You may have seen a spate of recent headlines about lenders raising interest rates and changing lending criteria across a range of loan products – despite the official RBA cash rate remaining at an all-time low.
Sweeping changes in the finance industry are leaving both property investors and owner occupiers more than a little nervous. Any increase in interest rates naturally starts to raise fears about future mortgage stress – especially for those with very little ‘wriggle room’ in repayments.
You would expect record low interest rates to be great news for borrowers, but in reality lenders and regulators become nervous about how borrowers will manage their debt when interest rates rise.
Many of the recent changes are the joint result of lenders attempting to ease funding pressures combined with APRA (Australian Prudential Regulation Authority) exerting pressure on lenders to slow down lending in overheated markets in some states.
In addition, despite the fact that lenders have been put on notice NOT to pass on the costs of the 2017 budget levy to customers, the full effect of this levy is yet to be seen. The result is a world of uncertainty!
Lending criteria is tightening for investors and off the plan purchases. Take note if you entered into a contract before these changes occurred!
The natural level for interest rates is around 7%. This is the level usually used by lenders to determine your capacity to repay a loan so there is a natural ‘buffer’ built into repayments.
On the other hand there is a whole generation of homeowners who haven’t experienced rates at that level – the ‘actual’ prospect can be daunting.
Move to a more competitive home loan. If you haven’t refinanced for a while NOW is the time to explore alternate options. In many cases we can help you with that!
Start paying more NOW! If you have the ability, consider increasing your current repayments to a higher level to become acclimatised to higher repayments. If interest rates DO increase then you are already prepared as you will have a buffer in place that may help on those unforeseen ‘rainy days’. Speak to us first before using equity to understand the consequences.
Lock in a fixed interest rate. If interest rates increase during the fixed period your rate and repayments will not rise. This may provide greater certainty for a period of time. On the other hand, if rates decrease, you are locked into your fixed rate for the loan period. You definitely need to TALK TO US to explore if this option is suitable for your circumstances.
How can you tell if you’re at risk?
Those most at risk of future mortgage stress are those who are paying more than 30% of their pre-tax income on home loan repayments. A good start is to take our 4 step mortgage stress test.
CALL US and we’ll tell you how!
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In fact, did you know that Australians are currently spending $165 million per month on renovations?
Rising house prices combined with a lack of affordable supply in a number of areas in Australia often makes renovation a more viable option for potential upgraders.
With a lack of suitable properties they are instead choosing to upgrade their existing home.
Buying an older (cheaper) property and adding value via renovations may provide a greater opportunity for either short term gain through ‘flipping’ or longer term growth as a result of higher rental and/or capital growth over time on a more appealing property.
The key to using home renovation as a strategy for future gain is to DO YOUR HOMEWORK!
New is easier to maintain, less susceptible to termites and more energy efficient.
Before deciding on renovation versus a knock down/rebuild it is essential to crunch the numbers. As part of the process perhaps consider enlisting the services of a valuation expert?
If you would like a recommendation to our preferred property valuation service please call the office.
Are renovations on your mind? Call the office and we would be pleased to book you in for a chat to discuss your finance options.
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Underinsurance is a growing problem in Australia with an estimated 29% of homeowners having NO home and contents insurance and 40% of households WITH insurance being underinsured.
With your home and its contents usually being your single largest investment and a place of comfort and security for your family, these figures are alarming.
You might think you are SAVING money but cheap insurance won’t seem so cheap when you need to make a claim.
Sadly, most of us don’t investigate our current insurance position until after an event has occurred – and then it is TOO LATE.
Remember to check your current insurance policy to determine if you are covered for events such as storms, floods, flash floods and bushfires. Make sure you read and understand the definitions of each. In June 2012 a standard definition of ‘flood’ was developed to give consumers clarity when choosing insurance.
It can be difficult to estimate costs to replace your home and contents. Ideally you should obtain a cost estimate to replace your property from a qualified professional.
Policies with the lowest risk of underinsurance for you are total replacement policies where the insurer agrees to pay unlimited replacement costs.
Sum insured policies have a higher risk of underinsuring you as there may be a gap between the estimated build costs and the actual rebuilding costs.
Seek advice from a professional who will be able to advise you appropriately.
If you believe you are unable to afford the appropriate policy, a professional will shop around for several quotes and consider alternatives, eg increasing the excess to reduce the premium.
Ideally you should explore making savings elsewhere in your budget as you may not be able to afford to replace your property and contents IF the worst should happen.
Call the office for an introduction to our insurance specialists.
There are two types of investment property strategies – positively geared or negatively geared.
The strategy most suited to you will be dependent on your individual circumstances and your long term investment goals and objectives.
More recently, proposed tax changes to negative gearing has been a political hot potato. Let’s face it – nobody likes the goal posts shifted half way through the match! Whatever the outcome, property investment is likely to continue being a popular path to wealth creation for Australians.
Regardless of the property investment strategy you adopt all investors will see benefits in claiming all possible deductions. As a starting point review the lists below and ensure you have paperwork for the expenses you have incurred.
The above checklist should get you started.
Ask us to send you the ATO ‘Guide for rental property owners – Rental properties 2017’. This explains how to treat rental income and expenses for more than 230 residential rental property items!
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