Thursday, March 26 2015
Of course what affects your credit score is a closely guarded secret but over time lenders have let a little bit slip here and there.
Pre-approvals are worthless
And don’t even get me started on online loan calculators.
As we discussed in our last newsletter what your income is and what a lender is prepared to use are two different things.
I think the approach most lenders adopt is when someone makes an initial enquiry they just say yes. That way there is a strong likelihood that person will come back to them for their loan if they sign a contract. And the lender gets first shot at it. If the loan is declined or then modified from what they first advised it’s no skin off the lenders nose they just move on to the next deal.
Lenders want you to fix your loan
Most fix rate loans also stop you paying off the loan too quickly.
Lenders pay big money to interest rate strategists to work out where rates are heading and where the cycles are. Fixed rates are designed to make you pay a higher cost of funds than if you stayed on variable.
Your chances of winning the bet are very low. If you don’t believe me go and have a look the Big 4’s combined net profit.
Lenders want you to cross-securitise
It’s not all about the rate
And then there is the cost of mortgage insurance – this can vary by several thousand dollars between lenders.
You’re too old
Valuers dictate the market
Many lenders acknowledge privately that valuers underscoring properties and being inconsistent in their valuation methods has become an issue and are killing good quality property transactions but no one seems to be prepared to do anything about it
The important this in all this is to get appropriate advice. We work with an extensive range of lenders and are familiar with all their different rules, policies and approaches.
This means when we work with clients we give them a realistic appraisal of their options and ensure that the structure that is put in place is designed to benefit them and not the banks.
Contact us for an initial chat to discuss your home loan requirements
Thursday, March 26 2015
Demonstrating your ability to meet loan repayments and repay the loan is essential to successfully qualifying for a loan. Therefore a key factor will be your income. However what you actually earn and what a lender will allow in terms of assessable income can vary significantly and have a dramatic effect on your borrowing capacity.
Below I’ve covered some of the general criteria lenders use to assess income.
Full time and permanent part time
If you have a history of changing jobs or profession on a regular basis then this could go against you.
Self-employed or contract worker
Working in a family business
In terms of income lenders are trying to establish regular and reliable sources of income. So if you are an employee, have been in your job for some time, and are paid the same amount week in week out then 100% of your base gross income will be considered.
The areas where it becomes greyer are as follows:
If it is not industry standard then two years tax returns or group certificates plus a letter from your employer may be required.
If you have been in your position for less than 12 months this it is likely only your base salary will be considered.
Some will lenders will only allow 50% to be used or will simply have a dollar cap that is applied.
Self-employed and contract
Rental income from investment property
Rent received from boarders
Dividends from investments or share trading
You can see from above what you actually earn and what can be included for assessment can end up being quite different. And this can vary significantly from lender to lender which is why it is important to talk to a specialist like us who has access to an extensive range of lenders and understands where you position will be more favourably assessed.
Greg Carroll is an expert on the area of finance with over 27 years’ experience in finance and business strategy. He is an active investor in property and shares. Holds qualifications in Economics, and Finance and Investment. And has written a number of books in this area including Home Loan Secrets and 17 Sins of Cashflow Management.
Thursday, March 26 2015
Before you take on any type of borrowing it is really important for you to determine what you can comfortably afford in terms of loan repayments, irrespective of how much a lender will allow you to borrow. Just because you can qualify for a certain loan amount doesn't necessarily mean that is what you should take on.
Lenders assess your capacity to repay as at today. Other than factoring in a small interest rate buffer they do not factor in other future events such as having children, school fees, medical bills, increased petrol prices etc. Most will make an allowance for living expenses based on the number of people in your household, but these expenses are based on averages. They do not factor in costs like private health insurance or cable television.
Budget planning gives you greater control over your finances. It can put you in a position where you have money available to meet your all your expenses so you are not “chasing your tail each month.” Also once you have your finances under better control you will then be in a position to start building your wealth.
How much money you earn has little bearing on how wealthy you will be. I regularly come into contact with people who have six-figure incomes but have ten of thousands of dollars in debt racked up on credit cards, and almost no equity in their house. If their income was cut off tomorrow, they would end up with virtually nothing.
On the flip side I often meet people who are on modest incomes but have good equity in their house, clear their credit card each month (or often have no credit card at all), and are steadily building an investment portfolio. And do you know what? These people aren’t frugal with their money…they’re just smart with it.
The only difference between these two groups is one has a disciplined approached to their finances. So the first step for you is to decide which one you want to be. If you chose the later then read on. If not I wish you well.
So how do I set up a budget?
What you ideally need to do is review your current income and expenditure and put it into a spread sheet over a 12 month period. To get an accurate picture you should get around 3 to 4 months of your bank and credit card statements and record every item of expenditure – alcohol, fuel, groceries, haircuts the lot. Try to get it down to the last cent.
Importantly make sure you record the actual timing of when income comes in and when expenses are actually paid. For example if you pay your electricity quarterly then record the expense in the month it is due, don’t just spread the cost over 12 months. The reason you are doing this is so that you can see the peaks and troughs in your expenditure. You will probably find that you have a lot of expenses in some months and not as many in others.
People often find themselves short of cash because they spend up in the months when they don’t have many bills coming in, but then don’t have anything in reserve when the bills do arrive.
Once you have done this, review it and make sure you haven’t missed anything. Also make sure you put in an allowance for holidays, birthdays, Christmas presents, and other occasions. It’s amazing how these can add up.
I guarantee if you haven’t done this before you’re in for a big shock. You will probably find you are spending far more in certain areas than you thought. You will probably also be surprised to see how much expenses such as insurance can add up.
Once you are sure you have recorded everything, you should then sit down and review your budget. What you are now looking for are areas you can cut back on or improve. This is going to be different for everyone but I guarantee in most cases there will be areas where you can make savings. Do you really need cable television? Could you cut back on takeaway? Is it worth shopping around for some competitive quotes on insurance?
Hopefully once you go through this process you should find that there is something left over from your income. If not you may need to go back and review your budget. If you already have a home loan or lending this may also be a case where it is worth reviewing your finances as a restructure may assist in reducing your expenses further.
Once you have completed this process you should have a clearer picture of the level of repayments you can comfortably afford.
Once you have your budget mapped out you can then adjust it along the way as your circumstances change. If another expense comes up you add it to your budget. In this way you can see where you are going and identify any potential trouble spots before they occur. If you could see that things were going to be a bit tight in two months time because of a number of bills coming up then you might curb your expenditure a little bit now to compensate.
Seeing what is coming in advance means you can make small adjustments along the way rather than being forced into drastic action.
Contact us to arrange a review of your home loan. You might be missing out on significant savings.
Greg Carroll is an expert on the area of finance with over 27 years experience in finance and business strategy. He is an active investor. Holds qualifications in Economics, and Finance and Investment. And has written a number of books in this area including The Property Investment Bootcamp, Home Loan Secrets and 17 Sins of Cashflow Management.
This information is provided in good faith but is not intended to be comprehensive and does not constitute specific advice. The above information does not take into account individuals specific circumstances. MTA Finance Australia Pty Ltd accepts no responsibility or liability for anyone relying on this information. You should always seek independent advice in relation to your specific circumstances.
Tuesday, March 24 2015
Housing affordability is declining in Brisbane. In 2012 85 out of 173 suburbs had a median price below $550,000. This has now fallen to 73 suburbs, or 42.2 per cent. And only 40 suburbs priced at $500,000 and below.
Monday, March 23 2015
(SOURCE: Property Observer)
A CLSA analyst says interest rates in Australia will be less than 1% within two years and could even go to zero.
Christopher Wood, the managing director and chief strategist of the Asian-based equity broking and investment firm, made the forecast in an interview with The Australian Financial Review.
"I think less than 1% within the next two years. They are going to end up a lot lower than people still imagine," said Wood.
The AFR notes the most recent Bloomberg survey of economists indicates an average interest rate forecast of 2% for the end of the year and the first quarter of 2016.
Wood told investors to sell US mortgage securities before the subprime disaster.
"It's not whether interest rates go up, it's whether Australian interest rates go to zero," Wood said.
"When I was in Australia 15 months ago everyone thought that interest rates had bottomed and were going up. But now there is greater awareness among fund managers that it is going to stay lower for longer."
Wood said the drop in gross domestic product means the Reserve Bank of Australia needs to keep cutting interest rates, but it is caught in a difficult position.
"The issue from Australia's central bank standpoint is that it doesn't want to cut interest rates because of the housing market which, from a value point of view, is overextended," he said.
"You do have asset price rises driven by Chinese buying. But the bank is under pressure to cut rates, so I think it will have to come down to macroprudential controls and they are very political."
Friday, March 20 2015
Two recent reports have flagged the strongest areas for price growth in Queensland. The results will no doubt be a surprise to many as they bust some myths about the best areas for growth.
The latest data from Real Estate Institute of Queensland (REIQ) reveals that Ipswich ranks as the strongest Queensland price growth region. Ipswich's median house price increased by 6.7% over the quarter, the largest gain recorded by any area across Queensland.
Brisbane’s while improving only moved by 3.4% over the same period.
Meanwhile Hotspotting’s latest price predictor report has Logan City as the number one predicted growth region in Australia. The Price Predictor Index is a tool based on trends in sales volumes which provide an indicator of future price movements.
Logan City has more growth suburbs than any other Local Government Area in Australia with 4 of the nation’s top 30 rising suburbs. Hotspotting puts Logan’s performance down to its affordability, good road and rail links, proximity to jobs nodes, and abundance of schools and shopping options.
These reports again bust the myth that the closer you are to the CBD the better the growth. Unfortunately many would be investors turn their nose up at areas like Ipswich or Logan City because of preconceived ideas about the market or potential tenants without any actual data to back up their beliefs.
I’m not certain of the origins of this myth but often when we ask people what their investment plans are – many say they want to buy close to the city because they believe that’s where you obtain the best growth.
Our own research tells us that good growth opportunities exist in many places and if you limit your focus to inner city only then you are cutting yourself off from significant upside gains.
For property investment advice find out about our Property Investment Service
What are the things you need to know before you invest in property? Click here
Thursday, March 19 2015
Many people are reluctant to actively invest for their retirment because they are concerned about risk. Therefore they choose to do nothing believing this is a "safe bet". Unfortunately inaction carries with it as much risk as taking action. In fact I would argue greater risk.
Warren Buffet, one of the worlds wealthiest indivuals, highlighted this in his recent letter to his clients. The simple message - if you try to play it safe by holding cash you will go backwards.
Thursday, March 19 2015
Last week I wrote about my concerns with what appears to be a emerging over supply of units in Brisbane. What's the big risk for the Brisbane market.
BIS Shrapnel has made similar observations this week suggesting we are building the wrong thing. Too many units and not enough detached housing. With the potential for a 10% fall in prices.
Friday, March 13 2015
The Brisbane market has been on a steady albeit modest recovery since 2012 but their are significant risks emerging which could see substantial losses for some.
I saw the below article last week and it has me pretty concerned about over-supply in the Brisbane unit market. Many of these units are being built in inner city suburbs like the Valley, South Bank, and West End. Sure these areas are artractive from a lifestyle perspective but these areas are already heavily saturated with units that have achieved limited price growth over an extended period and in many cases have seen declining prices.
They are also markets that have demonstrated fairly sluggish rental growth.
Given that many of these projects are being realsed at the same time it is likely they will completed and settle around the same time. The potential impact of thousands of units coming onto the market at once is a sharp decline in values and increased vacancy levels.
This means for people purchasing off the plan they may find that the unit they purchased values for less than the contract price. And for those looking for it to be an investment there could be extended periods of vacancy or reduced rents achieved.
Since this article was released I have seen the announcement of several more projects and off the plan sales.
How it plays out only time will tell but I would be exercising a fair degree of caution and if I did proceed would have in place a substantial buffer to fund any devaluations on the property.
Remember once you sign an off the plan contract it is unconditional which means you have to settle of lose your deposit.
Brisbane’s off the plan apartment market is smashing all previous records within a three month period with a staggering 1621 unconditional sales taking place.
Apartments sold during this quarter revealed a weighted sale price increasing to $551,558 from a recorded $545, 478 during the three month period to September 2014, a figure which remains relatively unchanged.
An apartment “boom” was evident with a total of 12 new projects released during the December 2014 quarter, spanning a colossal 2760 new apartments – more apartments in a single quarter than during the entire 2013 calendar year.
The report identified that the most unconditional sales of the December 2014 quarter arose from the inner-northern Brisbane off the plan apartment market, which included 620 unconditional transactions with a weighted average price of $481,774, representing 38 per cent of all sales during the period.
Thursday, March 12 2015
(Source: AFG Mortgage Index)
Mortgages processed last month by AFG, Australia’s largest mortgage broker, surged 58% higher than in January, and 16% higher than in February 2014, according to the latest AFG Mortgage Index.
The $4.3 billion of mortgages processed in February included a record $280 million processed on the last Wednesday, 25th February, the largest single day’s volume AFG has recorded in its 21 year history.
Mortgage volumes varied significantly from state to state, with South Australia showing the greatest increase of 31% on February 2014, with NSW up by 25%, VIC by 21%, QLD by 15% and WA going backwards, processing 4% less in volume than in February 2014.
Mark Hewitt, General Manager of Sales and Operations (pictured) said the figures were encouraging.
‘February is the real start to the mortgage year and overall we’re off to a flying start this year. No doubt the February rate cut has made borrowers more confident, but it’s important to recognize the significant variations from one state to another,” Mr Hewitt said.
“We’re also keeping a close eye on the proportion of investors, but this hasn’t changed on the levels we’ve been seeing for the past twelve months.”
Loans to investors comprised 39.6% of all home loans processed last month, a similar figure to those reported each month for the past year.
Fixed rate mortgages declined as a percentage of all home loans to 13.6%, its lowest since August 2011 when only 9.4% of borrowers chose fixed rate loans. The rise of Introductory loans continued to a fresh high of 7.9% last month, indicating the proportion of borrowers.
Wednesday, March 11 2015
(Source: The Urban Developer)
Australia’s population is likely to greatly exceed the Intergenerational Report’s (IGR4) forecast of 39.7 million people by 2055, according to advisory group MacroPlan Dimasi.
The baseline assumption in the IGR4 is that net overseas migration will average 215,000 people per annum.
However, MacroPlan Dimasi Chairman Brian Haratsis believes the annual increase is likely to be closer to 300,000 persons per annum, even if the national permanent migrant intake is not substantially raised.
“Australia’s economy has become more dependent on long-term temporary residents, including overseas university students, skilled workers and family visitors,” Mr Haratsis said.
“Recent history has shown that sectors leading economic growth are dependent on our temporary residents. Our healthcare, professional services and tertiary education sectors provide leading edges to jobs growth.”
The 16 million new Australian’s will drive demand for around 12 million homes, 32 million sqm of retail floorspace and 160 million sqm of office floorspace. By 2055 both Melbourne and Sydney are likely to be the same size as Chicago is today at 9 million people.
MacroPlan Dimasi argues that it is now time for a refresh of macroeconomic policy, with a focus on industry perspectives (rather than industry policy).
“It is clear that both monetary and fiscal policy, as sources for momentum, are close to exhausted. Moving forward, Governments will need to offer more detailed and considered analysis of how the economy is evolving” Mr Haratsis said.
One area policy makers should be focussing on is the tourism sector, which is complex as a source of demand for transport infrastructure, retail services and property investment. Our services for overseas tourists are thriving, but this sector remains undervalued and misunderstood.
“Framing actions for the next 40 years will require thoughtful assessment of the global services boom, as it collides with the digital revolution and growth in Asian middle class wealth,” he said
Wednesday, March 04 2015
Cash neutral investment properties are those that pay for themselves without any additional contributions from the investor. If the property is one that delivers reasonable price growth over time it really becomes a no brainer. A property that pays for itself and builds your wealth and your retirement fund. But do they exist and where do you find them?
Do they exist? Yes, but you won’t find them with a sign out the front. And you probably won’t have much success if your are using realestate.com.au either. In fact if all you do is look at properties you will probably never find one.
That’s because the property is only one part of the story and there are a range of other factors that will influence a property’s cash position and whether it will be neutral for you, including.
Unfortunately most people get focused on the “property” and pay little attention to the structure around it. In many cases the structure and strategy become an after- thought.
This is unfortunate because in many cased they are doing themselves out of thousands of dollars a year. Which in turn could undermine goals like paying off their home loan and building further wealth.
Our approach with clients is to start with the strategy first in the context of the client’s financial position. We map out the financial goals and then put in place the correct property and structure to support it.
What opportunities are you missing?
Contact us for an initial discussion.