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NEWS ITEMS Investment OpportunitiesUnemployment has a major influence on consumer confidence. Naturally if you are comfortable concerning your long term employment your attitude to borrowing is positive, more so as rates drop. On the other hand if your job longevity is dodgy borrowing is the last thing you should be thinking of. Currently unemployment is low, around 3.5%; interestingly governments have for a long time considered 5% as full employment. The slow down in world economies and the flow on effect for the Australian economy means that unemployment should rise. It could well be the time to invest in property if you have equity or cash, a stable work environment and a desire to increase your asset base. The investing adage buy low sell high rings true right now, two years of a slow property market and more to come combined with low interest rates should be very tempting for property investors. The unemployment increase should keep prices in check as this will reduce the amount of buyers in the market and force some people to sell their homes. Increasing the stock on the market for investors as well as providing plenty of tenets to fill them. The numbers may well look like this 4.5% interest rates with 6% rental yields and generous government tax breaks for those assisting in providing housing for people who cannot afford to buy. Interest rates will come down as wholesale funds become more available and reduce in cost due to the intervention of central banks around the world pouring millions into the banking system to keep it afloat. Our reserve bank has guaranteed bank deposits which mean your money is safe. Banks use your deposits to lend out as loans along with funds bought on the open market. The American led crisis has had the effect of exposing poor management and irresponsible lending practices. They have a less regulated and slightly different system than here in Australia and the difference should prevent us from having the same problems as what has happened in the USA. Combined with poor regulation the US is in recession and unemployment is high, house prices are tumbling and confidence is at an all time low. The doom and gloom could continue but only if you want it too. Keep your non mortgage debt in check, reduce credit card limits, pay out or consolidate personal and car loans as typically they are fixed interest and will not fall along with mortgage interest rates. Make sure you pay your bills on time and keep your credit report clean. The aftermath of this financial meltdown will be growth; position yourself now to make the most of the property market upswing. Before you are tempted by some funky advertising from lenders give me a call and I will analyse your situation and provide some unbiased, well educated, free advice. After 10 years organising housing and investment finance I believe this to be a time of opportunity. Regards, 0405 153 090 In these times of high living expenses with threats of more to come it's a really good time to check the budget or for most of us create one! A simple first step is to sit down and calculate the entire out-goings including the odd beer at the pub after work on Fridays, drinks with the girls, video hire, subscriptions and memberships. Sure there are major bills like rates, car rego, loan repayments, and childcare, phone and utilities bills however it's often the little items that add up to a surprising amount. When creating a budget be honest with regard to the amount you spend and then add 10% as a buffer to cover the things you forgot?? The more accurate you are the better the outcome and the realisation that by adjusting small amounts here and there you are going to be OK without too much pain. Prioritisation is the next step, arrange the costs in order of importance,
perhaps the ranking system of must have, need, could go without? This
gives you a staring point as to where savings could be generated.
In reality a family unit is just like a business when it comes to running
costs and staying afloat. Careful management of expenses will ensure
you can survive the tuff times and prosper in the good times as credit
control becomes a habit and without being overly tight being frugal is
a good thing which allows you to still enjoy life! Ways to reduce costs -: Regarding your mortgage switching to interest only will reduce the monthly
payments. Have your salary paid into an offset account. Pay the
loan weekly or fortnightly preferably in line with how you get paid. Importantly
don't get behind and then ring your lender, call me when you feel things
look like getting out of control. Don't be embarrassed as I have
helped my clients before get out of a jam without negative repercussions
to their credit report. I am always happy to discuss your individual circumstance and put together a plan that works for you. There is light at the end of the tunnel with economists saying now rate reductions are more likely than rate rises remembering that good budgeting works well in both good and bad times. |
| RBA Interest Rate Rise
The RBA acted in November to the consumer price index showing the past quarters inflation to be at 3.9% too far above the preferred 2-3% range. Official rates are now at their highest in 6 years. In a statement, RBA governor Glenn Stevens said: "The decision was taken against a background of continued expansion in the global economy and further evidence that inflationary pressures had increased. The Board judged this to be an environment in which the risks of inflation exceeding 2-3% over the medium term remained significant. Monetary policy has been responding to these risks for some time, with increases in interest rates in May and August. Some effect of those measures is becoming evident in demand for credit by households. Nonetheless, the Board's judgement yesterday was that a somewhat more restrictive stance of monetary policy was required in order to moderate inflation over time, and thereby to secure sustainable growth." The driving force behind the rate rise include 30 year low unemployment figures putting wage pressure on businesses which get passed on as higher retail prices for goods and services. Oil prices increasing transport costs and business investment particularly in the resource sector booming. The divide between the resource rich states and the rest has never been greater. Perth continues to undergo a property frenzy whilst Sydney prices have slumped 11% during the past two years. The exception being the top end of the Sydney housing market which runs its own race. Factors which indicate the next movement could be down include a slow domestic growth rate of 2%. US housing and overall economy slowing, domestic retail spending sluggish and our farming sector suffering the worst drought in history. Another indicator we may be at the top of the rate cycle is evidenced in the fixed rate for business loans whereby 4 and 5 year rates are cheaper than 1 and 2 year rates. I doubt the RBA will move either way until February 2007 as a wait and see approach is taken as this months decision filters thru our economy. Best regards,
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| Home Loan Health Check
The current uncertainty in the interest rate market means it's worth a small amount of time to email or fax your details to me so I can be sure the current best offers from your institution or others is what you are receiving. Simple details pertaining to your current interest rate, loan balance and property value securing the loan will be sufficient for me to do a quick health check on your borrowings. Competition is fierce between lenders and particularly for larger loan sizes rates are negotiable, as a finance broker I continually provide business to lenders if I put a good case forward to further discount the rate they listen because unlike individual applicants I am applying for finance everyday, volume talks! Should I fix or remain on variable? Good question depending on your individual situation the answer will vary, this will be examined during the home loan health check. Some or your loans may be finishing a fixed rate period it is particularly important to talk with me 1 month out from the maturation of the fixed period, many things would have changed during the 3 or 5 years your loan was fixed for. I'm always happy to research and answer questions you may have with regard to finance. Please contact Peter Mullane should you wish to discuss these and other financial matters. Best regards and happy Spring,
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| Investment opportunity
Vista Ventures is constructing a small development in the Muswellbrook region, the complex consists of a community spa and pool, common playground and twenty 2 story, three bedroom town houses. The area is growing in population and would make a good investment, check out their web page by following this link http://www.gim.com.au/directory.htm Please contact Peter Mullane should you wish to discuss these and other financial matters. Peter Mullane GIM Mobile: 0405 153 090 Email: peter@gim.com.au |
| Tax cuts V rate rise and the winner is .....?
What a month just when you thought it was safe to go and buy a property or perhaps up grade we get a double whammy. The first being the tax cuts obviously good news from the government but with higher petrol prices does it really mean that much? Tax cuts put more money in the hands of consumers; the problem being if we spend our tax cuts on anything else other than our mortgage the increased consumer spending will put pressure on inflation and the reserve will be forced to act by increasing rates again. This time round it would be wise to use the extra income to pay more off your mortgage or any other loans including credit cards you may have. On that point always attack the smaller debt first moving up the chain to the larger debts when attempting to consolidate the number of loans you have. The reserve moved rates recently in what can be interpreted as a pre-emptive strike. Increasing rates can be seen as an attempt to slow the economy, as apposed to the tax relief stimulating the economy, by acting now the reserve has looked into the future using current data assessing the consumer confidence as inflationary. Australia's robust economy stimulated by the mining boom and a rampant stock market was of concern combined with low unemployment and wage pressures it was deemed a good time to act. Tweaking now may have saved us from repetitive rate rises over several months down the track which has the effect of shattering confidence rather than this cautionary approach slowly moving rates giving the public time to adjust. On the housing front the market was starting to show signs of recovery with auction numbers up slightly and a stabilising of prices around Sydney. The rate rise has put a hole in this activity. Typically buyers get nervous when the reserve moves rates up and will wait till next month to see if this happens again, combined with the end of the financial year I suspect it will be a quiet market for a couple of months until buyers return believing the rates to be more stable. This may result in further softening of Sydney house prices which has shown more correction than any other state recently. Does this mean a good time to buy an investment property? Property for investment purposes may become more attractive over the next 18 months as approvals for new developments is low yet migration to Sydney remains strong, resulting in a housing shortage for renters. Analysts predict a sharp increase in rental yields as a result. The down side of this is continued weak capital growth. Regions outside of Sydney such as Perth, Darwin and Brisbane have shown no signs of price slumps and indeed have had price increases. When thinking of investment properties it may well pay to look outside of Sydney given the current market conditions. Please contact Peter Mullane should you wish to discuss these and other financial matters. With kind regards,
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| Advice of short overseas trip
As a valued client of GIM, we wish to advise that Peter will be participating in an International Cricket Tour of Sri Lanka and will be away from Wednesday 12th April and return to the office on Thursday, 4th May, 2006, hopefully with good results! Your financial needs and requirements are paramount to GIM. Should you require immediate attention regarding your existing facility please contact Kevin Tredinnick on Peter's mobile phone - 0405 153 090 or email Kevin at tredinnick@ozemail.com.au. Kevin will be able to assist with any increases to existing facilities or new borrowing requirements. Kevin is an accredited Mortgage Broker with many years of experience and will be able to assist you. Peter will be conducting loan reviews on his return. During his absence have a think about your current loan and book an appointment with Peter to discuss options regarding product changes, increases or refinances. Peter will be checking his email while abroad whenever possible. With kind regards,
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| Current market conditions - Feb 2006
The Reserve Bank of Australia (RBA) held its official cash rate of 5.5% during its first meeting for 2006. The current stability of interest rates is the longest in 32 years. Inflation was marked down from 3% mid 2006 to 2.75% by years end. The RBA is keeping a watchful eye on wage pressure given the skill shortages Australia currently faces. Should wage rises flow through to increased prices for goods and services the RBA may have to react to curtail rising inflation. Most economists have revised their prediction of interest rate rises during 2006 down to a 20% chance of a hike. Following on from the buying / borrowing frenzy of recent times households are now seen to be consolidating their financial position. This consolidation will have a dampening effect on inflation giving the RBA another reason not to raise interest rates. Due to a slower lending market some institutions have reduced variable rate loans or provided greater discounts on their variable rates for lower borrowing levels. Fixed rates remain attractive with some lenders offering 5 year fixed terms at the same rate or lower than the 3 year fixed rate To discuss any aspect of this, contact Peter Mullane of GIM on
9943 5533 or 0405 153 090 or peter@gim.com.au |
| 2005 Summary
2005 brought one increase in interest rates and a slowing property market. The prices of real estate around Sydney came off by roughly 10 % this correction in the price came off the back of 3 years of strong (unrealistic price gains) rather than a crash we have seen a soft landing and by all accounts unless you have to sell there is no loss! Reading and listening to the experts 2006 will have much of the same, a slow market with auction clearance rates hovering around the 50 % mark, real estate prices in some locations may still soften particularly in Sydney but having a look at Perth and Brisbane no slowing only gains, areas along the eastern seaboard of NSW are still attracting strong interest, buying in a coastal town should reap good capital growth over the next five years. Staying in Sydney it might be time to attend to the much anticipated renovation, low interest rates, builders looking for something to do and a stable employment environment could mean the perfect time to extend. The up swing in property prices may be 12-18 months off but it will come round again, always does. The reserve bank had a slack year doing not much at all, petrol prices acted as a break on the economy as did the falling house prices, and this gave them good reason to do nothing. Interest rates around the world increased 2-3% with Australia hardly changing; our exports are keeping the economy ticking along with China being a major contributor this should remain in place at least until the Olympics in 2008. The outlook is for more of nothing with most crystal balls pointing to something maybe happening in June up or down? Investment theory is buy low sell high, applying this to the current property market it would indicate now and for the next 12 months or so it's the right time to buy, low interest rates, low unemployment, lower property prices. Rental yields are still only around 4% in Sydney and this is the downside of property investing at the moment, remembering property investment is more medium to long term and moving thru cycles of boom and fall is all part of the fun. To discuss any aspect of this, contact Peter Mullane of GIM on
9943 5533 or 0405 153 090 or peter@gim.com.au |
| 2005 Christmas Message to Clients
Happy Christmas! As a valued client of the Good Ideas Man (GIM) the Management and staff would like to take this opportunity to wish you and your family a very happy and safe festive season and a prosperous New Year. 2006 should provide plenty of investment opportunities and we would appreciate the opportunity to be part of your wealth creation programme. Thank you for your continued support, we look forward to working with you soon. Best wishes, Peter Mullane peter@gim.com.au |
| Interest in Advance
Each year lenders offer investors to pay the interest on their investment
loan in advance. Typically they reduce the 1 year fixed rate by .1 -.2
%. To see if this would be good for you contact Peter Mullane of GIM on
9943 5533 or peter@gim.com.au |
Buyers Market Firstly there is quite a bit of property on the market that has not moved and Christmas is fast approaching. Vendors keen to complete before the end of the year will be under pressure to review their price in order to attract buyers. The reduction in price is the run-off from the recent “cooling” of the market. Secondly both 3 & 5 year fixed rates have been falling for the past 10 weeks, the result being you can fix some of your loan below the standard variable rate currently 7.07 % when this occurs splitting your loan is always a good option, meaning if you buy now you can protect yourself against rate rises without paying the usual premium attached to fixed rates. What made the market cool ? There has been no increase in rates, unemployment has actually fallen and inflation is in the lower of the percentile band that keeps the RBA happy. Was it the threat of rate rises and the election ? No change on either front, if this keeps going February to June could see a feeding frenzy with buyers all cashed up on cheap money looking to move in for the kill. The result, heavy competition for the same property pushing more into the auction arena and sending prices north. Then all of a sudden the vendor is back in control. So if you are thinking and have been for a while about entering the market it may just be the time for you to act. Conversely if you are in the market and thinking of moving this is the
time to clean the place up and get it ready for the season opener 2005.
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| Positive and Negative Gearing This article looks at the dangers of chasing negative gearing opportunities in a low interest rate environment. Negative gearing is where you have borrowed money to purchase an investment property, but the rental returns you receive do not cover the interest on the money you borrowed and the expenses involved in keeping the property. It sounds like a poor investment decision at the outset - losing money on your investment - so what makes it so attractive? The difference between the income and the expenses (your loss) can be used as a tax deduction. If you are in a high tax bracket, you can expect to receive around 40% of the losses back from the tax office. Low income earners can expect to receive about 20% of the losses back. As long as the costs exceed your income, your are negative gearing. Once the income exceeds the costs, you are positive gearing. The simple equation (income less expenses equals deductible losses) describes the methods by which you can turn positive gearing into negative gearing. You can reduce your income by charging lower rent (I don't think so!) or you can increase the expenses that you have to pay. The easiest way to increase your expenses is to borrow more money in the initial loan. For example, you may have originally wanted to borrow only 60% of the value of the property, but to negatively gear, you determine that you need to borrow 80% of the value. For example, over the course of five years you may have interest expenses of $100,000 and a rental income of $90,000. Add to that a sizeable capital gain upon the eventual sale of the property and you could be in a great position financially. While the idea of the Tax Office helping you to pay for your investment property sounds too good to be true, like all investment decisions the tax implications should only influence part of your investment decision. A lousy investment is still a lousy investment, regardless of the tax consequences. For example, if interest rates were to rise by a few percentage points, or the property becomes vacant for a period of time, you could find yourself struggling to make those repayments. Back to News Desk |
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Home Ownership Determines Wealth A recent study completed at the Australian National University (ANU) in Canberra has found there was a significant gap in the wealth of home owners and renters. According to the study 90% of the bottom fifth (in wealth terms) of the population were renters worth an average of $6,000, that is ten times less wealth than the next fifth of the population and 100 times less wealth than the top fifth wealthiest of the population. The study showed home owners who had a university degree had an average wealth of $167,000 while home owners without a degree had a average wealth of $117,000. Older Australians and couples without children are likely to be more wealthy than singles or those with many children. Peter McDonald, professor of demography at ANU said the study showed the more children a family had the less likely they were to own their own home and therefore have significant wealth. “If you had three children you were less likely to own a (home) than if you had one child or zero children”, Professor McDonald said. Couples, had an average wealth of $230,000 around 60% of which was due to equity built up in their home. Singles had average wealth of $180,000 each, while single parent households had average wealth of $129,000. Older Australians also benefit from owning property, with people 65 years + having average wealth of $200,000, more than four times as much as adults between the age of 15 and 34. The study claims the two main reasons younger people are finding it difficult to buy property and therefore build wealth were compulsory superannuation and University HECS debts which can make it hard to save a deposit to buy their own home. Single people are more likely to spend more money per capita on entertainment, luxury goods and holidays, while those in partnerships/couples who were planning a family were more likely to own their own home, the study showed. Despite the fact that young people may be delaying home ownership, Australians were more likely to own a home at some time in their lives than at any time in the past. Back to News Desk |
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Increasing your purchasing power These days an increasing number of borrowers are looking for safety in numbers when it comes to financing the purchase of a property. The days of the husband and wife team outbidding singles in the race to purchase property are certainly numbered. Now young families are finding themselves being outbidded by groups of friends, relatives and work mates who are banding together to enter the property market. When purchasing a home with a group of people, there are two options open to you:- 1/ Joint Tenancy Most commonly, but not always, used by people in a relationship. This is because each tenant must own an equal share in the property. To enter into a joint tenancy, four “unities” must be present: • The unity of time – all joint owners must acquire their interest in the property at the same time. • The unity of title – all joint owners must acquire their interest from the same transaction. • The unity of interest – all joint owners’ interests must be identical in nature, extent, and duration. • The unity of possession – each joint owner has a equal right to possession of each part and to the whole of the property, but not a right to exclusive possession of any part. Another feature of joint tenancy is that if one person dies, their share of the property is transferred to the surviving parties. The share cannot be written into a person’s will and cannot be included in an estate. This explains the popularity of this option with couples as it is often their wish that if they were to die their share of the property goes to their partner. Each owner in a joint tenancy is not able to sell their share individually, but instead all tenants must agree to sell the entire property. It is possible for joint tenants to sell their shares individually if all are in agreement. If this happens the joint tenancy agreement is dissolved and is then converted to a tenants in common agreement. This is called “severing” the joint tenancy. 2/ Tenants in Common A preferred option when the purchasers are a group of friends, relatives or business associates who have pooled their resources to buy property. Unlike joint tenancies, tenants in common can hold both equal and unequal shares in the property. Unequal shares are usually based on the percentage of the funds each party contributes. Tenants in common are also able to sell their share independently to other parties without the approval of the other tenants. Each share can be included in the owner’s estate and can be left to whomever they choose in their will. Ensure you contact your solicitor to review your will. You need to take into account your share of the property because in the event that you die without a will, your investments will not automatically pass to your loved ones. WHAT ARE THE PROS AND CONS? • Joint tenancies have the benefit that the property is able to be transferred quite quickly into the name of the survivor. This saves time and money. • The property can be transferred whether or not the deceased left a will. Back to News Desk |
| Portability Feature “Portability”, sometimes referred to as security substitution, is a common feature of many of today’s home loans although the operation of this facility is often misunderstood. If your loan is “PORTABLE”, it means you can take your loan with you when you move homes. For a home loan to be considered portable, the borrower must be able to substitute a new property as security for the loan. This allows the borrower to move house without having to extinguish their existing loan and apply for a new one – they can retain their existing mortgage. Fees:- • Valuation fee covers the valuation undertaken on the new property. • Legal fees cover the alteration of the original mortgage document as the new property is substituted. • registration of the new property with the Land Titles Office. Benefits:- • You maintain existing account numbers and passbook accounts, ATM cards etc • You avoid paying establishment fees on a new loan • You avoid paying the mortgage discharge fee often charged for winding up your old loan. Conditions:- • The loan amount must not change when the new property is substituted which limits borrowers as they are normally upgrading and require extension on their loan. • If you need to increase the size of your loan, some lenders will waive the establishment fees on the new loan or mortgage discharge fee on your existing loan. You will however, be required to make up the balance of the stamp duty owing on the increased loan amount. • The new property must be the same or greater value as the existing property. A cheaper property effects the loan to value ratio (LVR), provided the new LVR does not exceed 80% mortgage insurance will not be applicable. • Settlement on the sale of your existing home and settlement on the purchase of your new home must occur SAME DAY. • Settling on your new property prior to the sale of your old one will normally require bridging finance, and thus a entirely new loan scenario. • Selling your existing property prior to paying for your new home means you have extinguished the loan. Some lenders allow the loan to remain in place provided you supply a signed contract for the new property and settlement will occur no more than 3 months from the sale date of the old property. Back to News Desk |
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Managing your business When looking at lending to a business financial institutions will not only look at serviceability, (income) but also the ability of management to run the business now and in the future. Below is a summary of the components lenders take into consideration. Lenders are exposed to three types of risks:- • Management competence • Change in Management • Outside impact on the ability to manage 1/ MANAGEMENT COMPETENCE • Impacts on all facets of a business • Primary source of knowledge & skill • Allocation of resources Management competence is the key driver of business success but difficult to assess. Industry Experience Most businesses fail within 12 to 24 months of establishment. If the key decision makers have a great deal of experience, the business has a greater chance of success. This experience may have been gained in the same industry, the same field or in another business provided that: • Previous business successful (no management problems) • No gap of more than 12 months – Industry and business experience is recent • Experience closely related and relevant to current venture Improving Net Profit Trend over the Past 2 Years • Track record of consecutive improvements in profits are more likely being well managed • Growing profits not always a sign of good management, for example, over trading may improve profits, but will result in cash flow difficulties and may fail because of falling gross and net margins When accepting improving net profits as a sign of good management, check basis for these profits to ensure there are no warning signs. Cash Flow Forecast Appears Well Founded • Lenders will discuss the basis for any improvements in revenues and profits and any reduction in costs. • Lenders will compare forecasts with historical results in an effort to verify assumptions made. Not many businesses will forecast a decline in revenue or an increase in cost. However, trend reversals are part of the reality of the business life cycle. It is important that businesses can substantiate how any improvements will be achieved and how they relate to past performance – Company will need to provide a proforma of a cash flow forecast. Business plan appears feasible Closely related to the cash flow forecast. The plan should be prepared in conjunction with their accountant. It should state: • Reason for forming the business • Short and long term aims • How it will achieve plans • It’s markets and customers • Products and services it plans to sell, and how it plans to do that • Competitors and threats and opportunities presented by them • Expected growth and how expansion will be managed and financed • Capital structure, including internal and external financing • How it will measure its success or failure, how often and when A good business plan makes specific statements about planned achievements and backs these up with a thorough financial analysis. Other Measures of Management Competence • Relevant tertiary qualifications • Related industry experience 2/ CHANGE IN MANAGEMENT Common cause of failure is a change in management. New management of a successful business face many problems also faced when a business if first established. This will come down to competence and experience. Customer controllers must access the competence of the new management in the same way as for a new business. A critical factor in this assessment is any involvement retained by the previous management in running, or assisting and running, of the business. 3/ OUTSIDE IMPACT ON ABILITY TO MANAGE External factors may impact on the ability of the key decision makers to manage their business. Such factors include: • Death • Loss of key staff to competitors • Litigation • Economic factors (eg recession) • Government legislation, etc The key to managing the above risks is to be aware of them, considered their impact, and have provisioned for them as much as possible. It is important that a business aim to mitigate outside impacts. An example, life insurance, which should be taken by the business to protect from a loss of decision maker. Back to News Desk |
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Improving your debt status Australian debt levels are getting out of control, but borrowers can stick to certain common sense measures to protect their credit rating and keep interest costs down. • If you already have a mortgage, ensure home loan repayments are PRIORITISED and made on time, every time. • You need a healthy cash reserve set aside for unexpected events and avoid entering too many long-term contracts for luxury goods, such as, expensive cars, pay-TV, holidays and wine clubs. • Don’t be caught by the Marketing campaigns offering interest free loans or no repayments for the first 12 months for consumer goods as when the payments become due your circumstances may well have changed dramatically, causing financial hardship. • Avoid expensive lifestyles as this will limit your ability to free-up cash flow if unforeseen circumstances arise. Avoid the temptation to live beyond your means by running up unsecured debt. • Refrain from accepting unsolicited offers to have credit limits increased. Ask yourself, do you really need the extra debt? Can you afford it? • You need to be prudent with debt, particularly as interest rates can rise anytime. Saving for a rainy day is particularly important when you take on a housing loan. Spare cash should be placed against the loan to save on daily interest charges, with most variable loans having the ability to redraw the funds out of the loan should you require them. • One home tip is to pay more per month than the minimum requirement on your housing loan, thereby, getting in front of the payment schedule. This will allow you to renegotiate with your lender the minimum payments should times get tough! With high and rising household debt levels it increases the degree of consumer vulnerability to a negative shock! Rising interest rates or unemployment, or a correction in house prices, can raise debt servicing costs and therefore reduce the ability of borrowers to service their loans and meet debt repayments. Back to News Desk |
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Avoid brokers who charge fees Don’t fall victim to mortgage brokers who are charging for services that should be free. Bank and non-bank lenders use mortgage brokers as a way to distribute their loan products and pay brokers commission on the dollar value of loans they write. For all residential loans, the borrower does not need to pay the mortgage broker, because the broker is paid by the lender in the form of a commission. Ensure your broker has the experience and qualifications necessary and has established relationships with a number of lenders built up over time – don’t be taken for a ride! Ask for a comparison table and ensure the broker has checked your situation across a number of lenders not just recommending one lender straight off. Brokers should also carry Professional Indemity Insurance (PI). This insurance policy allows clients who have suffered financial hardships due to the broker’s advise. Customers can claim against the broker’s insurance policy for compensation. Borrowers should be confirming that their broker is a member of the Mortgage Industry Association of Australasia (MIAA) or the Finance Brokers Association of Australia (FBAA), which means they meet certain professional standards. Above all, you should feel that your mortgage broker has your best interests at heart and that they are willing to go that extra mile to ensure that you are a client for life. Back to News Desk |
| Adding value
through renovations Home improvements are on the rise as people rush to improve the properties they bought. If done right, renovations can boost the value of a home. The most popular renovation is paving, followed by house repair work like reg uttering and refencing. Kitchens then bathrooms are third and fourth on the list, both major renovations. The average spend on kitchens is $21,000 and $17,000 on bathrooms. The fifth most popular renovation is outdoor landscaping, which includes decks, with the average spend a whopping $20,000. Whether home renovations add to a home’s value depends much on the design and material used and the state of your home when you renovate. If your house is old and tired looking when you buy it, then the priority should be the kitchen and bathroom to attract future buyers. However, if your home looks new and clean, than adding more indoor/outdoor living space or bedrooms could add more value than a kitchen or bathroom. Be careful not to overcapitalise in areas that don’t add value. Spending large sums of money on individualistic colour schemes or light fittings that may not be everyone’s idea of good taste could devalue your property in the eyes of some buyers. Always use licensed professionals to carry out electrical, plumbing and external alterations. Remember some renovations will require council sign-off. When it comes to sell some buyers may not be happy purchasing a property that has unapproved extensions or renovations. Back to News Desk |
| Lenders
Mortgage Insurance. Lenders Mortgage Insurance, (LMI) is a policy protecting the lender in the case of client default where the lender has to sell the property in an attempt to recover the borrowed funds. The insurance policy protects the lender in the situation were the proceeds from the sale of your property do not recoup the amount of money owing to the lender including, legal costs the lender incurred during the process plus any administration fees applicable. Lenders insure all their loans, but LMI premiums will normally only become part of your loan contract once the borrowing has exceeded 80 % of the value of the property being purchased, also known as the Loan to Value Ratio, (LVR). Premiums are based on the total loan amount, using a sliding scale increasing as the (LVR) increases in most cases. Loans that are interest only for longer than 5 years can be charged at a higher premium than Principle and Interest. Some lenders on my panel will waiver LMI up to 85 %, which can save a couple of thousand dollars in up front fees. LMI introduces a third party to the application, the Insurance Company. Typically lenders have more than one insurer to cover most lending situations. The LMI industry is very concentrated with roughly 5 Mortgage Insurers dealing with all lenders around Australia. Although there is a concentration the relationship they have with the lenders vary according to volume, past claims and the specific agreement between lender and insurer. This results in a situation where your mortgage insurance premium can vary markedly from lender to lender. Mortgage Insurers assess the loan in a more stringent fashion, they reserve the right to decline the loan application even after the lender has agreed to the deal in principle as well insurers do not like inner city apartments or properties under 50 square metres, they will not accept all forms of income that lenders do or will reduce the percentage of the income used for serviceability of the loan. Mortgage insurers are particularly interested in the savings trail or how the deposit has been obtained. On the positive side, mortgage insurance allows you to borrow more and thereby purchase property sooner. By paying a premium of say a few thousand dollars, you may be able to borrow another 10 % of the property value worth tens of thousands, as with all situations like this, calculating different scenarios can show the best way to proceed. Just a reminder my service includes maximum borrowing capacity, strategic planning, loan comparison tables, loan lodgement, loan tracking, communication between all parties including solicitors and accountants and the property price database. All this amazing stuff comes to you completely free, including the smile! Back to News Desk |
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Income Verification is the requirement by the bank for the borrower to prove they can pay back the loan. Income can be viewed in terms of how you earn your money. Work is categorized in two ways, by employment type, e.g. self-employed, full time, and part-time, casual & permanent part time. Secondly by when and how the money is paid to you, such as weekly, fortnightly wages paid directly into a bank account or monthly commission cheque. The banks use a variety of different criteria when analyzing income. Banks prefer two years full time employment in the same job, however changing jobs and remaining in the same industry is acceptable. When you change jobs there is normally a probationary period of three months, during this time frame banks will not lend and we have to wait for the period to finish. Changing industries is fine when there is evidence of a natural progression in your working career. Part-time & permanent part-time income will be considered if you have been working for more than 2 years & second jobs are similar. Casual employment is difficult to lend against due to long-term uncertainty, however all circumstances require investigation and if the casual income is supporting a partners full-time income it may be taken into account on a reduced basis. Some government allowances will also be taken into account but vary from bank to bank and we would have to investigate on an individual basis. There are extras such as bonuses and car allowances that can at times be included into the serviceability calculations, for instance if the car you drive has a lease and you receive a car allowance we can use the allowance to service the lease. Bonuses will be taken into account if we can prove payment over a number time periods. Self-employed people require normally two years trading however if you have just started on your own and the industry is the same as your previous work and we can show contracts supporting your income we may have a case to argue. Proving the income is via pay-slips, bank statements, contracts, letters from real estate agents, invoices, tax returns, group certificates, pension statements and letters from employers stating length of service, gross annual income, and style of employment such as full time part-time etc. Banks require two different forms of income verification, such as 1 x group certificate and 2 x recent pay-slips. Having said all that there is a new era upon us. I have several lenders who do not require income verification for some or all of their loans. Lenders normally require at least one applicant to be self-employed for at least two years. Most of this style of lending is for investment or business purposes so as to make the loan un-regulated. They require the borrower to acknowledge they have not provided financials but are confident of servicing the loan. Unlike years ago when solicitors charging twice the market rate mostly did this style of borrowing, these loans now are competitively priced as far as fees and charges and interest rates go. Lenders have two methods of establishing borrowing levels, one is called a Debt Servicing Ratio, the other a Net Surplus Method. The former uses gross annual income the later net income or income after tax. Some lenders use both and will accept the higher borrowing capacity of the two. Part of my assessment for borrowers is to first find which banks will lend you the money then what products they have to offer. Given I have the serviceability spreadsheets for over 20 banks I can save you a lot of phone calls to different lenders finding out if you qualify for the loan amount you require. Combined with the fact that all lenders view income on a slightly different set of criteria I can save you getting knocked back and feeling you will never get there, when in fact you may have 3 or 4 lenders willing to borrow. Regards, |
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The Deposit represents your commitment to the project. Deposits can be organised
from many different sources, these include savings, equity, gifts and shares.
Lenders generally will provide up to 95% of the purchase price for owner-occupier
purposes and 90% for investment properties. Remember the costs involved in purchasing
a property are roughly equivalent to 5% of the purchase price; the same applies
for auctions, as the sell price becomes the purchase price. As an example-:
Lenders look at your ability to save as an ability to pay off a loan. It not only shows that you have some funds to put toward the deal but that you can work towards a goal. For a borrower to be accepted for this scenario you would have to show enough funds to complete the purchase. 5% of the purchase price must be shown as genuine savings (GS). This can be achieved by having a separate account where regular payments are made for a period of time, normally greater than six months. Statements will be required to prove the funds are available. Similarly for self-employed people it is better to separate your savings from your business account as lenders disagree with removing a major portion of working capital from a businesses. The gift works at 90% of the purchase price as well. Lenders will normally require a statuary declaration, explaining this is a gift and requires no repayment. Combined with accounts showing there are GS enough to complete the transaction, most lenders will accept this. If the gift makes the loan to value ratio, LVR less than 80%, no savings record is required; simply you have prove you have the funds to complete. Shares will be considered as GS. You would have to show certificates proving their existence and ownership for greater than 6 months. Provided the dollar value is there this would be accepted, again funds to complete need to be proven. Equity is the value you have in your current property, investment or owner-occupier. Equity is the difference between how much the property is worth and what you owe on the property less any cost involved in selling the property. You can access the equity by having a valuation done on the property; the bank normally pays for the first valuation or by using the FOR SALE contract currently over your property. The dollar value given becomes the expected sale price; you can then adjust your lending by combining another property or borrowing more against your existing house. Equity based loans cannot exceed 90 % LVR and
at this level would also require proven cash in the bank to cover costs and
funds to complete. Equity is often used when changing houses commonly known
as "bridging loans", once this type of loan was set at a premium but due to
competition this loan is far more realistic. Bridging still does require more
investigation than most loans and is constrained by a greater number of regulations.
No matter how the deposit is generated proof in writing is the only way of having
it accepted by lenders. Remember the larger the deposit, the lower the loan,
the lower the LVR, the happier the lender, and not to forget the lower the repayments.
Happy saving. Regards, |
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The CRAA Report is produced by Baycorp Advantage, an independent organisation that has for years collected data on every individuals credit history. The association records all requests for finance by individuals, such as applying for a credit card or when you organise the No Interest for 12 months type deal, car leases, personal loans and naturally housing loans. Lenders have access to your record when you sign the "Disclosure of Information" section that is part of any credit request. Lenders will look at how many times in the resent past you have asked for credit and what type of request was made. The report shows if you have accepted the credit or not, if you were refused credit or most importantly if you have had action taken against you for failing to complete a credit contract, that is the lender has reported your payments overdue or late. Legally once a payment has been made to satisfy a debt the lender or store should make note as to the fact that no further debt exists and all maters have been settled. The report holds all dealings for a period of five years and then if settled they simply drop off the back of the report, no longer a concern. The CRAA is located in North Sydney 9464 6000, fax 9951 7880, or on the web at www.creditadvantage.com.au Lenders can be sympathetic to situations that occurred in the past and often a letter explaining the events will smooth things over. Naturally it is better to be up front and honest when applying for finance if you believe there might be a problem. I do also have access to lenders that are specialists for Credit Impaired borrowers. One cautionary word when you are thinking of applying for a housing loan and you decide to make a few phone calls to the various banks 1 300 numbers, these are sometimes recorded on the CRAA, I am happy to answer all your queries regarding borrowing capacity and interest rates or other product features without hitting the CRAA ! My portfolio of lenders has grown, as have the products the individual lenders offer as well as changes to their existing suite of products. The finance industry is constantly changing with lenders keen to introduce new products or change existing ones to meet the demands of consumers and reflect current market conditions. As a specialist in financing I make it my priority to keep abreast with the changes so I can pass this knowledge onto my clients. I am happy to do a review of your current loan situation and organise letters to your lender to improve your position. Any loans 2 years old could be out of date with the same lender now offering a better combination. Regards, Credit Cards are a big part of the Australian financial world; most people have a least one, with many owning two or more. During the normal course of life the credit card limit has no real meaning except that with increases in the limit you have greater spending power. Trouble starts when you approach a lender looking for a housing loan, now the credit card limit is very important, it effects your borrowing capacity. Lenders are not interested in the current balance of your card or cards; they are far more interested in the total limits of the cards. The rational behind this is simple, at any given point in time you can take the cards to their limit, the question then is can the client afford to pay the housing loan payments and the card payments when they are at their limit? Lenders fall over themselves offering you an increase in your credit card limit. Unfortunately this does not indicate your credit rating, it is a marketing ploy to encourage consumer spending. On many occasions I have consolidated credit card debt at approximately 15 % into a housing loan debt at approximately 6.8 % at the same time reducing the credit limit to prevent the same thing happening again. Credit cards do have a positive role in our financial life; they provide a means of smoothing cash flows allowing bills to be paid before the cash is available. Credit cards when used in combination with either a Line of Credit or Offset housing loan allows you to use the banks money for purchases during the month while your cash is reducing the interest charges on your housing loan. At the end of the month you pay the credit card out in full, eliminating the
interest charges on the card, gaining reward points along the way. This financial
habit will assist also in reducing ATM and other access charges the lender may
impose. When applying for a loan we can reduce the limits if necessary, then
if you require, lift the limits after the loan has been approved. Negative Gearing Investment Properties has long been the corner stone of the property investment strategy. The logic behind this involves the tenant paying the majority of the loan payments with the taxman paying the next largest slice, leaving you with the crumbs! Investment properties are income-producing assets, requiring cash inputs in order to maintain them whether this is the loan payments or everyday running costs such as strata fees. The Australian tax department allows these expenses to be claimed against any income (rent) the asset produces. Depreciation may also be claimed against the income further increasing your loss on the asset. This loss is then directly reflected against your income from work, reducing your taxation liability, hence the taxman helps pay off your investment! I have a software package that can show the percentages of who pays when you are looking at an investment property. This is a great assistance when budgeting for an investment property as part of your wealth creation programme. Accountants are the best people to talk to with regard to the latest legislation pertaining to investment property ownership. Regards, Peter Mullane |
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The Permanently Discounted Loan. Permanently Discounted Loans, (PDL) are offered by most lenders, they all have similar features and interest rates, currently ranging from 6.15 % to 6.29 %. These loans are set against the standard variable rate (currently 6.82 %) with a rate shaving permanently applying. This means they are a variable rate loan that is subject to change with market conditions. The feature of these loans is the interest rate, while lenders always offer a "Honeymoon" rate, the comparisons I have conducted against the PDL have always shown that the over a seven year period you are better off with the PDL. Some lenders allow these loans to be either interest only or principle and interest repayments, as well, splitting (see last months newsletter) is allowed. This means you could have a portion at a Fixed rate and apportion of the loan at the PDL rate! or split the loan facility between a Line of Credit and the PDL. Most of the lenders allow redraw (to the reducing amount) for a fee, so they can be used to save funds against the loan, until they are required for a new car or holiday perhaps or renovations. By paying extra repayments you will save on interest payments over the life of the loan and also reduce the term of the loan. The loan can be taken up to 95 % of the property value for owner-occupiers and 90 % for investors. PDL's are an excellent choice when looking for an investment loan, not only is the rate attractive often there are no ongoing monthly or yearly fees and normally smaller than usual application fees. You may have a loan with one lender against your home and decide to buy an investment property using another lenders PDL, this could be a saving if your current lender charges a monthly fee and the other lender is free of ongoing charges, you don't have to move your current banking set-up and you have a great loan against the investment property totally separate from the house you live in.
Regards, Fixed rate loans "lock" payments in for a set period, this can range from 1 to 10 years normally. The thinking behind fixing a loan is to set the repayments and protect yourself against upward movements in the variable interest rates. When you fix a loan both the term and the interest rate are agreed apon when the contract is signed, (settlement). During the term of the fixed period additional repayments are restricted. Some lenders allow up to 20% of the fixed loan amount to be paid as additional repayments. Most additional payments are only allowed to be made during a 3 week period coinciding with the maturity date of the loan each year. The extra repayments can reduce the interest charged in the same fashion additional payments lower the overall cost of a variable rate loan. When a fixed rate loan completes the agreed term it will automatically role over to the standard variable interest rate loan, (priced on current conditions.) Most lenders do not allow clients to role to the permantly discounted loan, which is normally .35 % lower than the standard variable. Some lenders do allow a switch to the lower interst rate with the payment of a "switching fee". Fixed rate loans can be taken as principle and interst or interest only repayments.
If the loan contract is broken before the fixed period has expired there will
be a fee charged by the bank. This fee is calculated on a finacial cost or loss
the bank will incurr due to lost interest payments. The calculation is complex
to say the least, roughly speaking it compares the current variable rate to
the fixed rate you have locked in. When the variable rate is lower the bank
will charge a fee based on the difference, if the variable rate is higher they
will pay you the difference ! But why would you want to move to a higher rate?
This can effect borrowers who have fixed for five years, but decided to sell
in four. The fixed rate loan works for you in a number of ways, firstly by fixing
the repayments allowing acurate budgeting of expenses for the upcomming year.
Secondly the term of the fixed period may coincide with the time frame for ownership,
plan to renovate and move in five years ? Thirdly the peace of mind offered
by a good fixed rate in times of rising variable rates just might help sleeping
at night. Splitting the loan facility is a way of increasing flexability into the loan structure. Most lenders allow their loan products to be combined in some fashion. The combination of which loans can and can't be split togeather varies with each lender. The fees vary considerably across lenders, so don't just get one quote. The way in which a loan is divided up is very specific to your individual needs. In some cases there is a combination of a fixed rate loan with a variable rate loan. This allows extra repayments to be made on the variable portion of the loan, but also providing the benefits of the fixed rate loan. Other combinations use two variable rate loans, one a permantly discounted loan the other a line of credit or offset account permitting direct salary credits. This combination provides the functionality of the line of credit, but has the majority of the debt on a lower interest rate. Within the split a combination of principle and interst, interest only or interest in advance repayments is permitted. I can calculate the different combinations you ask for and compare them dollar for dollar as to which combination is the most cost effective for your requirements.
Regards, Choosing a legal representative The legal work involved with lending is primarily of a contractual nature involving you and the lending institution. This relationship formally begins with the signing of the mortgage documents these are the last, in a series of forms to be completed. Normally in the presence of a solicitor or conveyancer. There are, like in all industries some better than others and the legal profession is no different. Start by finding three recommendations from friends or the like who have recently used a solicitor or conveyancer. You need to find out two things; WHAT they will do and HOW MUCH they will charge for doing it. Some will charge for every thing they do ie receive a fax on your behalf or call the titles office, others may have a flat fee that covers all the paper shuffling and associated work. Some may even want to do a valuation of the property which is not normally a requirement as the bank will only accept their own valuation ! There are standard charges for title searches and other government requirements. The land titles office 02-9228-6666 is the best place to call for the the costs involved in exchanging the ownership of property, they have naturally all the answers to regulations covering the process aswell all the documentation necessary to do the work yourself. The other issue is the ownership structure that would suite your situation. Buying on your own, naturally the ownership is 100 % yours, as soon as there are two or more parties involved ownership is based on a percentage with the default rate being an even split amongst purchases. For tax effective property ownership structures an accountant is the best person to ask. There are also legal restrictions as to how property can be owned and the lenders want to see some consitstancy in who is the owner and who are the borrowers. The golden rule to remember, ASK the question, that way you can try to iliminate
surprises along the way. Remenber once you have started the process with one
solicitor or conveyancer it will be difficult and costly to change representation
midstream.
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Regards, Disclaimer-: The information contained in this news letter is the opinion of the author only and does not reflect the opinions held by any other members or directors of GIM. The newsletter is produced with the intent of informing only and should not be relied on for anything else but information. |
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Contact Peter on 0405 153 090
or 9943 5533
or Email me on Peter@GIM.com.au
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