Maximise your reno potential

A smart renovation can add thousands to your property if you set a solid plan from the outset.
Renovating is a national pastime – just one look at a TV guide and the plethora of shows dedicated to renovating will instantly highlight this. The process of turning an old house into a new one is engrained in the Australian culture.

But while renovating a property can add significant value, there are numerous issues that need to be considered before you start knocking down walls or ripping up carpet.

As well as making your home more liveable, the number one driver for renovating a property should be to add value. Here are a number of key points to keep in mind to get the biggest bang for your renovation dollar.

Be smart
Often the things that add the most value to a property can be done on a shoestring budget. By simply applying a coat of paint, replacing the carpet, undertaking a bit of landscaping or adding new light fittings; an old property can have both life and interest breathed into it.

Set realistic budgets
It is crucial that you set yourself a budget before you begin renovating. It is not a matter of simply estimating the overall costs; you have to sit down and plan it out based on research, strong costs analysis, and most importantly, appreciation of what types of renovations add the most value.

When you are accounting for your renovation costs, build a buffer of at least 10 to 20 per cent into your budget as very rarely do renovations go off without a hitch. Even professional renovators underestimate costs, so be conservative with your forecasts.

Know your target area
Before you start your renovations, get to know the style and structure of other properties in your area. By understanding the type of people that are likely to buy in your area can you style the property to suit the majority.

While you might be renovating with view to live long-term in your property, keep any changes modern and contemporary – don’t be too outrageous with your design. What you might find appealing and attractive others might think otherwise. This may therefore impact the price you receive should you sell the property or decide to let it out.

Tips for cost effective renovating
If you look like you are heading over budget, here are some tips that can ease your cost load

• Reduce your labour costs by doing what you can yourself or calling in favours from friends
• Look to use fittings and materials that are lower in quality and cost
• Cut back on the scale of the renovations.

One size doesn’t fit all

As we move from one phase in our life to another, so too do our priorities – and our financial needs.

There are no guarantees that a home loan that was suited to your needs a few years ago is still the best product for you today.

This could be down to changes in your personal situation but it could also be due to a change in policy from your lender – or simply that there are now better products on the market.

It is therefore well worth putting your present home loan under the microscope to ensure that it is still the best one on the market for your situation.

Time to review
On closer inspection you may find that you are better off with another lender. This could be down to the interest rate, the features, the offers, or even because you are looking to consolidate a number of debts.

Refinancing is relatively straightforward but there are a number of considerations you should address before taking the plunge.

Some loans may have break-costs associated with them – fixed rates in particular but also variable rate loans. But this need not necessarily be a barrier to bailing out of a loan that is no longer suitable as you could end up in a better overall financial position as a result of switching lenders.

If you have found a more competitive interest rate or are currently paying for features you do not use, this could also be another reason you may want to consider refinancing.

Pastures new
The process of refinancing is relatively simple in most cases. It essentially involves taking out a new loan and using part, or all of the funds, to pay out the existing loan.

While you can refinance with your current lender, if you are going to a new lender you will need to provide the same documentation that was required when you took out the original loan, as they will still need to assess your capacity to meet your repayments.

If you are thinking of putting your current loan through its paces, don’t hesitate to contact us as we can help make the process easier for you.

Not only can we assess whether you are still in the best product, we can also help you with the application process with a new lender if you decide that there is a better option out there. Feel free to give us a call if you would like to review your current product or even if you just have some questions on how the refinancing process works.

Managing your expectations

It might be tempting to make your first home your dream home, but first home buyers should be careful not to overburden themselves.

When it comes to making that first move into the property market, many first home buyers begin their foray by browsing the market for properties they really like.
Make no mistake – it’s important to like the first home you buy – and you want to have a good feeling about it – but good things come to those who wait, and sometimes the best strategy is to start small.

The price tag of Australian property doesn’t come cheap. And for first timers, taking on a mortgage is not always a straightforward process.

According to research by the National Centre for Social and Economic Modelling (NATSEM), mortgage pressures for first home buyers have worsened over the past decade, with as many as one in two first home buyer households dedicating more than a third of their disposable income towards housing.

Dedicating more than a third of your income towards a mortgage is commonly referred to as ‘mortgage stress’, and by overextending yourself your first home can become more of a nightmare, than an enjoyable experience.

Aspiring property buyers should consider their first purchase carefully, starting with a balanced assessment of their borrowing options.

The best place to start is to determine your borrowing capacity – not only in terms of what a lender is willing to offer you, but also with regards to your individual circumstances and lifestyle in order to match your mortgage commitments to your other life priorities.

First home buyers should factor in a rise of two per cent in their interest rate to avoid any chance of slipping into mortgage stress in the years ahead.

A great way to ‘test’ your mortgage serviceability is to work out what income you would have left if you were to take out a certain size loan and then start living by it. If you can’t comfortably manage you might need to reassess your buying options.

If you can manage, then you know your borrowing capacity as well as your property budget and it’s time to start house hunting – without wasting time on properties you simply can’t afford.

By starting smaller, you’ll be able to pay more off your loan quicker, which means you’ll be building your personal wealth and getting yourself on track towards upgrading to a better property in the future, rather than swimming in debt.

Buying your first home is great, but don’t ruin the experience by biting off more than you can chew. Give us a call and we can help you realistically determine your borrowing capacity as well as the mortgages that would best suit your situation.

Help is at hand
A mortgage broker can be a great port of call for aspiring home buyers looking for guidance on their borrowing capacity. Not only can we help you determine what repayments you can afford, we can work with you to develop strategies to boost your serviceability, suggest alternative financing options and of course help you find the best deal.

Banks vs. non-banks

With competition on the rise between lenders, borrowers should look beyond the major banks to see how a mortgage broker can assist.

Competition is again heating up between the banks and non-banks as liquidity returns to the lending market.

When times were tough during the global financial crisis, borrowers turned to the safety of the majors.

Government backing of the banks was enough to convince most borrowers that they were in safe hands with the major financial institutions.

But times have changed. Today it is the major banks that are coming under government scrutiny when most lenders pushed their mortgage rates up by as much as 0.2 per cent above the Reserve Bank’s November rate rise.

Non-bank lenders have seen an opportunity to win back the borrowers lost to the banks in previous years and in many instances they have provided competitive rates.

But it is not interest rates alone that have prompted borrowers to look beyond the banks. Self-employed, credit impaired borrowers and business owners that have been turned away by the banks have often found their business welcomed by the non-bank sector.

So when you are looking for the right lender for your situation, mortgage brokers are a great point of call when it comes to looking across the full spectrum of products.

We are not only able to find the most competitive rate but we can also help you evaluate the suitability of the product and the lender. We listen to your needs.

Source: Mortgage Finance Association of Australia

Why should I use a mortgage broker?
• Saves you time and money.
• Gives you choice.
• Helps you find the right loan for you.
• Can help you with making an application.

Economic wrap - Summer 2010

When the Reserve Bank of Australia (RBA) lifted interest rates in November 2010 it did so with one fundamental goal in mind: to rein in the pace of economic growth.

The RBA Board’s 25 basis point rate hike achieved that, which was one of the key drivers behind leaving rates on hold at 4.75 per cent in December.

Recently released data from the Australian Bureau of Statistics (ABS) shows that Australia’s economy is currently feeling the impact of higher interest rates, a still fragile global economy and a strong currency.

Growth in household consumption has almost halved in the past couple of months – dropping to 0.6 per cent from 1.4 per cent in October 2010.

In addition, last week’s national accounts found that the household savings rate is currently sitting above 10 per cent – suggesting consumers have lingering concerns about the global financial crisis and the direction of interest rates.

Most economists now believe the next tightening phase will begin in the June 2011 quarter, which will certainly be comforting news for home owners with mortgages.

HSBC chief economist Paul Bloxham says inflation will remain largely under control until mid-2011 when stronger economic growth will ultimately result in an upwards drift in inflation, which will argue the case for higher rates.

Currently, the unemployment rate sits at 5.4 per cent, after rising 0.2 per cent in October 2010. Employment growth has been very strong over the past year, and some leading indicators suggest the moderate pace of expansion will continue into the period ahead. Any boost in mining investment will ultimately push the economy closer to full employment.

NAB’s chief economist Alan Oster expects the unemployment rate to settle at 4.75 per cent in the New Year, which will give case for the RBA to start the next phase of tightening.

According to Mr Oster, the RBA should not raise the cash rate drastically next year; instead it should peak around 5.5 per cent in December 2011.

This would take the average standard variable rate (SVR) to around 8.5 per cent. At present, the average SVR of the majors is 7.7 per cent.

While it would appear that a reprieve from rate hikes looks likely in the immediate future, it is well worth reviewing your current mortgage to ensure it’s still the right one for you.

With a solid understanding of your current position you can look to capitalise on the months ahead when rates look set to stabilise, which may include driving your mortgage down or alternatively freeing up equity to purchase an investment property. Please feel free to give us a call and we’ll talk through your options.

Eyes wide open

Don’t let excitement blind you when inspecting a property as the unwary may miss a host of hidden sins Viewing a property can be an adrenalincharged experience – particularly in a market that’s moving fast.

In some areas it’s not uncommon to find tens of other budding buyers viewing the same place and this can create real pressure when you find a place you want.

But to ensure that you really are buying your dream place, and not a lemon, you’ve got to make sure that you check out the smaller details and not just look at the bigger picture.

Step-by-step strategy
One practical tactic for keeping your feet on the ground is to work with a checklist. This will help ensure that you don’t cut corners in your inspection and that all the boxes are ticked before getting down to the business of putting in an offer.

As well as checking off the general state of repair of the inside of the house, this will also help remind you to check for problems with the exterior.

The quality of the roof is often overlooked by over-excited buyers, for example, however this can be a costly oversight.

Take particular note of any missing or cracked roofing tiles as well as cracked brickwork, loose mortar and crumbling eaves.

Damp in a house can be catastrophic, so also look for the tell-tale signs on the interior. Water marks on wall paper can be an indicator that water has leaked in; musty smelling carpet can also be a giveaway.

Make sure you look out for cracked ceilings and also walls that may have had cracks papered over. A thorough inspection is especially important as sellers may try and hide any imperfections, signs of damage or problems in the making.

Just remember, you can help make sure that you don’t get lumbered with a money pit by taking time to inspect a property thoroughly before you put in an offer. Even if your first inspection comes up trumps, go home, take time to reflect, and return to view the place afresh – you’ll be surprised at what you didn’t notice the first time around.

Finally, if you have any doubt, use the services of a professional.

What does your credit file say about you?

Just how you manage your debt is no secret thanks to credit history files, so it pays to keep your file in shipshape order if you want success in buying property.

Have you ever borrowed money for a car, owned a credit card, or forgot to pay your phone bill on time? Were you aware that all of this is kept in a credit file accessible to any financial institution – with your consent?

If entering the property market is your aspiration, then it pays to understand how your credit history is recorded and just how it can influence your home loan eligibility.

Credit files and home loans
Defaulting on your loan repayments or phone bill are examples of items that may be recorded on your credit file. Such items can remain on your credit file for a five year period. Some, such as bankruptcy orders, can remain for 7 years.

Ultimately, these items on your credit file can affect the loan amount you may be eligible to apply for. In some circumstances, it can result in the denial of your loan application.

To what extent your credit file will influence your home loan application will depend on the lender. Each lender applies their own credit criteria when it comes to assessing applications.

Some lenders, for example, will use ‘credit scores’ as part of their credit risk assessment process in conjunction with their lending criteria. Because of the difference in credit assessments, one lender may approve your application, while another may not.

For this reason it is essential to keep your credit file as squeaky clean as possible to maximise your chances of being approved for your loan. You can ensure this by upholding regular repayments on loans and meeting all bill payments on time. Credit reports are held by a credit reporting agency. You have the right to access your credit file of the reporting agency (Veda Advantage for personal purposes). You can also request incorrect information to be amended. We recommend you contact the credit reporting agency before embarking on any property purchase to prepare yourself for any loan hurdles you may face.

Considering a battle-axe block?

Purchasing a home on a battle-axe block is no different to making any other property purchase – it still requires thought and understanding.

Some people hate them, some love them, but whatever your preference there’s every chance you’ll come across a property on a battle-axe block at some point during your property search.

A battle-axe block is simply a larger block that’s been subdivided at some point, leaving one property located at the front and another that is set back.

The ‘handle’ of the axe is the long shared driveway, with the ‘head’ of the axe being the home at the rear of the block.

There are both benefits and downsides associated with the rear or battle-axe block.

The pros and cons
Due to the long drive, it’s likely that a battle-axe block won’t have much of a view to the street – you’re more likely to be looking out over other properties or yards. But this can in some cases create a sense of privacy, with the property feeling like it’s tucked away from the public eye.

The positioning of the home at the rear also has other benefits. For a family with young children, a battle-axe block can provide a good degree of safety since it doesn’t have direct open access to the road. It can also offer a long stretch of enclosed driveway – ideal for bike riding, skateboarding or simply running around.

However while there are some distinct advantages, a battle-axe block does have its drawbacks. For example, when guests come to visit, it can be tricky finding a concealed driveway – particularly at night. But one bonus that can’t be ignored is the price. On average, homes built at the rear of a battle axe block are generally cheaper, which could be the final factor in your decision process.

Help is at hand

Finding the right home loan can be a daunting task, especially with so many products on the market; then there’s all the paperwork involved. But with these helpful hints you can make your loan application process a smooth one.

Have your documents ready: Lenders have cracked down on their lending policies over the last 24 months, so it helps to have clear documentation proving your income, liabilities and living expenses. The more documentation you can provide, the less likely a lender will delay the processing of your loan application.

Show genuine savings: A savings record is important to most lenders. If you can show that you can manage your money – including an ability to save while repaying credit cards, covering your rent and other expenses – you’ll improve your position with lenders.

Matters of the heart: Single? Coupled? Kids? Your living situation can impact your borrowing capabilities. Think about how your circumstances may impact your borrowing – now and in the future – and be realistic about what you can afford.

Talk to the experts: With thousands of mortgages on the market, why not recruit in the experts to help you track down the best mortgage for your needs. We offer unbiased advice on all aspects of finding a loan and we can even help to arrange the first home owners grant plus coordinate the whole application process. Give us a call and we’ll explain how we work.

Economic wrap - Spring 2010

The raft of economic data released over the past few weeks confirms the view that Australia remains one of the strongest developed countries in the world – a position that has been bolstered by the latest GDP figures.

According to the Australian Bureau of Statistics (ABS), GDP grew 1.2 per cent over the June quarter following an upwardly revised 0.7 per cent increase in the previous quarter.

The results were labelled “outstanding” by the federal government. Other recently released ABS figures showed slow but steady growth in retail sales, building approvals and house prices.

Shoppers splurged more than $20 billion in July – 0.7 per cent more than in June. The outlook for the housing industry has also improved, with building approvals rising 2.3 per cent in July – the first increase in four months.

While the latest figures no doubt show that the Australian economy is currently faring well, particularly compared to its global counterparts, it was not enough to persuade the Reserve Bank of Australia (RBA) to lift rates.

At the board meeting conducted early September, RBA governor Glenn Stevens said keeping the official cash rate at 4.5 per cent was appropriate “for the time being”. Mr Stevens said despite the fact that the Australian economy was clearly going from strength to strength, the global outlook remained uncertain.

The global economic recovery since the severe recession of 2008-2009 has been artificially boosted by a massive monetary and fiscal stimulus, and the backstopping and bailout of the financial system.

But the fundamental excesses that led to the crisis – too much debt and leverage of the private sector – have not been addressed as the private sector deleveraging has barely started.

As such, fears are mounting that some countries, including the US and Japan, could double-dip into recession.

Moving forward, the RBA will be forced to weigh up the uncertainty plaguing foreign countries like the US against Australia’s positive outlook. Nomura Australia Chief Economist Stephen Roberts said he would expect international problems to take precedence over the national outlook, and believes the RBA will keep rates on hold for the rest of the year. Other economists are factoring in at least one hike before the year is out.

If you’re concerned about how the current rate environment may impact your mortgage or your home buying plans please feel free to give me a call.

Buying at auction

Auctions are a fast, practical and effective way to make a home purchase or investment. If you’re considering buying at auction, here are a few pointers to give you a head start over the competition:

• Have pre-arranged finance: It’s a good idea not to place a bid on a property until you have pre-approved finance. It will cost you an enormous amount of money to break the contract if you do not have the finance to complete it. In addition, by having pre-approved finance you’ll have a good indicator of how much you can spend, allowing you to bid within your means.
• Read the contract: Source a copy of the sales contract as soon as you can or at least before the property goes to auction. The estate agent should be able to send a copy through. Ensure that you receive some legal advice on the contract to ensure it’s suitable. If you’re serious about bidding on the property, you can also negotiate on some of the terms of the contract before it goes to auction.
• • Do your research: Research the area, property prices and past and current sales to give you a good idea on what the property is worth. While you might have formed an emotional connection with the property, ensure that the investment stacks up financially and that there are good prospects for capital growth.
• Inspect thoroughly: Inspect the property inside and out before the auction and take note of all its defects. Also arrange a pest and building inspection before it goes to auction. What may first seem like a bargain may not be the case if you need to spend money redoing the plumbing, electrical/structural work, or demolishing an illegal structure on the land under Council order.
• Treat it as a business deal: Considering the bidding process as a business deal will help you to remain objective and make clear decisions.

If you are an impulse buyer or have an emotional attachment to the property, ask a trusted family member or friend to bid on your behalf. They will have no emotional attachment and will help you to make clear decisions on the big day.

Size does matter

A unit can be a sound investment, but with so many styles of units available, it can be hard to determine which will provide the greatest return for you.

There are pros and cons associated with each purchasing decision.

Ultimately, one of the most important factors to consider before purchasing a unit is its location.
A well positioned unit does present many advantages and often provides very attractive returns. If you need assistance researching the market, as a broker I can help you access property reports and other related information.

Moreover, investors should make sure they buy in a block that is well positioned, desirable and well-maintained.

With these key points in mind you can start to consider the style of unit that best suits your needs. Here are some of the pros and cons with each:

STUDIO APARTMENTS
• Pros
A new demand is emerging for accommodation that services career oriented, single people and independent retirees.
Escalating levels of divorce and separation are also fuelling demand for trouble-free affordable accommodation, and studios are becoming increasingly attractive to both young and older Australians. This can help ensure strong interest from tenants and potential rental returns.

• Cons
The main disadvantage of a studio flat – other than its size – is that it may not rise as quickly in price as one and two bedroom units. Moreover, mortgage lenders’ acceptance of studio apartments as security has traditionally not been as strong as one and two bedroom units, potentially making securing financing more difficult.

ONE BEDROOM APARTMENTS
• Pros
Investors should expect to see a high rental return and should not have too much of a problem sourcing tenants for the property, provided it is close to the inner city. A one bedroom unit is generally larger than a studio apartment and can therefore command a greater rental fee from the occupant/s.

• Cons
Data from Residex has found that many young professionals today are looking for a unit that has two or more bedrooms, so that they can use the second one as a study or work studio.
In addition, renters sometimes seek a property that can fit into any future lifestyle changes, e.g. having a child, which may result in the ending of their tenancy.

TWO BEDROOM APARTMENTS
• Pros
Two bedroom units usually achieve the highest rental return for investors. And provided they are located near water, close to the city, or in an overall good location near transport, shops and schools, finding occupants is generally easy. Additionally, two bedroom units usually have a greater resale value.

• Cons
Two bedroom apartments are traditionally more expensive than one bedroom or studio apartments; the entry level price is therefore higher and can be a barrier for some buyers.
Remember, while there are differences to each type of unit, your investment selection will most probably be dictated by how much you’re able to comfortably borrow and service. If you’d like to explore your investment options and borrowing capacity give me a call.

Loans for the self-employed

The credit crunch and resulting squeeze on liquidity, coupled with the Australian government’s recent crackdown on responsible lending, has made it harder for the self-employed to secure a home loan.
But with one in 10 Australians now self-employed, there is still a strong industry servicing this sector and opportunities are still available for self-employed borrowers – they just need to know where to look.
Here are a few steps that will help self-employed applicants find a home loan to suit their needs:

• Talk to a broker: A mortgage broker can assess your financial situation and help find a loan that suits your needs. They’re a good starting point for self-employed borrowers as they can also give you a range of other information to help make the process of securing financing more simple, and importantly, less stressful.
• Keep record: Ensure all your business records are up-to-date, simple to review and well structured – and this in not just for tax purposes. If you can highlight a savings history, regular income and a functional, well structured business that turns a profit for at least a two year period, you will significantly broaden your borrowing opportunities.
• Look beyond the banks: Non-bank lenders, including credit unions and building societies, may offer low doc and other loan products not offered by the banks. They may also have different requirements, so it pays to see what the alternative lenders are offering.
• Serviceability: Self-employed borrowers can be attractive to lenders if they can demonstrate ability to service a loan, regardless of business/cash flow fluctuations. Highlight other commitments you’ve been able to service on a regular basis. Again, your broker can help package up a good case for securing finance.

The brakes are failing

The Reserve Bank is trying to put the brakes on our major housing markets by increasing the cost of borrowing. John Lindeman, Head of Research at Residex – Australia’s oldest and leading provider of residential property data – explains why this policy can’t work.

“In the last thirty years, house prices rose fastest during 2001 to 2007, even as the RBA was aggressively raising interest rates.

Raising interest rates failed then and the strategy will fail now, because interest rates hit first home buyers far more than existing owners.

First home buyer loans fell by nearly 50% in the March quarter compared to a year ago. It appears that the RBA’s policies are working with respect to first home buyers. Our figures confirm that house prices are falling in the first home buyer markets of Sydney, Brisbane, Adelaide and Perth.

Yet house prices in million dollar suburbs have soared and the RBA brakes have no effect at all. Sydney suburbs such as Naremburn, Lane Cove North, Chatswood, Willoughby and Vaucluse rose by more than 8% in value during the last three months, while Melbourne’s Elwood, Sandringham, Camberwell, Hawthorn, Balwyn and Kew went up even more by an amazing 10%.

Increased equity is the key. Owners are playing leap frog as each seller buys again further along the line, but they use the equity that growth in the market has given them. In the last twelve months, the median value of a Melbourne or Sydney home has grown by around $100,000.

Now is the time to seriously consider using your increased equity to invest in the housing market. Such an opportunity to take advantage of market growth comes rarely and should not be missed.

Speak to your mortgage broker to find out how much your property could be worth, how you could unlock equity and explore some of your refinance options,” comments Lindeman.

Economic wrap - July 2010

After three consecutive rate rises, the Reserve Bank of Australia (RBA) left the official cash rate on hold in June.

The RBA has raised the official interest rate six times since last October, pushing it from the historic low of 3 per cent last year to a more neutral setting of 4.5 per cent.

Renewed signs of global economic weakness have brought the RBA’s spate of rate hikes to a grinding halt however.

Escalating debt problems in Europe have had a significant flow on effect on global markets and the RBA is still trying to establish the potential impact on domestic inflation pressures.

While the European Union has worked hard to contain the Greek sovereign debt crisis, the RBA said in its June board meeting that it would take a ‘wait and see approach’ to the actions of European nations to bring budget deficits under control.

As such, economists are speculating that the RBA will keep interest rates on hold for the foreseeable future.

AMP chief economist Shane Oliver says the problems in Europe as well as softening housing demand will push the RBA to keep the official cash rate at 4.5 per cent until at least August.
The latest statistics from Residex show that while demand for housing has weakened compared to earlier this decade, the house market still grew in value by 1.9 per cent in the last few months while the unit market increased by 3.4 per cent.

In the two dearest markets, Melbourne’s house median value grew by 7.7 per cent and Sydney’s by 3.5 per cent. Overall, all capital city house markets except Perth increased in value in the last twelve months.

Although rates have remained stable, borrowers should consider reviewing their home loan to ensure it’s still the most appropriate for their needs. If your situation has recently changed – for example you have a new job or a child on the way – your current mortgage may not be the best for you.

Please give me a call and we can discuss your situation and current opportunities.

Should you purchase off-the-plan?

Buying a property off-the-plan has been a popular strategy for many years however there are a number of issues that need to be considered.

Upsides
One of the main benefits of purchasing a property off-the-plan is that you can secure a new property at today’s prices, even though it might not be ready to move into for six months or more into the future.

In a market that has bottomed out and is on the rise, the property may have increased in value once it has been completed – giving you plenty of scope for price growth. In addition, you typically don’t need to commit too much upfront in terms of finance.

Developers usually require a 10 per cent deposit to secure a property off-the-plan, with the balance payable once the property is complete. You can therefore use this period – which might range from a few months to a number of years – to save, thereby reducing the mortgage required to secure the property.

This strategy can be very effective for first home buyers seeking to minimise their mortgage commitments or possibly purchase a larger house – or one in a more desirable suburb. It can also be a sound option for those that want to live in a new home but don’t really want to handle the stress of building one themselves.

Purchasing off-the-plan can be a prudent option for investors as well, particularly those that are looking to maximise their cash flow to inject funds into other investments – be it shares, managed funds or other asset classes. Investors can also benefit from tax incentives
when purchasing new properties.

Downsides
While there are numerous benefits of buying a property off-the-plan, it does come with certain pitfalls that you need to be aware of.

Most importantly, should the value of the property decrease during the period between placing your deposit and final settlement, you may struggle to secure the valuation required to secure a mortgage – leaving you out of pocket.

For this reason it’s essential to do your research on the area where you’re buying as well as its long term prospects.

For example, should there be a building surge in the area – and a subsequent oversupply of property – investors may struggle to attract tenants. It may also reduce possible rental returns.

Also, do your due diligence on the developer – there have been numerous cases where developers have run out of funds and unable to complete construction. A developer with a good track record – and even better, one that has been referred by a satisfied customer – is always worth considering.

If you’d like to chat through strategies for purchasing off-the-plan, or need details on financing an off-the-plan property, please give me a call.

Help your children purchase their property

Rising property prices are making it increasingly difficult for first home buyers to save the deposit required by banks to secure a mortgage.

Coupled with rising property prices, it’s becoming more and more difficult for budding buyers to step onto the property ladder.

There are some solutions – including being a guarantor on your children’s property.
Early last year, the Commonwealth Bank conducted a survey which found 87 per cent of parents would like to help their children purchase a home.

Through a parental guarantee on a mortgage, first home buyers can buy their property sooner as well as avoid extra costs like lenders’ mortgage insurance (LMI).

Lenders’ mortgage insurance is usually required when you borrow more than 80 per cent of the value of a home. To avoid paying this sum, many parents are willing to be a guarantor for their children for 20 per cent of the value of their property.

Consider all issues
Others may choose to be a guarantor for the whole amount of the mortgage. However while this option may benefit your child, there are various associated pitfalls.

No matter how it is marketed, acting as a guarantor is considerably more than a mere formality. It essentially means you become responsible for the loan if your adult child cannot make the repayments.

In this respect, if you’re concerned about your personal financial circumstances, or are yourself leveraged on your mortgage, it may be prudent to investigate other options.
One alternative is to help your child raise the deposit for their home.

Have you thought about co-ownership?
Conversely, you might choose to purchase a property with your child, which would not only give them a leg-up into the housing market but also provide you with an investment property.

In this scenario, you can choose to be tenants-in-common rather than joint tenants, as this will change the way you structure the mortgage (i.e. two individual mortgages for one property). The split also does not have to be 50:50, however the percentage difference of ownership would be reflected in the final payout should you sell the property.

If you do choose this strategy, documentation is a must.

While you may not be squabbling with your child now, for example, who knows what’s around the corner?

Of course, there are some drawbacks to this option as well.

First, your child may not qualify for the first home owners’ grant. Second, you may be liable for capital gains tax when you sell your part of the property, as it is not your primary residence.

Whatever route you decide to take, remember it is essential to document everything and leave nothing to chance.

If you would like to find out more about being a guarantor, or other options available to you as a parent, please don’t hesitate togive me a call.

Finding a great loan
If you don’t want to buy a property together with your child, another strategy that can prove effective is to help cover some of the expenses associated with their home purchase.
While first home buyers can receive some government concessions to help cover costs – for example stamp duty waivers under $500K in NSW – there are other costs, including legal fees conveyancing costs, building inspections, or even furnishing a new home, you can assist with.

New or old – which investment is suitable for you?

Property investment is not just about whether you decide to buy a unit or a house, you also have the option of new or old.

There are advantages for both styles of properties, and it really comes down to your short and long term objectives. Where you intend to purchase the property will also influence what type of properties are available in a particular geographic location.

Purchasing a property off-the-plan – which allows you to lock in today’s prices for a property that may be finished in a year or two in the future – can be an effective investment strategy as you will not have to make any mortgage repayments until the property is ready for habitation. The only cost will be the deposit.

The key potential pitfall with an off-the-plan purchase is that there is no guarantee that the property you buy today will have grown or even maintained its value.

The downside of this is that your lender may not be willing to fund the entire purchase price, which will leave you with a shortfall.

There are also pros and cons associated with the purchase of an existing property.
One of the key benefits is that during a slower market you might have greater scope to negotiate on price. In addition, you may be able to add value through renovation – which will modernise the property and possibly help you achieve higher rental return.

On the flip side, existing properties may require more maintenance or have serious structural defaults – which can be expensive to fix. It might also be more difficult to attract tenants to older properties.

Feel free to give me a call to chat through your options as well as investment property financing strategies.

Tax considerations
A dwelling – unlike the land on which it is situated – is a depreciating asset, under Australia tax law. While land values generally increase over time, dwelling values (including their fixtures and fittings) decrease.

What this means for you is that you can claim as a tax deduction the depreciation of your investment dwelling and its inclusions. New homes tend to depreciate faster than old ones in the first ten years so this might be a consideration when you’re making an investment.
But your first move should be to speak to a professional adviser, such as your accountant,
who can walk you through your options.

Add value through renovation

Regardless of whether you plan to sell your property now or years into the future, some simple home improvements will not only add value to your property, they will also increase the quality of your day-to-day home life.

The first and perhaps most important method for increasing your property’s value is to de-clutter – which will instantly give the impression of a bigger property, more spacious property.

And the best aspect of this strategy is that you can do it yourself for free, or you can spend less than $500 and a professional will do it for you.

Another hip-pocket friendly value-adding strategy is to install a sky light.

A home awash with natural light looks bigger than one with artificial lighting. Moreover, a skylight or solar tube will also lower your energy bills.

Also focus on the exterior of your home
First impressions can make or break the sale of a house. If your garden is unkempt, or if you have a wonky front gate or slippery pavers, your property’s value can decrease significantly.
So make sure everything outside the house is working, serviceable and as liveable as the inside. A new mailbox or welcome mat can be purchased for under $30, for instance.
Colourful flower beds or pot plants beside the front door can also give your property a much needed lift while bring a sense of personality to your home.

Top tips for maximising value on a budget

• Replace the fixtures in your bathroom
• Paint, paint, paint. A light cream or off-white can make your house seem more spacious
• If first impressions count, a nice front door is a must. For a couple hundred dollars you can spruce up the entryway to your house
• Place fresh flowers throughout your house to help brighten even the ugliest room
• Make the beds. Always keep your house spick and span for the illusion of space

Economic Wrap - April 2010

The Reserve Bank of Australia (RBA) pushed the official cash rate up 25 basis points to 4.25 per cent this week.

The hike to the cash rate was by no means a foregone conclusion with economists split over how the RBA would act in April. But an improving economy and a strengthening housing market – as well as growing retail sales over the earlier part of this year – were enough to prompt the RBA Board to bump rates up for the second time this year.

According to the Australian Bureau of Statistics, retail sales rose a higher-than-expected 1.2 per cent to a seasonally adjusted $20.14 billion in January from $19.91 billion in December, offsetting the 0.9 per cent fall in December.

Rates have now risen five times over the last six RBA Board meetings, and it would appear that the surging strength of our economy, the falling unemployment rate and rising home prices will prompt further rises as the year wears on.

Indeed, most major bank economists expect the official cash rate to settle around the 4.5-5.0 per cent mark by year’s end.

In his comments to the market following the March rate rise, RBA governor Glenn Stevens said the Australian economy continued to show signs that it was in “good shape” and “stronger than expected, after a mild downturn a year ago”.

“Investment in the resources sector is very strong. Credit for housing has been expanding at a solid pace, and dwelling prices have risen significantly over the past year,” Mr Stevens said.
While borrowers might be disappointed with the rate increase, at 4 per cent the cash rate is still well below its historical average and a long way off the 7.25 per cent it hit in March 2007.

There is also increasing competition in the mortgage rates offered by lenders with a considerable gap remaining between the standard variable rates of the major banks – so borrowers would be wise to explore whether their current mortgage is still the most competitive in the market and suitable for their needs.

If you’d like to run through your options, or discuss how the most recent rate rise will impact your mortgage and repayments, please feel free to give me a call.

Economic Wrap

Interest rates have now risen for the third consecutive month bumping up the cash rate by three quarters of a per cent since its low of 3 percent between April and September 2009.

But for most homeowners, mortgage rates have increased above the cash rate level as the banks have looked to offset the impact of higher funding costs at the expense of the borrower.

This is a concept that is confusing for borrowers because there is an expectation that the Reserve Bank of Australia (RBA) dictates where interest rates should sit - and in normal circumstances that would be the case.

Unfortunately we are still not in a 'normal' market as far as funding is concerned. Though Australia has well and truly sidestepped the recession that has gripped much of the developed world, our banks and financial institutions are still very much dependant on the international money markets for our mortgage funding.

You may wonder why we depend on the financial markets at all for mortgages - surely the banks bring in deposits through one door and lend them through another? The reality is that today there are fewer savers out there than there are borrowers and so the banks must look elsewhere
to fund their customers' property purchases.

But while the December rate rise may have hit us a little harder than expected there may be a silver lining.

One of the reasons the RBA increases rates is to cool consumer spending. With the banks bumping rates up even higher there is a reasonable chance that the cash rate may stay at its current level for a while longer.

The reality is rates are still at historic lows and there is a fair way for them to go before they reach normal levels. While we hope that this transition will be a slow one, it makes sense to start factoring the potential for higher repayments into your budget.

Your first port of call should be to target reducing any high interest debts such as credit cards and store cards. If you're concerned about your debt levels, or are unsure what rates you are paying, feel free to give me a call to discuss.