the market is volatile and interest rates are on the rise, because you always know how much you will have to pay and may make great savings if interest rates go up whilst you are in the fixed interest period of your loan.

So if you fix your loan interest rate whilst rates are at the bottom of the market, you can reap the benefits of a secure, low rate while the rest of the market bears the risk of higher interest rates being introduced. The trick is to fix your interest rate whilst they are at their lowest point.

At the moment, fixed rate loans are being offered at up to a quarter per cent lower than variable rate loans and it may make them sound like a good idea. But the recent market trend has seen interest rates falling and the current difference in savings between a fixed interest rate and a variable interest rate may not be enough incentive to lock in your rate at this time.

The disadvantages.

Fixed interest rate loans have some important policies you need to be aware of. A Picking the right time to fix your interest rate is important. If you pick the wrong time to fix your interest rate, you could end up paying a lot more interest than you would otherwise have to pay on a variable rate mortgage if interest rates happen to fall. That could leave you wishing you had chosen a variable rate loan instead.

Fixed interest rate loans also carry some other disadvantages. They can carry hefty exit fees, so if interest rates fall while you’re in the fixed period of your loan, you are pretty much locked in.

They can also be basic, no frills packages that may prevent you from paying your loan off faster.

If you have a variable interest rate loan and interest rates fall, you may be able to afford to make extra repayments to get ahead on your loan, but this usually isn’t possible with most fixed interest rate mortgages. Making extra repayments early on in the loan can make a big difference to how much interest you pay down the track. And you can usually redraw the money if you need it.

So, to fix or not to fix?

Sourcing the best mortgage involves more than just looking for the cheapest rate. There are other things you need to consider such as the ongoing fees and charges, the loan’s flexibility and the level of service the lender provides.

And with fixed interest rate loans, timing is everything.

The best course of action is to consult your mortgage broker. That way, you can get some great information about timing the market, find out which mortgage is right for you and ensure you get the best deal available to suit your personal circumstances.


Buying off the plan

5 tips for a successful purchase.

First time homebuyers and property investors love value for money. There is nothing like buying a property for less than its market value to get ahead on the property ladder. That’s why buying a property off the plan can offer some real advantages.

In most states buying off the plan incurs considerable stamp duty savings. Potentially, capital growth on the property can occur prior to settlement as most developers offer lower prices and financial incentives to get in on the project early. So buying off the plan can offer more opportunities to profit, but there is a lot more to consider when buying off the plan. These tips will help you focus on what’s important and assist in avoiding some of the common pitfalls when buying off the plan.

1. Make sure you pay the right price.

Getting in on a development early can help you to get a better price because developers need fast, early sales to get a project off the ground. Together with stamp duty savings and government incentives, this could put you well ahead on the value of the property you’re buying.  But there is no guarantee that the price you pay will reflect the market value of the property when it’s completed.

Do your homework about the area you are buying in. Consider other developments in the area and the number of new properties that will be coming on to the market at the same time as yours. Oversupply could reduce the value of your property so check with the council to see what other developments are underway, talk to local real estate agents and seek professional advice.

2. Research the developer and builder.

An experienced developer with a good reputation is always a wise place to start. Ask to see some of the other projects the developer has completed and talk to the property owners if possible. Visit the company website and learn what you can about the developer’s business.

Once satisfied about the reputation of the developer, ask for the license number of the builder that will be used to construct the property. You can then run a check on local government websites to make sure the builder is qualified to complete the project and has no outstanding disciplinary actions or prosecutions against his business name.

3. Understand the terms of the contract.

When you buy off the plan, you are buying a property that does not yet exist and may take as long as two years to complete. In an off the plan contract, you are provided with plans and specifications of what the developer intends to build and construct as the finished product.

The contract should provide highly detailed plans that include specifications for every item involved, from a floor plan layout with measurements in millimetres, to specifications for the fixtures and fittings, right down to the name and model number of the appliances that will be installed in the kitchen. Also make sure your contract includes specifications for all common areas, lifts, gardens and car parking and specifies additional costs like annual strata fees.

Off the plan contracts must also include a ‘sunset clause’ which defines the amount of time the developer has to complete the project. Make sure the time allowed is realistic, an 18 month sunset clause is common, so you should be wary of longer timeframes.

It’s important that the words of the contract match your understanding about what you will be getting for your money. Before signing or leaving your deposit, go over it with a legal professional who understands property law.

4. Choose wisely.

Buying off the plan gives you more opportunity to get the property you want because you get to choose from a variety of properties on the plan. Make sure you choose a property with a good aspect and check local building approvals to make sure your view won’t get built out by another development.

When buying off the plan, the right choice of property can make your purchase worth more than the others in the same development whilst actually costing the same amount. This maximises its potential for capital growth.

5. Make sure of your financing before you sign the contract.

With up to two years between placing your deposit and settlement, it may be tempting to postpone organising the finance until after you’ve signed the contract, but this could result in you losing your deposit if finance cannot be arranged.

Many lenders provide long term loan approvals for off the plan purchases. Talk to us about how we can assist you in organising finance for off the plan purchases or your other property investments, to make sure you’ll always come out on top!


Buying a property with family or friends

Even with interest rates at their lowest levels in fifty years, getting onto the property ladder in today’s economic climate is not always as easy as it sounds. Saving the deposit for the property you want can be difficult all by yourself. But by pooling your resources with friends or family members, you could find a way to get into the property market sooner rather than later.

Here’s a few important things to take into consideration.

 

It’s best to get legal advice

They may be friends and family, but purchasing a property together is a business arrangement so the first thing you should do is seek legal advice from a professional solicitor and draw up a formal agreement in writing.  Always consider the worst case scenario when setting up the legal side of things and include a dispute resolution process so you have a method of working out any disagreements. You may think this is unnecessary when dealing with people you know and trust, but a formal agreement will make sure you all have clear and consistent expectations regarding your arrangement.

You also need to take into consideration what may happen down the track. You and your family or friends may all be on the same page now when it comes to your investment, but what happens when time goes by and your spouse or children inherit your assets? Avoiding disputes now and into the future is an important consideration.

In addition to a dispute resolution process, the agreement should also cover every other contingency you may encounter throughout the process. You should decide in advance things like: how the price will be determined when it comes time to sell. What will happen if one person wants to buy the others out. Who will take care of managing the property – day to day details like insurance, rates, finding tenants and so on? What will happen if one of you cannot meet their financial obligations for some reason?

Only a professional legal advisor can make sure you are meeting all the legal requirements of entering into this kind of partnership. They will also be able to tailor a contract that covers off all the contingencies that might arise during the arrangement.

Consider your financial liability

If you and your co-owners are borrowing money from a lender to purchase the property, the lender will consider you ‘jointly and severally liable’ for the debt. That means that if one of you cannot pay their share of the mortgage, the others will be held responsible for their share as well as yours.

Insurance products can help to minimise the risks and cover your commitments in the event of unemployment, illness, injury or death. Perhaps you can look into insurance products for everyone involved, like life insurance and income protection insurance to make sure that no one is left holding the baby as far as mortgage repayments are concerned.

Additionally, you should have a plan in place for how you will cover the cost of unexpected repairs and expenses. Consider setting up a sinking fund that everyone pays into for repairs and renovations.

What’s your exit strategy?

Buying a property with family or friends may restrict your capability to borrow money to purchase property on your own in future, because the bank takes into consideration the whole of the first loan as your responsibility – just in case your co-owners default.

For this reason, it’s best to have an exit strategy in place.  Think about how long the arrangement will last before you begin. In an ideal case scenario, will you hold the investment for a minimum of five years, seven years, or ten years? Can the decision to sell be made by one partner or will it take all of them to be in agreement? How will you proceed to a sale if one partner is suddenly unable to pay their share of the mortgage?

In your written agreement, include details of how a sale will be managed. How will the sale price be determined, how will a real estate agent be appointed, whose solicitor will you use?  How will the sale proceeds be distributed? These details are easy to resolve in advance, but circumstances may make them extremely difficult to negotiate down the track.

If you would like to enter the property market by pooling your resources with family members or friends, talk to us today about arranging a mortgage. Joint financing can be arranged for the right partners, so teaming up with someone may just be a good idea to get you started on the property ladder. Call us today.


Investing in a holiday home

As the cool of winter sets in, thoughts of the beach may be far from your mind. However, winter is often a great time to look at buying a beach house or holiday home. There’s a lot to think about when purchasing a holiday home.

Where should I buy? What should I buy? How do I buy?

 

 

Generally, there are two camps when it comes to holiday homes: 

  • Those planning to use and enjoy the property themselves, and
  • Those seeking financial gain from their investment.

Sometimes it’s a mixture of the two, but one factor will probably carry that little bit more importance for you. Before you start, you need to know what your motivation is in purchasing the property, as that will inform the decisions you make from the outset. The research and preparation you need to undertake will vary, depending on your end goal.

If you are purchasing an investment property, your search should focus less on personal preferences and more on features that will maximise the return for your investment. If you’re buying for you and your family, you will need to look at how this house or apartment might suit your needs!

Either way, below we have highlighted some key specifics you need to think about when it comes to owning your own little slice of paradise!

Can I afford it?
Setting a budget, getting your credit in check and securing pre-approval of your loan will save you the grief of looking at houses you can’t afford, and put you in a better position to make a serious offer when you do find the right place. That is where your mortgage broker comes in, chat to us today about how much you can borrow and how we can help you.

Where should I buy?
Answering this question is absolutely key, and will very much be influenced by whether you are looking for you, or looking for a weekender to rent out! As we said, know your goals from the outset.

Looking at holiday home locations there will always be the “firm favourites”, those places we are all familiar with and are already a popular place to visit, and the “emerging destinations”, normally lesser known, where the purchase prices may be cheaper but you may face less demand, at least initially, for your rental.

Once you know where you might like to buy, find out more about the area. Research any future developments planned in your preferred area, then think about accessibility and season duration.

Internet forums are a great way to get an insider’s view into buying in an area. Drive around the neighbourhood at different times of the day and night and see how you feel.  

But, how do I rent it out?
There are three main ways you can rent out your holiday home – owner managed, property manager, or a combination of the two.

Some owners do all the marketing online, on websites such as www.stayz.com.au or www.takeabreak.com.au, or take bookings over the phone, whilst letting the property manager take care of things on the ground.

Owner managed gives you the opportunity to screen potential travellers and decide who would be a suitable guest in your rental. But, someone needs to be there to manage arrivals and departures, cleaning and maintenance.

The most important thing is finding the method that will work best for you.

Pitfalls and traps for new players
Turning a property into a holiday rental can be tough, but it can be very worthwhile! There is a lot to think about, from legal preparation, applicable tax deductions, what you need to know about taking payments, maintenance planning and housekeeping.

We are here to help support you with your financial goals, so if a holiday home or rental is something you are considering, please get in touch with the team on the contacts page. 

 

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