How To Buy Without 20% Deposit?

March 11, 2019/0 Comments/in broker, Finance, Home, Insurance, LOAN, LOW RATE MORTGAGE /by CB_2017

When you consider that a small flat in Sydney could set you back half a million dollars at the moment, saving a 20% deposit to buy that flat – $100,000 – can seem an insurmountable task. That’s where insurance can help.

Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.

What is it?

LMI protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.

What’s in it for you?

For the borrower, it may seem LMI it is just another expense to cover. But insurance can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. In the example above, a $500,000 property, this brings the deposit down from $100,000 to just $25,000.

And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.

What you need to know

The insurance premium is generally a one-off payment, but you may be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage.

There can be a big difference between premiums paid if you have, for example, a 10 per cent deposit saved compared with a five per cent deposit, so it may well be worth trying to gather together some extra funds, even if you despair of reaching the full 20 per cent.

An MFAA-accredited finance broker is an expert on the industry and the credit market. Investigating your options and working out whether to buy now or save extra deposit is a decision that a good finance broker can help you with. Find an MFAA-accredit finance broker here, and look for the ‘MFAA accredited’ sign on your finance broker’s door.

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How To Avoid Loan Default

March 6, 2019/0 Comments/in broker, Finance, Home, Insurance, INTEREST, LOAN, LOW RATE MORTGAGE /by CB_2017

Late payments and loan defaults leave marks on a credit history that can complicate any effort to refinance or secure a loan in the future. Default can also lead to a home being repossessed and sold by the lender, so it’s very important to act quickly to avoid it.

While late bill payments and a loan in arrears can impact your credit report and lead to difficulty securing finance in the future, the worst case scenario is repossession of a property.

In the past, lenders may have taken months to start the proceedings that lead to repossession. However, according to the Financial Rights Legal Centre (FRLC), this is not the case anymore.

“Lenders work to a timetable to begin court proceedings and this can be very difficult to stop once this process has started,” the FRLC explains in its Mortgage Stress Fact Sheet.

Once a mortgagee has defaulted on a loan by failing to make repayments as agreed, they can be sent a Default Notice, which gives them 30 days to catch up on the repayments that are in arrears, as well as continuing to make any repayments that are due in the 30-day period.

“This notice will include an acceleration clause,” the FRLC explains. “This means that if the arrears are still outstanding after the 30 days has lapsed, the entire loan becomes payable.”

Thirty days after the Default Notice, the lender can take vacant possession of a property that is not occupied, or seek a court order for possession of a property that is occupied.

The key to avoiding this substantial trouble is, of course, to keep making repayments. From time to time, circumstances such as unexpected job loss or illness will impact a mortgagee’s ability to make payments and, when this happens, the key is to act quickly, as there are more options before a Default Notice is served than there are after.

“Don’t be scared,” advises the FRLC. “Lenders make repayment arrangements all the time.”

Many lenders will negotiate short-term variations to repayment schedules as long as there is a plan to get back on track, and there are circumstances in which lenders are obligated to agree to such arrangements. It is important, however, not to agree to payment terms that cannot be met.

“Make sure you think through your plan as to when you will resume making payments. Do not promise something you are not certain you can achieve or is not realistic,” warns the FRLC. “If you don’t know when things will improve, ask for an initial arrangement to be reviewed at the end of the agreed repayment arrangement.”

One of the advantages of recognising a looming problem before you get behind in repayments is that a finance broker may be able to assist you to pinpoint the source of the problem, as well as identify savings that may be available by refinancing to a lower-rate or lower-fee loan. Once there are clear signs of financial distress, this will become much more difficult.

If you are struggling to make your mortgage repayments, an MFAA Accredited Finance Broker may be able to help you negotiate with your lender or find a more manageable loan.

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How to avoid paying too much for a home

February 21, 2019/0 Comments/in broker, Finance, Home, INTEREST, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Knowing what a property is worth is central to avoiding paying too much for it.

Set a benchmark

Comparing nearby properties that have sold recently is the best way to assess an acceptable price for the property you are looking at and provides a valuable bargaining tool when you are negotiating with a seller or agent. Make sure the properties are comparable, with a similar land size and number of bedrooms, for example, so you aren’t measuring apples against oranges.

“Your mortgage broker can give you a list of sales in the area and then you can drive around and look online to do a quick comparison. If you can find one or two similar properties then you can be sure of what the property is worth,” advises the finance broker.

Keep in mind current market conditions

The property market is always changing, so doing this research once and sitting on it for a few months will offer little help. Going to open homes and auctions regularly will give you insight into the current state of the market and how much certain properties are going for.

Expand your search

“My number one tip is to look at properties in the suburb next to the one that you want,” says the finance broker. “We find that first-home buyers in particular usually end up buying in the more affordable suburb next door to the one that they first wanted to buy in.”

Don’t exceed your financial capacity

Even if a lender approves you for a particular loan amount, it doesn’t mean you have to accept it – a higher loan amount means higher interest charges over the life of the loan, increasing the total cost of the property purchase, so only ever commit to a loan that you can afford alongside your current income and real expenditure. When calculating figures for the price of a home, ensure you also budget for maintenance and repair costs, as well as any other expertise you may require in the purchasing process.

Bring in the experts

“I would strongly recommend using a buyer’s agent as buying a home is one of the biggest financial decisions of your life and most people go in blind,” says the finance broker. “If cost is a concern, then I would suggest maybe using them only for part of the process that you need help with, such as the negotiation or bidding at an auction.”

Having an MFAA accredited finance broker onside is key to avoid overpaying for finance – they will search out the best loan for you and make sure it is one that you can afford.

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How Does Rental Do In 2019?

February 8, 2019/0 Comments/in broker, Finance, Home, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Australia’s property market has experienced a significant downturn over the past year, driven mostly by losses in Sydney and Melbourne, but there are signs of an imminent improvement.

A growing number of buyers are starting to emerge with the belief that the downward trend will bottom out and plateau in coming months, before prices begin to rise.

Buyer’s agent Nick Viner believes now is the time to buy in Sydney and Melbourne, with many discounted premium properties available with minimal competition.

“This environment is the absolute perfect time to buy because you’ve got more time to consider your options and there’s more choice in terms of available homes,” Mr Viner, principal of Buyers Domain Australia, said.

“You also have the ability to focus on really blue chip properties in your budget. You can bag a more superior property that you can really only get for cheaper in markets like this.”

Most economists believe the total property price falls in Sydney will be within the vicinity of 15 per cent, which means some prime suburbs have already bottomed out.

“I saw the data out on Monday that the market in Sydney has come off nine per cent from its peak last year. What I’m finding in some suburbs is that price declines are probably closer to 10 to 15 per cent, even 20 per cent in some instances. I think we’re probably reasonably close to the bottom.”

Although this assessment is not universal, he said, with homes in less desirable suburbs and investment properties likely to see further falls.

“In general terms, the closer you are to the CBD the more likely prices will hold and then recover first.”

When it comes to future price prospects in other markets, the latest analysis by BIS Oxford Economics concluded that Brisbane, Canberra and Perth will record the strongest growth in the next three years.

Although in almost all locations, the investor market is likely to remain sluggish in the medium-term due to tighter restrictions by banks and sharp falls in rental returns.

Rents have fallen in large parts of Sydney and Melbourne after a prolonged period of flat growth, Mr Viner said.

“That makes it an interesting time for investors,” he said. “I can’t recall a time where rents and sale prices have gone down concurrently.”

Mortgage Choice boss Susan Mitchell said prospective buyers are struggling with tighter lending criteria from banks in the shadow of the royal commission.

Despite home values falling, it is much tougher to buy than during the boom due to difficulties in obtaining a mortgage, Ms Mitchell said.

“This tightened lending environment, means a larger number of Australians are experiencing difficulty securing a home loan due to new, stricter assessment criteria in which their savings and living expenses are being forensically examined.”

Ms Mitchell believes house price slumps could usher in a new crop of buyers, who will eventually drive renewed growth.

“The decline in dwelling values, particularly in the nation’s capitals, could open the door to those looking to get their foot in the property market,” she said.

A survey of experts and economists by comparison website finder.com.au found the majority support ANZ’s prediction of 15 to 20 per cent falls in total in Sydney and Melbourne.

“ANZ’s suggested 15 per cent drop would see $145,500 and $118,500 wiped off the average house price in Sydney and Melbourne respectively,” said finder.com.au insights manager Graham Cooke.

“A 20 per cent drop would see nearly $200,000 disappear from the equity of Sydney homeowners.

“If we do see these types of price drops in the market, recent homebuyers who laid down a 20 per cent deposit could see themselves in negative equity by the end of the year.”

In one booming Australian city, you can pick up an entire family home for $250,000. And savvy investors are now snapping them up.

We all know Sydney’s property market has taken hit after hit recently — but there are other lesser-known areas that are experiencing a sudden property boom.

That’s according to Australian real estate experts, who claim that while investors may have deserted Sydney and Melbourne, their attention has turned to other regions across the country.

According to Daniel Walsh of investment buyer’s agency Your Property Your Wealth, investment activity has now firmly shifted to Queensland.

“Net migration has now overtaken Melbourne due to the affordability that Brisbane has to offer,” he explained.

“We’re also seeing rising demand particularly in the housing sector in southeast Queensland where yields are high and jobs are increasing due to the amount of government expenditure around infrastructure which is attracting families to the Sunshine State.

“With Brisbane’s population growth at 1.6 per cent and surrounding areas like Moreton Bay at 2.2 per cent, the Sunshine Coast at 2.7 per cent and Ipswich at 3.7 per cent, we are forecasting that Brisbane will be the standout performer over the next three to five years.”

Realestate.com.au chief economist Nerida Conisbee agreed, saying Sydney investors especially had started to turn their attention north.

“In Tasmania, most activity is definitely taking place in Hobart, but it has shifted — a lot of the action was in the inner city, but it’s now happening in the middle and outer ring suburbs, as well as in Launceston.

“Tweed Heads and Byron Bay (in NSW) have also had strong price growth at the moment,” she said, adding that in Sydney, trendy inner-city suburbs like Paddington, the premium end of town and areas like Winston Hills in the city’s west were defying the downward trend.

Ms Conisbee said long-neglected Adelaide was also finally booming after recently hitting the highest median house price ever recorded, largely driven by jobs and economic growth off the back of defence contracts, the announcement of the new Australian Space Agency and other investment in the area.

“Inner Adelaide, beachside and the Adelaide Hills tend to have the most activity but there’s also quite a lot of rental demand in low-cost suburbs so we’re expecting to see a bit more investment there in those really cheap suburbs over the next 12 months,” she said.

“There you can get houses for $250,000 so for an investor, it’s a relatively low cost in terms of outlay and the area is seeing really strong rental demand which means you’re more than likely to get tenants, so for investors it’s a really attractive area.”

Mr Walsh said Sydney still remained a solid investment option in the long term — but stressed it was just not the right time to buy in the city due to its market cycle as well as lending constraints.

“While property prices in Sydney have softened by about 9 per cent this year, they are still high, which means it’s not an affordable option for many investors,” he said, noting the city’s high buy-in prices coupled with relatively low rents made the yields quite unattractive.

“At this point in time, the high costs of entry as well as holding costs make it a location that should be avoided — but not forever,” he said.

“The thing is, Sydney is still Sydney, which means that it will always be in demand.

“Its population is forecast to grow by some three million people in the decades ahead, plus it remains our nation’s economic engine room.”

He said the entire NSW economy remained “robust” with unemployment falling to 4.4 per cent last year, with Sydney’s major infrastructure program also proving there was “much to be positive about” in Sydney.

“Sydney homeowners and investors who bought a number of years ago are still well ahead because they chose the optimal time to buy and they remain focused on the future,” he said, adding the optimal time to re-enter the market probably wouldn’t be for at least another year or two.

Queensland

In the Sunshine State, most activity has been centred around the South East and Gold Coast regions, with Brisbane, Moreton Bay, the Sunshine Coast and Ipswich booming along with the Gold Coast, Tugun and Burleigh Heads.

Tasmania

In Tassie it’s all about Hobart, although activity has spread beyond the inner city and into the middle and outer rings, while Launceston has also recorded solid interest.

South Australia

The entire South Australian capital is booming, although most activity is happening in the inner city and Adelaide Hills.

NSW

While many investors have deserted Sydney, areas such as Paddington and Winston Hills and the nearby Central Coast are doing well.

Other booming areas are further north in Tweed Heads and trendy Byron Bay.

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“Interest is strong in the Gold Coast across the board although there’s more action on the south side in places like Tugun and Burleigh Heads,” she said, adding there was also a notable trend towards Tasmania, Adelaide and pockets of NSW.

Australia Dollars Tumbles After Reserve Bank Chief Hints At Interest Rate Cut

February 7, 2019/0 Comments/in broker, Finance, Home, INTEREST, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Financial freedom eludes so many people these days who by all logical conclusions and observations should have obtained it. It’s commonly cited as one of the most important and sought after goals in life and yet is rarely attained. This article does not attempt to give you a magic formula for success but I do share with you the choices that made a difference to me and can, if you choose put you well on the path to freedom.

Consumption
You can choose to spend some or all of your money on “consumption” items. These include food, entertainment, holidays, housing, motor cars, hobbies, and so on. These are things we need to live on a day-to-day basis. They also consist of items that service the things we want and so improve lifestyle.

Investment
You can choose to spend some or all of your money on investment items such as revenue producing real estate, shares, interest bearing deposits, businesses that produce revenue, etc.

Consumption or investment
Two important factors need to be understood about the simple concepts of consumption and investment.

The first factor is that spending on “consumption” items results in reducing the total value of your assets (net worth). Spending on investment items aims to increase your net worth. The second factor is that you have choice. You can choose between spending on consumption or investment items.

Of course, the best spending patterns are those that aim to attain a balance between spending on consumption and investment items.

Choosing consumption or investment
You now know the difference between consumption and investment spending and that you can choose between the two.

All you need to do is to think before you spend. Consumption spending can contribute to your lifestyle (driving a new car is fun, even if it was bought on credit and has created a liability of three to five years of payments). Investment spending provides income and wealth.

Shades of Grey
There is, of course, some spending that is not clearly defined as consumption or investment. Buying your own home is considered by many to be an investment. It isn’t! The purchase usually is financed and the repayments are a liability. The upkeep of a house costs money. There are rates and taxes payable on it. You do not get any revenue from it. If you plan to sell it in a few years to make a profit on its increased value, then it may be an investment. However if you have to buy another house to live in are you really any better off?

Investment spending is necessary for building wealth
In order to build wealth, some investment spending is necessary. The more that goes into investment spending, the bigger and quicker your wealth will grow. However, if too much goes into investment spending, and not enough into consumption, then lifestyle can become meagre. But you can choose.

Accumulation over time
Most people are not born rich. Certainly, some inherit wealth, but consequently may not appreciate it. A few win wealth in lotteries, but ironically, perhaps because they have not worked for it, or are not used to it, could end up squandering the temporary riches.

Everyone, however, has one thing in common. The same amount of time goes past for each of us, and at the same rate. How you employ that time is significant.

Imagine that at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and then by the time you reach 65, you would have accumulated over $70,000 without doing anything else.

If at the age of 21, you invested $1,000 at an average annual rate of return of 10%, and each month invested an additional $100, then by the time you reach 65, you would be a millionaire, without doing anything else.

If you did neither of these things, then the same time would pass, and you would not have accumulated any wealth.

These examples of investment, quite deliberately, use amounts of money that are affordable by most, and if spent on investment, rather than consumption, would probably not be missed.

In terms of investing, time is on your side.
Of course, you may not be 21 any more and you may wish to accumulate wealth at a faster rate. This is possible by increasing the amount invested, and the annual rate of return. It is not possible to systematically accumulate significant wealth (millions) without looking at a timeframe of several years (say 5 to 10). If you are trying to make more money in less time, then your objectives may not be realistic. Perhaps a lottery ticket, crossed fingers and large amount of luck could produce your desired result, but don’t hold your breath waiting.

The power of compounding
In the above examples there is an additional factor at work. The entire return was reinvested and participated in earning the same rate of return as the original investment. None of the investment return was withdrawn and spent on consumption items.

Today’s headline:

The Australian dollar continued to fall overnight after Reserve Bank governor Philip Lowe opened the door to a possible rate cut on Wednesday amid growing economic risks.

In a shift from the RBA’s long-standing tightening bias, Dr Lowe said interest rates could move in either direction, depending on the strength of the labour market and inflation.

“We have a clear trading range for the Aussie dollar. The shift in the RBA’s stance will likely make the Aussie test the $0.70 level versus the dollar,” added Michael McCarthy, chief markets strategist at CMC Markets.

The policy shift caught some investors off-guard because a day earlier the RBA steered clear of an easing signal as it held its official cash rate at a record-low 1.5 per cent.

The Aussie finished the session 1.8 per cent lower at 71.05, its largest percentage decline in more than a year.

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The sell-off weighed on the New Zealand dollar and the Canadian dollar, with both logging declines against their US counterpart.

Dr Lowe’s speech highlighted a difficult balancing act facing policymakers as they try to manage market expectations and ease pressure on growth.

Both the US Federal Reserve and the European Central Bank have signalled cautious monetary outlooks in recent days. The Fed’s pause proved a relatively bigger surprise for markets.

“A year and a half ago, a lot of the chatter was about central bank tightening,” Mr Trang said. “That narrative has changed to, not so much easy monetary policy, but certainly not as tight, in terms of where interest rates lie.”

More broadly, the dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was up 0.34 per cent at 96.391.

The greenback was supported by data that showed the US trade deficit fell in November for the first time in six months.

“While the greenback has fared better of late, headwinds could resume if the economy starts to show signs of succumbing to the global slowdown,” Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, said in a note.

Traders were focused on the near-term outlook for monetary policy as well as any sign of progress in trade negotiations between Washington and Beijing as a March 2 deadline for an increase in US tariffs on Chinese goods nears. US Treasury Secretary Steven Mnuchin said on Wednesday that he and other US officials would travel to Beijing next week for trade talks.

Sterling was steady on Wednesday as Prime Minister Theresa May tried to persuade the European Union to modify her Brexit deal to avoid a disorderly British departure from the bloc.

So finely-balanced, in fact, that the Reserve Bank governor assesses the probabilities of either an increase or decrease in the cash rate as evenly balanced. Previously the central bank had considered it more likely the next move would be an increase.

It isn’t surprising that Lowe is cautious about the direction of the economy. While the starting point for his discussion of both the global and domestic economies is that the year just ended provided relatively strong bases, there are increased risks in both.

The global economy is slowing, with weaker growth particularly evident in Europe and China.

Monetary policy tightening in the US, the trade tensions between the US and China, Brexit, the rise of populism globally, the withdrawal by the Trump administration of support for the liberal order that has supported the rise in living standards globally and China’s attempt to rein in shadow financing were the major influences Lowe cited.

The accumulation of downside risks, he said, had become evident in business and consumer surveys and in the recent volatility in financial markets.

In Australia, again off a solid base of economic growth that the RBA expects to continue, albeit at a marginally lower rate than it had previously (and quite recently) forecast, the key influences over the near term future for the economy relate to income growth and housing prices.

House prices have, of course, been falling quite dramatically – but still remain way above (more than 70 per cent in Sydney and Melbourne) their levels a decade ago. Wages growth, which had been stagnating, appears to be finally picking up. In NSW and Victoria unemployment rates are at levels last seen in the 1970s, job vacancies are at record highs and hiring intentions remain strong.

If global conditions were to deteriorate further, the floating exchange rate and the fact that, unlike most developed economies, there is some scope to deploy conventional monetary and fiscal policies in response to a downturn, provides some insulation.

In the domestic economy, the threat to the RBA’s soft landing scenario is whether the fall in housing prices (which Lowe regards as a “manageable’’ adjustment) continues and has an impact on household spending.

There’s a partly-related uncertainty about the availability of credit generated by the combination of the macro-prudential measures the regulators imposed on banks to slow the growth in the riskier segments of the housing market and the financial services royal commission’s focus on responsible lending.

The RBA has some concerns that what began as a necessary tightening of credit standards might have gone too far, particularly in its impact on the supply of credit to small business. A full-blown credit crunch would be quite destructive.

Lowe said there were scenarios where the next move in the cash rate is up, and others where it is down.

If Australians are finding jobs and wages are rising more quickly, inflation could be expected to rise and the cash rate would rise “at some point.’’

If income and consumption growth disappoint, or there is a sustained increase in unemployment and no rise in inflation, lower rates are more likely.

While the RBA appears slightly less confident than it was late last year that the rosier scenario will prevail, the fact that Lowe is willing to assign it a rough 50 per cent probability – and, as he says, that the bank and government have some ability to respond if the gloomier scenario were to develop – leaves us in a more optimistic and more flexible position than most developed economies.

The margins for error – and the difference between a continuation of a recession-free era now nearing three decades and something quite unpleasant – are, however, quite narrow and somewhat narrower than they were.

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Keeping An Eye On Housing And Interest Rates In 2019

February 6, 2019/0 Comments/in broker, Finance, Home, INTEREST, LOAN, LOW RATE MORTGAGE /by CB_2017

While stock pickers give their guidance for the S&P/ASX 200 (INDEXASX: XJO) in 2019, it’s important to take a look at what is going to drive the Australian stock market.

Drivers both domestically and from abroad

How our domestic economy runs in 2019 will directly impact our local share market but we also feed off strength from offshore markets such as the US who lead the rest of the world.

Australia is not in the same position as the US who is in a defined tightening cycle, meaning interest rates are rising.

The US central bank, the Federal Reserve, raised the target range for the federal funds rate by 25 basis points to 2.25-2.5% during its December meeting, its fourth hike of 2018.

Furthermore, the Federal Reserve foresees two more rate hikes in 2019.

Rates in Australia aren’t necessarily rising

The last interest rate hike in Australia was November 2010 and our last rate cut was August 2016.

Our interest rate has been at 1.5% since August 2016 and while the expectation is for Australia to follow suit with the US and start raising interest rates, we may not be ready.

The US economy was experiencing growth, lower unemployment levels and signs of inflation, which forced its central bank’s hand to begin their tightening cycle (rising interest rates).

Australia’s economy is experiencing positive signs of growth, unemployment and inflation but not yet to the same degree that warrants a rate hike according to our central bank, the RBA.

Snippets from the RBA’s December statement

The RBA’s Governor Philip Lowe in the December monthly statement said: “The Australian economy is performing well.

“The central scenario is for GDP growth to average around 3½% over this year and next, before slowing in 2020 due to slower growth in exports of resources.”

He added: “The outlook for the labour market remains positive. The unemployment rate is 5%, the lowest in six years.

“With the economy expected to continue to grow above trend, a further reduction in the unemployment rate is likely.”

He also said: “Inflation remains low and stable. Over the past year, CPI inflation was 1.9% and in underlying terms inflation was 1¾%.

“Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual.

“The central scenario is for inflation to be 2¼% in 2019 and a bit higher in the following year.”

Housing market is key in 2019

Housing is very important for our domestic economy due to the ripple effects it has within our economy.

In a market of rising house prices, it is not just the home owner that experiences a positive wealth effect.

There is also the lender, the valuer, the mortgage broker, the real estate agent, the advertising, the tradesmen, the gardener, the insurance… the list goes on.

Let’s use an example of a person who bought a $1 million property with a $200,000 deposit ($200,000 equity, $800,000 debt).

If that house increased to $1.05 million in value, assuming the debt is the same, the equity component increases to $250,000, increasing the wealth by $50,000.

This person is a lot more likely to book a holiday, dine out at a restaurant, or pay to get their car washed.

If the housing market continues to fall, the wealth effect reverses and it can reach further across our economy than you may think.

Our central bank keeps a keen eye on housing

With housing being a large driver of our domestic economy, the RBA knows it must be well-informed on the state of the housing market to make policy decisions.

Lowe said in the December monthly statement: “Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

“Credit conditions for some borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend.

“The demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed.

“Growth in credit extended to owner-occupiers has eased to an annualised pace of 5–6%.

“Mortgage rates remain low, with competition strongest for borrowers of high credit quality.”

The much-anticipated report from the Royal Commission has been met with mixed reactions from different groups and stakeholders. But the ultimate question is, will it really benefit borrowers in the end?

Arthur Moses, president of the Law Council of Australia, said the recommendations will have a far-reaching impact on the banking and financial services sector and will ensure that consumers will be treated fairly.

“Australians were rightly shocked by some of the stories heard during the extensive Royal Commission hearings – of profit being put before people and in some instances the rule of law,” he said.

Amongst the 76 recommendations made by Royal Commission is the ban on trail commissions starting July next year. Over the next three years, mortgage brokers will be shifting to a consumer-pays model.

While this recommendation is intended to make sure that clients’ best interests are protected, some think this would only cater to the pockets of big banks.

Mortgage & Finance Association of Australia CEO Mike Felton said the Royal Commission’s recommendations put the broker channel at risk and will likely impair competition and damage access to credit.

“I fail to see how decimating the broker channel, leaving Australians with a handful of lenders to choose from, is good for competition, or good for customers,” he said.

A consumer fee-for-service model will mean brokers and smaller lenders will no longer be able to compete on a level playing field with major banks, he said.

“This sort of fee would see consumers deserting brokers, cutting access to smaller lenders and driving consumers into the branches of the major lenders. This will increase bank power, and make getting access to a home loan harder and more expensive for home buyers,” Felton said.

Pure Finance founder Brendan Dixon said banning broker commissions will only boost the profits and be an advantage to big banks.

“On top of this, how will low-income-earning Aussies afford a fee for a mortgage broker to get a cheaper deal? They won’t, but the rich will (if there are any brokers left),” he said.

However, some industry experts expressed hope that the recommendations will put an end to the over-the-top credit restrictions that have been in place for more than three years.

Property Investment Professionals of Australia (PIPA) chairman Peter Koulizos said these limitations have already started putting the economy in jeopardy.

“Solid borrowers, who should have no problem securing finance under normal credit conditions, are getting knocked back for silly reasons such as spending $50 on Uber Eats on a Friday night,” he said.

Mortgage industry is playing an important role today to meet the people’s needs. The industry is constantly engaged in making changes and bringing new ways to assist people in some of their most important personal and financial decisions. The industry is involved in making changes to suit people’s requirements keeping in mind their financial conditions. Along with conventional fixed rate products mixtures of typical adjustable rate mortgage products, interest-only and payment option type ARMs, high LTV financing and FHA products have been introduced. This expansion and variety in the products is intended to help larger number of people to qualify for the home ownership. There is a fair competition among the lenders to provide customers with the best rates staying within the boundaries of State law. Customer satisfaction is paid maximum importance today. This trend has helped the borrowers belonging to all levels as the positive affect is now reaching people on a wider range. People have got the opportunity to take advantage of a wide range of products available in the current market. This has raised the buying process with a greater mass being able to participate in the program. But with this positive feature there has been a recent trend of increase in the number of fraud cases in the industry which is a growing problem in the industry today.

According to the Royal Commission, the number of fraud cases in the mortgage has increased over the recent years. Mortgage companies have been using false documents and getting them signed by borrowers. Many of them have even charged high interest rates and borrowers have been making such high interest payments due to lack of awareness on recent market trends.

It is found out that an average homeowner in Australia has to pay $1250 more in sub-prime mortgage industry. Sub-rime mortgage are offered to high risk borrowers who may have been rejected by other lenders. In recent years this industry has seen a considerable growth with a lot of consumers getting qualified for this loan. Consumers who face difficulty with the credit market are generally availing this loan. But, this growth has simultaneously given rise to predatory lending affecting the most vulnerable lenders. This kind of abusive lending is generally directed to the lower income and minority borrowers. Generally the elderly homeowners with reduced incomes become the target of these sub-prime home equity lenders as they often have considerable amount of equity in their homes. The most harmful practice begins with a loan based on the home equity rather than on borrower’s ability to repay. These borrowers often fail to repay and the lenders acquire the borrower’s home equity and ultimately the borrower loses his home through foreclosure or by signing a deed to the lender in lieu of the foreclosure. There are some other kind of abusive practices which are illegal under various federal or state laws.

Considering the growing rate of predatory lending in the mortgage industry, the Royal Commission has decided to have an audit service for protecting homeowners from abusive lending practices. But borrowers should also be aware of such unlawful activities and keep themselves away from such lenders.

Borrowers should consider some preventive measures to protect themselves from predatory lenders. They should not go by the rates that lenders often advertise. These rates are in fact, much lower than the actual fees charged by such lenders. The lenders advertise such low rates just to lure consumers so that they can approach them for loans.

Borrowers should demand a written copy of the fees that they keep paying to the lender on a monthly basis. This is because lenders often provide an estimate of fees at closing and later they charge higher fees pretending that they have forgotten to include these charges. But keeping the proofs of such documents will help borrowers in case of any discrepancies in the mortgage process.

If there is a rise in rate in the market during the time period between the application and closing, the lenders charge higher rate to borrowers. On the other hand if the rate falls downwards, the lenders try to ignore it and the borrowers are deprived of the advantage of the lower rate. So, the borrowers should monitor the market during this period.

The borrowers should try to keep a track of all the documents involved during the process and ask for proper clarifications wherever they have a doubt. Going this way will minimise the problems of being cheated by the mortgage companies to some extent. The borrowers should try to consult an Attorney or a professional known to the borrower and get the documents verified by them.

PROFESSIONAL MORTGAGE BROKER PERTH

LOCAL REAL ESTATE AGENT

Taking Control Of Your Finance

February 5, 2019/1 Comment/in broker, CREDIT CARD, Finance, Home, Insurance, INTEREST, LOAN, LOW RATE MORTGAGE /by CB_2017

Consumers will likely face more expensive loans and more time wasted at banks if the royal commission’s proposed mortgage broker rules go ahead, a top lending expert has warned.

In a landmark report, commissioner Kenneth Hayne found shocking evidence of greed and misconduct in the Australian financial sector at the expense of consumers and businesses.

The former High Court Justice called for widespread change in how mortgage brokers operate, arguing brokers should receive an upfront free from customers, rather than earning upfront commissions from banks, and ‘money for nothing’ trail commissions that they keep receiving for the duration of a mortgage.

On face value, the proposed changes sound like welcome news for consumers, but CoreData head of lending Simon Elwig has predicted unintended consequences that could leave consumers poorer and make the Big Four major banks winners. Mr Elwig said the proposed rules would hit the mortgage broker industry hard. He argued the changes would lead to fewer loans being offered by smaller lenders, leading to a less competitive home loan industry and more expensive loans for customers. The biggest blow to mortgage brokers would be getting rid of trail commissions, he said. Trail commissions are ongoing payments banks make to brokers over the life of a loan.

In his report, Mr Hayne argued the commissions were like ‘money for nothing’ for brokers.

‘Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?’ he wrote.

‘It cannot be that they are deferred payment of fees earned earlier when the amount paid as trail depends upon the length of the life of the loan.

‘And it cannot be that they are a fee for providing continuing services given there is no obligation for the broker to do so and no evidence of it being done.’

Mr Elwig told Daily Mail Australia the rules could drive many mortgage brokers out of the industry.

The fees make up about 40 to 45 per cent of their income, he claimed, and brokers settle 59 per cent of mortgages in Australia.

‘That would mean that you’d get a reduction in mortgage brokers, because if your income drops that much, people say, “alright, I’m getting out”,’ Mr Elwig said.

Brokers will say ‘alright, I’m getting out’ … Major banks won’t need to discount as much

‘What that means is you would get less volume to the non-major (lenders).’

Mr Elwig said over the past five years, mortgage brokers have increasingly channeled customers to smaller lenders, creating a more competitive market.

The amount of loans brokered with the major banks by major lender AFG has dropped from 73.6 per cent in 2013 to 57.8 per cent last year, he said.

But the changes would bring the drift to smaller lenders to an end, he argued: ‘Now that will stop, that will reverse.

‘Reduced competition would affect the discounted rates currently being offered by the Big Four banks, meaning more expensive loans for consumers,’ he said.

‘The majors, at the moment (their) rates are very competitive, meaning big discounting is going on,’ Mr Elwig said.

‘The impact will be that if the mortgage brokers reduce in the market, the major banks will not need to discount as much to get their loans.

‘If they’re not discounted loans, at the end of the day the consumer is paying a higher rate than they might otherwise have done.’

And Mr Elwig said there’s another big consequence for consumers.

If there are fewer brokers, customers will likely have to spend more time shopping around for a loan.

‘What it will also mean is if there’s less brokers, a customer would have to go to more than one place.

‘They’d have to go to different banks so therefore the way things are going it’s more difficult to get a loan.

‘So a consumer, rather than go to a broker, might have to go to Westpac and get declined and then go somewhere else and have to do more work themselves.’

Mr Elwig said he did not think customers would come under greater scrutiny for their spending prior to getting a loan, because that is already happening.

There have been widespread reports of borrowers having to divulge their smallest household costs, like Netflix subscriptions and gym memberships, while applying for loans.

‘That’s already happening, that impact has already happened. It’s going to be more of the same,’ he said.

Ratings agency Moody’s Investor Service backed Mr Elwig’s argument in a statement on Monday, warning the new borrower-pays system would affect competition.

‘We expect this change will consolidate the market position and pricing power of the four major banks,’ Moody’s said.

And the Federal government has sounded a note of caution about the mortgage broker rules.

Treasurer Josh Frydenberg said moving to a customer-pays model would benefit the big banks.

‘In effect you would be putting the mortgage brokers out of business and giving that business to the big banks.

‘We don’t want to give the big banks a free kick.’

The government has not publicly supported the recommendation to phase out upfront commissions. It has, however, said it will ‘take action’ on all 76 of the commission’s recommendations.

A blow to farmers as well?

The royal commission has called for measures to make it easier for farmers to handle debts owed to banks while land is affected by drought or natural disaster.

The commission called on the banks to amend their code so they don’t charge default interest on agricultural land loans during times of drought or natural disasters.

The commission recommended banks only call in receivers or administrators for a distressed loan as a last resort. And it advocated for a national scheme of farm debt mediation.

But Mr Elwig warned of possible unintended consequences from the new rules in that banks could become more cautious about doing business with farmers.

‘They (the commission) is trying to protect the farmers. It might have an unintended consequence.

‘Banks are also, when they try and do commercial deals, they’re always risk averse.

‘So it might have the opposite effect’.

WHAT ARE TRAIL COMMISSIONS?

Trail commissions are ongoing payments banks make to brokers over the life of a loan. Brokers received a bigger commission for bigger loans.

In his report Royal Commissioner Kenneth Hayne slammed the commissions as, ‘to put it bluntly … money for nothing’.

Mortgage brokers are ‘extremely disappointed’ trail commissions have been singled out by the commission.

Peter White, CEO of the Finance Brokers Association, was quoted telling the Australian Financial Review that they are really a ‘deferred upfront fee.

‘The impact will be upfront commissions and interest rates going up,’ Mr White said.

In his report, Mr Hayne wrote of the commissions: ‘Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?’

In this turbulent economy climate, to find money to invest for your future, you need to make sure that your outgoing expenses are less than the income that you are receiving. You need to develop an excess that you can have free to invest.

Now before you start to think….”well I don’t have any excess left…if I was earning more money….then I would have some free”. Let me dispel this myth…and tell you that it is a known and excepted fact that the amount of money that people earn has little if any bearing on whether or not they have an excess left to invest. The only way to create an excess it to spend less than you earn, instead of spending all that you earn.

Even doctors and lawyers, who earn well over $100,000.00 per year, often end up at retirement with little more Net Worth than factory or office workers.

Net Worth is calculated by deducting the value of all the liabilities or loans you have from the income-producing assets owned to give you the net value of your income-producing assets.

Why aren’t high-income earners retiring wealthy? Why don’t they end up with a greater Net Worth than someone on a low income? It is quite simple. Human nature seems to dictate that whatever anyone earns….they spend….some even spend more than they earn and charge it on their credit card.

The higher your income grows…the more you spend and the only way to get out of this cycle is to realise that it is happening, and make a concerted effort to reverse this habit….and to begin reducing your expenditures so that you can free up money to invest.

The best way to do this, is to try the 10/90 plan. This plan simply means that as soon as you receive your pay….you put aside 10% of it for investment….and then use the other 90% to live off of. Put aside the 10%, and then pay all the bills and do the grocery shopping….and then after that whatever is left over you can spend.

Most people do it the wrong way around…they pay the bills, do the shopping and spend what is left over, never leaving any left to save or invest. By taking the investment money out first you will alleviate the temptation to spend it.

The road to wealth is not determined by how much you earn, but by how you utilise the income you have and how much you save and invest.

You need to take control of your finances. One of the best ways to start having more control over your money is to find out where it has all been going, and then amend your spending habits to allow you to live within the 10/90 plan.

If you write down a list of your monthly net income, then in another column write down a list of the essential items that you have to spend money on. You should be able to work out an average for telephone, gas, electricity, insurances and rates, from your previous bills. Work out an average of how much is spent on grocery shopping and petrol. If there are any other necessary utilities include them as well. Then deduct the second column from the first – and this will give you the maximum potential savings for each month.

It can be quite startling how high this figure can be and make you wonder where all the extra money went.

Another good learning experience is to simply write down for a fortnight every dollar spent and write next to it what it was for. You will soon find that there are a lot of unnecessary expenses, often caused by impulse buying, where you have spent money on items that you neither needed or really wanted, and could easily have gone without.

When you can begin to recognise these areas, and start to consider whether or not you are spending your money wisely, before you hand it over, then you will be beginning to take control over your money and are well on the way to embarking on your investment journey, which will enable you to have a financially secure future for you and your children.

There are many worthy ways to spend your time and energy. Our society is in desperate need of people who will care about people and things other than themselves. There are many ways that adults can help leave a positive legacy for the generations behind them. One of the best ways that we as adults can care for the world we live in is to invest in the young people all around us.

Some of you are probably thinking that you are parents and that isn’t that enough of a contribution to make to the next generation? Being a parent is one of the most obvious and perhaps best ways to invest in children, but it is not the only way. All adults, parents or not, have the ability and the responsibility to make life better for children and young people. I believe we have this incredible job to do, that we have the task of spending our lives on things that make life better for others.

Taking time to invest in others requires just that time. You cannot get very far in any relationship without putting time into it. If you are parent, take the time to parent well. Take time to get into the lives and hearts and minds of your kids. Learn about the things they care about, listen to the things they are scared of or excited about. Take your kids to their favourite park or read a great book with them before bed each night. Time is one of the best ways you can invest into children. If you are not a parent, find ways to interact with children. Offer to take the kids of your friends or neighbour for an evening. Take time to play games, go for walks, eat dessert or read books with kids. Invest yourself into the future of our country.

Learning to invest in young people requires that you offer yourself. By offering yourself I mean you allow children to learn from your life. Share stories from your past, lessons you’ve learned, and things you’ve failed at. Young people love to learn how adults have done life. Invest into them by being open and honest about the way you’ve lived, the decisions you’ve made and the things you would do differently if you could start again. You might be amazed at how much kids respond to adults that are offering themselves.

Few things are as valuable as taking time and energy to invest into children and young people. Think about ways that you could share what you’ve learned about life with others.

LOCAL MORTGAGE BROKER

KENWICH REAL ESTATE AGENT

First Home Buyer Advice I Wish Someone Had Told Me

February 4, 2019/0 Comments/in broker, Finance, Home, Insurance, INTEREST, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Purchasing a property is often the single largest investment a person or family will make, but it can be a bewildering experience if you don’t really know what’s going on.

Having just bought my first home, I was left wishing I could find a course on “how to buy a house”, instead of having to learn by experience and blunder through with little understanding.

Some things might seem self explanatory or obvious to people who already own property, but I found there was a lot of contradictory information out there.

Here are some things I wish I knew before I started looking to buy a home.

You don’t necessarily need a 20 per cent deposit
The 20 per cent deposit is ideal.

The prospect of saving a large deposit — say $100,000 for a $500,000 property — can be daunting but lenders do provide mortgages to buyers who have saved less than one-fifth of the purchase price.

But you will have to pay for it.

Buyers with less than 20 per cent of the purchase price will often be required to pay lenders mortgage insurance (LMI) which protects the credit provider in the case the borrower cannot pay.

It can be added to your loan, but the lender can also charge you a higher interest rate.

What the expert says: Laura Higgins, senior executive leader with ASIC’s Moneysmart, said while it was not essential, the 20 per cent deposit was “absolutely preferred”.

“If you have a 20 per cent deposit that could set you up for repayments that suit you better, afford more options around the kind of mortgage you could access and is absolutely the best option,” she said.

“That doesn’t mean it’s an option for everyone; there are other ways to get entry into the housing market and make arrangements for your finances.

“I think it’s a good thing to aim for, but it is inspirational for some people, I appreciate that.”

Banks will lend you a scary amount of money. Having visited a mortgage broker early in the research phase, it became apparent some institutions would have loaned double what my partner and I could afford to repay.

The broker entered our earnings, expenses and a modest deposit amount in a program, which returned the different amounts institutions were willing to lend us.

Some were offering to lend us well over $1 million, with repayments that would have been unachievable.

It could be easy to fall into a trap where you borrow too much to buy a dream home, and then struggle to make the repayments.

What the expert says: Ms Higgins said first home buyers should fully understand their budget, and what they can afford in order to maintain the lifestyle they want.

“I think it’s probably really being honest about what you can afford because of that emotional attachment that can often come along with falling in love with a house,” she said.

“And really understanding that if you don’t want to compromise your lifestyle, or there is a certain life you want to lead, you don’t want a mortgage to be the thing that makes you unhappy.

“It’s about being realistic about what you can afford, what that looks like day-to-day with the way you live and preparing for a change.

“Interest rates go down but they also go up, so being really prepared.”

Buying a house is not just a matter of saving up a deposit and then purchasing a house.

There are a range of other costs including stamp duty, transfer fees, government fees, charges for building and pest reports, LMI and conveyancing and solicitor’s fees that can add up to thousands of dollars.

These all chip into the deposit you have saved and reduce the amount you actually can put into the purchase.

What the expert says: Ms Higgins said it was important to fully research what costs were associated with purchasing a house and ensure there were no surprises when it came time to sign on the dotted line.

“Often if you’re buying that house with someone else make sure you do that together or with friends, or speaking with family members about their experience as often that will trigger a really interesting conversation about stamp duty or how they managed those surprise expenses if they were a surprise to them,” she said.

Pre-approval is no guarantee of getting a loan
Many lenders offer a pre-approval service where they will weigh up your income, expenditure and amount of personal debt against your deposit to see if you qualify for a loan.

It gives you confidence to go ahead and make offers on properties within your budget, but it is no silver bullet.

The full loan approval only comes after the lender receives a signed contract, where they investigate and see if the property is a worthwhile investment.

What the expert says: Ms Higgins said pre-approval was good for gaining a realistic understanding of your budget.

“It’s really important at the beginning of the process so you know you’re looking at places you can afford, rather than falling in love with places and then trying to reverse engineer it to get the funding,” she said.

You need to take out insurance the day you sign the contract
After agreeing to a price with the seller, there is still a settlement period before the buyer can actually move in.

Even though it may be 30 days before you pick up the keys, you need to take out insurance on the property in the interim to protect against any damages.

The legal liability for damages varies between the states and territories, but some lenders will insist that buyers cover themselves before settlement.

It is probably wise to take the advice of your solicitor or conveyancer to learn of your position.

What the expert says: Ms Higgins said it was a good idea to protect your new big purchase.

“You need insurance when you sign up to that house, before you move in your things. You don’t want to lose that investment or be vulnerable,” she said.
Some agents prefer to sell houses via auction, but it can be a trap if you are unsure of your finances or have doubts about the building and pest reports.

In a standard conditional offer you can add a backstop, where if your finance does not get approved or the building has any issues you can pull out.

But you do not have that luxury with an auction, meaning if the reserve price is met and you win, you will have no option but to buy the property.

What the expert says: Auctions can be a trap for those who do not fully understand what they’re looking for, Ms Higgins said.

“Do your research, go to a couple of auctions and make sure the first auction you go to is not the one you’re participating in,” she said.

“It’s a lot of work to get ready to buy a house and it isn’t just about spending Saturday mornings wandering through the neighbourhood.

“It is a bit of practice as well so you can feel confident when you got to an auction you understand the conditions and what you’re signing up for and you’re prepared.”

The process can feel like a game with changing rules
Buyers and agents seem to be locked in a game of distrust where everyone is holding their cards close to their chest.

I naively thought honesty would be the best approach and was happy to discuss my budget and how much I was looking to spend.

When making an offer, I was at times told I was “in the ballpark”, only to find out the owner was looking for $50,000 more than I could pay.

Seemingly simple questions like “how much does the owner want?” were met with riddle-like responses like “the market decides the price” or “the owner has decided to go to market without a price as buyers have more information than ever and have a better handle of the value”.

While I was being honest, it took me a while to understand the agents probably believed I was not being fully truthful about my budget with them.

There appears to be little choice but to play the game, trying to slowly feel out the middle ground.

It’s also important to remember the agent works for the seller, not for you.

They will use sales tactics to try to eke out more from you to get more for the owner, and ultimately for themselves in commission.

What the expert says: Ms Higgins said buyers needed to make use of the vast volume of information online to gauge prices, and sift through all the mixed messages.

“I think we can understand the shape of the neighbourhood so much more easily, so again it’s about doing your research,” she said.

“If you’re interested in a house you can get to know that real estate agent’s properties, what they’ve told people and then what they sell for, and how closely they are aligned, or how far off they are.

“It is a lot of work, and it can be a really great fun project, but it does take time and lots of research.

“Ask lots of questions and really invest in the process.”

When it comes to owning property many people around the world will tell you that this is a lifelong dream. While once an opportunity that seemed to be reserved for either the wealthiest or the most miserly among the general population home ownership is now something that is accessible to a larger segment of the population than ever before.

This is good news for many but for some can lead to confusing encounters with mortgage brokers and serious sharks along the way. The best advice that anyone can give someone attempting to embrace the dream of real estate ownership is to deal with a reputable company when it comes to obtaining a mortgage. Even when dealing with reputable lending companies you must watch out for those who do not have your best interest at heart.

If you would like some very practical advice when it comes to getting a mortgage, then you are at the right place. First of all, avoid lenders that are encouraging you to take a loan for more money than you are comfortable repaying. Foreclosures are at a record high when it comes to the mortgage industry at the moment because of predatory lending practice on behalf of some mortgage brokers. These practices include convincing people to borrow more money than they could realistically hope to pay over time and have any quality of life as well as convincing homebuyers to take out adjustable rate mortgages in the beginning in order to procure lower rates.

Shop around before you decide to buy when it comes to mortgages. This doesn’t mean to actually apply for mortgages all over town but do the research and compare rates before applying with any one company. Talk to several different brokers and find out what they have to offer you that the other company down the road cannot or will not offer. Keep in mind that mortgage companies will offer everything under the sun from free toasters to free vacations in order to get you to go with their company. The proof is in the terms however. It is simply not worth that free toaster if you are going to end up paying a 6.9% interest rate instead of a 5.9% rate. You will have paid for that toaster many times over in the process of paying the mortgage.

Even after you’ve applied for a mortgage, if the deal seems to be going south check out your other options. There are all kinds of problems that crop up along the way. You are not marrying the mortgage broker. Nine times out of ten you aren’t even making any sort of commitment at all to your mortgage broker. You will however be living in the house you select. If there is a problem with the mortgage company for the specific home you want do not hesitate to change in order to get the home you desire for your family rather than allowing the mortgage company to dictate what kind of home you can buy.

I mention this because we had a very similar problem when we purchased our turn of the century home. The mortgage company didn’t think the home was worth the risk because of its age. We saw the beauty and the potential in our home that is coming along quite nicely and managed to be approved and financed in short order with another mortgage company. If this was the case in our situation, chances are that it will work for others as well.

In all honesty, it is nearly impossible to buy a home in this day and age without taking out a mortgage. It is best however if you see the process as a learning experience rather than an abject lesson in intimidation. This is your home and your money that will be spent in order to purchase the home. You are asking them for a loan but quite frankly, they need your business. Do not hesitate to shop around for the best deal with a mortgage just as you did when finding your home.

PROFESSIONAL MORTGAGE BROKER KENWICK

TRUSTED LOCAL REAL ESTATE AGENT

Aussie Homeowners Trapped In ‘Mortgage Prison’

January 31, 2019/1 Comment/in broker, CREDIT CARD, Finance, Home, Insurance, INTEREST, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Australia’s weaker-than-expected economic performance during the third quarter of 2018 has triggered many rate-cut predictions — however, one expert said that many economists and market watchers are just crying wolf.

In an analysis on Realestate.com.au, economist Nerida Conisbee said there was not enough justification for the Reserve Bank of Australia (RBA) to cut the official cash rate, even with the 1.9% inflation rate due to Australia’s lacklustre economic growth.

“The inflation rate’s fall below 2% is one of the reasons some commentators have speculated that the RBA may soon cut the interest rate. But when the inflation rate drops below 2%, it isn’t an automatic response from the RBA to cut the rate; they also look at the outlook as to where inflation will head without their intervention,” she said.

Despite the muted GDP result and restrained consumer sentiment, unemployment rate remains low. The current market situation will be unlikely to influence the RBA in making its monetary policy decision, Conisbee said.

However, Conisbee believes that a continued uptick in short-term money market interest rates will hugely affect the RBA’s decision.

Australian banks currently face expensive access to overseas funds, affecting their home-loan profit margins. Around 20% of the big four banks’ money is sourced from short-term money markets. To counter the effects of high funding costs, banks are starting to increase their mortgage rates.

This, in turn, could dampen consumer spending and affect the RBA’s inflation target.

AMP Capital chief economist Shane Oliver told Realestate.com.au that this scenario would likely compel the central bank to cut rates.

“The Reserve Bank might say, ‘Well, we don’t want mortgage rates to go up, because that will affect the economy, therefore we will cut the cash rate with the aim of bringing down the debt rate and offsetting the increase in funding cost that the banks have experienced,’” he said.

But the main threat seems to be the negative wealth effect brought about by the housing downturn. Oliver said when house prices fall, people tend to spend less because of their perception that their wealth has declined.

“And that leads to weaker consumer spending, which has the impact of keeping price inflation lower for longer. [Conversely], when property prices were rising in the past, people were happy to spend more and save less, despite lower wages,” he said.

Whether or not to re-finance is a question homeowner may ask themselves many times while they are living in their home. Re-financing is essentially taking out one home loan to repay an existing home loan. This may sound odd at first but it is important to realise when this is done properly it can result in a significant cost savings for the homeowner over the course of the loan. When there is the potential for an overall savings it might be time to consider re-financing. There are certain situations which make re-financing worthwhile. These situations may include when the credit scores of the homeowners improve, when the financial situation of the homeowners improves and when national interest rates drop. This article will examine each of these scenarios and discuss why they may warrant a re-finance.

When Credit Scores Improve

There are currently so many home loan options available, that even those with poor credit are likely to find a lender who can assist them in realising their dream of purchasing a home. However, those with poor credit are likely to be offered unfavourable loan terms such as high interest rates or variable interest rates instead of fixed rates. This is because the lender considers these homeowners to be higher risk than others because of their poor credit.

Fortunately for those with poor credit, many credit mistakes can be repaired over time. Some financial blemishes such as bankruptcies simply disappear after a number of years while other blemishes such as frequent late payments can be minimised by maintaining a more favourable record of repaying debts and demonstrating an ability to repay existing debts.

When a homeowner’s credit score improves considerable, the homeowner should inquire about the possibility of re-financing their current mortgage. All citizens are entitled to a free annual credit report from each of the three major credit reporting bureaus. Homeowners should take advantage of these three reports to check their credit each year and determine whether or not their credit has increased significantly. When they notice a significant increase, they should consider contacting lenders to determine the rates and terms they may be willing to offer.

When Financial Situations Change

A change in the homeowner’s financial situation can also warrant investigation into the process of re-financing. A homeowner may find himself making considerably more money due to a change in jobs or considerably less money due to a lay off or a change in careers. In either case the homeowner should investigate the possibility of re-financing. The homeowner may find an increase in pay may allow them to obtain a lower interest rate.

Alternately a homeowner who loses their job or takes a pay cut as a result of a change in careers may hope to refinance and consolidate their debt. This may result in the homeowner paying more because some debts are drawn out over a longer period of time but it can result in a lower monthly payment for the homeowner which may be advantageous at this juncture of his life.

When Interest Rates Drop

Interest rates dropping is the one signal that sends many homeowners rushing to their lenders to discuss the possibility of re-financing their home. Lower interest rates are certainly appealing because they can result in an overall savings over the course of the loan but homeowners should also realize that every time the interest rates drop, a re-finance of the home is not warranted. The caveat to re-financing to take advantage of lower interest rates is that the homeowner should carefully evaluate the situation to ensure the closing costs associated with re-financing do not exceed the overall savings benefit gained from obtaining a lower interest rate. This is significant because if the cost of re-financing is higher than the savings in interest, the homeowner does not benefit from re-financing and may actually lose money in the process.

The mathematics associated with determining whether or not there is an actual savings is not overly complicated but there is the possibility that the homeowner will make mistakes in these types of calculations. Fortunately there are a number of calculators available on the Internet which can help homeowners to determine whether or not re-financing is worthwhile.

Unfortunately, thousands of Australians are stuck in a “mortgage prison” with new lending criteria leaving them unable to refinance their loans to get a better rate.

Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow you to borrow.

Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate — no bank will lend them the amount they need.

Lending criteria has been tightened in the past year. The ongoing Financial Services Royal Commission is likely to tighten the criteria even further — meaning people will be able to borrow even less than they once did.

With homeowners unable to shop around, they can be stuck paying a high interest rate, which will leave them potentially paying tens of thousands, even hundreds of thousands more over the life of a loan.

Recently the Bank of Queensland and Auswide Bank announced they will raise variable mortgage rates as their borrowing costs grow. This follows a warning last month from Credit Suisse that out-of-cycle rate rises were on the table.

Precise numbers of Australia’s mortgage prisoners are hard to come by, but Mozo investment and lending expert Steve Jovcevski told news.com.au that he expected most of them are those who have borrowed and bought in the last five years.

He said the changes in how mortgage eligibility are calculated have made a huge difference for many recent borrowers, particularly as banks start to raise rates.

Before lending criteria was changed, a flat rate for living expenses was applied, resulting in many hopeful homebuyers borrowing much more than they now could.

Mr Jovcevski gave an example of a couple earning $120,000 between them, who bought a home in 2013, borrowing a total of $800,000 at 5% per annum, and who would be paying $4295 a month on their loan, leaving $3680 for monthly expenses.

Even with a pay raise between them bringing their income up to $129,000 the couple now faces a change in rules around living expenses that raises the bar for any borrower.

Previously banks estimated these expenses, with a buffer of 1.5 per cent to safeguard against rate rises. Now they are looking closer at people’s monthly expenditure, and have increased the buffer to 2 per cent.

Under this new criteria, the couple would only be able to borrow $680,000, even though their income hasn’t changed.

And because their mortgage is still more than $680,000, they won’t be able to find another bank to make up the difference — meaning they’re stuck with their original loan paying a high interest rate.

The difference between a 5 per cent home loan and a 3.8 per cent home loan amounts to $149,272 over the life of the loan.

“When a customer is essentially tied to a provider, they are at the mercy of whatever rate rise or conditions the bank chooses to impose. Given the current situation, banks have the power to hold some of their customers prisoners,” Mr Jovcevski said.

“The sad reality is borrowers who need competitive mortgage rates to stay financially afloat are most likely to be mortgage prisoners.”

First Home Buyers Australia director Taj Singh said he was very much aware of the crackdown on borrowing limits and living expenses for borrowers.

The mortgage broker said this was putting many borrowers in a position where they can no longer refinance to get a better rate.

He said given many loans were refinanced every four to six years, this issue would continue to be felt for recent first home buyers.

But Grattan Institute fellow Brendan Coates told news.com.au that the impact of any tighter lending conditions would be largely confined to a small section of borrowers as rising house prices had given borrowing room to homeowners who had been in the market for several years.

He predicted the impact would largely be felt in those who’d borrowed more than 90 per cent of the value of their house, a number which had fallen in recent years from 14 per cent in 2014 to 7 per cent in 2018.

But he did say that if house prices in Sydney and Melbourne continue their fall then the pain could spread to more borrowers.

PROFESSIONAL MORTGAGE BROKER

PERTH’S TRUSTED REAL ESTATE AGENT

A Quick Guide To Home Mortgage Rates

January 30, 2019/4 Comments/in broker, Finance, Home, INTEREST, INTERNET, LOAN, LOW RATE MORTGAGE, Property Management /by CB_2017

Home mortgages are loans that are taken to buy a property, for which the property itself is used as collateral. Owning a home is a very big, and usually a one-time investment for many. With increasing real estate prices and decreasing interest rates on loans, many people are using the home mortgage loans to buy property.

Home mortgage rates are the rates of interest that are to be paid along with the capital for taking the mortgage loan. Home mortgage rates do not remain steady over a long period of time. A lower rate means lower monthly payments, leading to lower costs on the property. Depending on the kind of interest rate, there are two kinds of home mortgage loans: Fixed Rate Mortgages (FRMs) and Adjustable Rate Mortgages (ARMs). FRMs are mortgages for which the rate of interest remains the same for the entire period of the loan. These can be for a period of 10, 15, 20 or even 30 years. Adjustable rate mortgages, on the other hand, have fluctuating rates of interest. This is ideal when there is likelihood of the rates to decrease. ARMs are preferred by people who plan for shorter periods. ARMs are offered at lower rates than FRMs to attract customers, but they also contain a certain level of risk. The fixed rate mortgages are a very predictable, safe option.

Mortgage rates fluctuate on the basis of an economic index. The mortgage bond market works according to a process called securitization. This securitization enables creation of more loans and greater mobility of funds by keeping the mortgage rates low and allowing more credit for ideal customers.

The best source for knowing about home mortgage loan rates is the Internet. Most home mortgage loan companies provide information through their websites also. These rates are updated daily. Their sites also have easy-to-use home mortgage calculators that give all information, including payments to be made each month and the tax advantages, with the single click of a button. Most of them also have financial advisors who would provide advice online, or over the phone. A professional mortgage lender would be able to provide accurate information about the mortgage loan rates as and when they are applicable.

The National Australia Bank is keeping its variable mortgage rates on hold despite moves by its big three rivals to hike rates in response to increased funding costs.

NAB’s chief executive, Andrew Thorburn, indicated the bank’s decision was a direct result of an environment in which huge profits and revelations of misconduct aired at the royal commission had damaged the big banks’ public standing.

“We need to rebuild the trust of our customers, and by holding our NAB standard variable rate longer, we help our customers for longer,” Thorburn said.

“By focusing more on our customers, we build trust and advocacy, and this creates a more sustainable business.”

Thorburn said the bank would continue to monitor funding conditions but wouldhold its standard variable rate at 5.24%.

The prime minister, Scott Morrison, reacted to NAB’s decision by tweeting it was a good call: “They seem to get it,” he said.

Westpac, Commonwealth Bank and ANZ have over the past two weeks said they would raise their standard variable rates for owner-occupiers to 5.38, 5.37 and 5.36% respectively.

The out-of-cycle hikes by NAB’s rivals led to economists last week suggesting the Reserve Bank of Australia would keep the cash rate on hold at a record low of 1.5% for even longer than previously thought.

The RBA, which has not moved on rates since August 2016, would be wary of increasing the load on borrowers – and decreasing the amount they can spend elsewhere in the economy – and could even cut the cash rate if the banks hike further, AMP chief economist Shane Oliver said.

Many homeowners in Australia are starting to plan for their next move, with more than a third thinking of upsizing or downsizing in the next five years.

This is one of the findings of the latest Westpac Home Ownership Report, which revealed that there was a 29% growth in the number of homeowners who are prioritising buying a new home in the next five years over other housing-related activities like renovating and investing.

In fact, the number of homeowners preferring to renovate has actually decreased by 3%, while those planning to buy an investment property remained the same.

Westpac head of home ownership Lauren Fine said the housing downturn has created opportunities for motivated buyers to consider locations which were previously out of reach. This was borne out by the report, which said that homeowners are over twice as likely to buy a home to live in a more desirable area.

“For example, larger properties in the inner suburbs of major cities have seen declines in value in the later part of 2018, making these popular areas more accessible,” Fine said.

When it comes to relocating, upsizers and downsizes have different priorities. Upsizers tend to consider safety and proximity to work and social hubs as essentials, while downsizes are more likely to have access to public transport and proximity to their family and friends in their checklists.

With regard to financial challenges, upsizers are expected to go through some tougher times ahead when looking for a new home.

“Given the financial challenges upsizers expect to face, this could explain why they are more likely than downsizes to be willing to take fewer holidays in order to achieve their housing priority,” Fine said.

However, this does not mean that downsizes won’t face challenges. They actually face a different hurdle: managing the move and reducing the amount of “stuff” they have.

Either way, Fine said moving out and looking for a new home will come with emotional challenges.

“It can be difficult to leave a home to move into the next, particularly for downsizes who may have seen their family grow up in that home. Up sizing can also be tricky, particularly if it requires making certain compromises for more bedrooms,” she said.

However, there are benefits too, particularly for downsizes, given that a small home will require less upkeep and maintenance. On the other hand, upsizers will come to realise that living in a more “breathable” house with enough rooms is worth it, especially with growing families.

There are a few things you should consider when you are looking for an online lender. These tips are things you should look for carefully and completely prior to making any decision to work with a specific online lender. By following these tips, you will help ensure that you are working with a reputable company for all of your lending needs, as well as a company that will work well with your entire situation.

First look at the web design of their entire webpage. This should be just as important to you as it would be if you were to say, walking directly into a store. Things you should look for in their website should include the ability to obtain the needed information without hassle; you should not have to click fifty times to gain the information you need about their company. Additionally, you will want to look at the way the page loads for you fast or slow and take notice of errors. A fast loading website, with no errors, will indicate they have a server that is reliable, therefore showing they are concerned enough about their customers ability to access their site that they have obtained someone reliable.

You will also want to make sure they have a solid, reasonable, easy to read, and easy to access privacy policy. This is extremely important, any website that is trustworthy will have a privacy policy clearly posted that explains what they will do with the information gathered from your online application.

Look for a business with a solid history, each website should contain an about us page. If they do not have one, it is in your best interest to immediately discredit that particular online lender from your list. You will want to look at various thing such as, how many years have they been in operations, what area of the world do they do business from, make sure they have an easy to spot telephone number, address, and emails for the various departments you may need to contact.

Another particular piece of advice that any person looking for an online lender should follow is to find a little bit about their reputation. There are several different ways you can go about this, the first way is by speaking to your family, associates, and friends. Word of mouth is possibly one of the best types of recommendation any type of business can get, particularly online lenders. This will allow you to become confident in their abilities and their services.

IF YOU are looking at property investment or buying a home, always good to use a mortgage broker to help you with your loan.

They do more than half of all Australian mortgages. This is concerning, because mortgage brokers do not exactly come with a good recommendation.

Mortgage brokers have recently been hit with searing criticism from powerful organisations such as the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), and the Productivity Commission. Each of them have raised red flags about the way brokers operate.

Mortgage brokers provide their service to us for free. But they do get paid, making money on every loan — often thousands of dollars. The payment comes from the banks who make the loans. So who are their true customers? Who are they really working for? The banks or the borrowers?

ON COMMISSION

When a broker makes a loan, they normally get an upfront payment of just over half a percentage point of the loan amount. If the loan is for $100,000, they get about $500. For a loan of $500,000 they might get about $3000. There are also “trailing commissions” where the broker is paid by the lender every year afterwards, so long as the borrower keeps paying back the loan.

So will the broker get you the best possible deal? You’d hope so, right? But there’s bad news in store.

Let’s ignore the fact that most brokers only deal with a small “panel” of lenders so they can’t actually shop the whole market. Even within their panel they might not screw the price down as much as you want, because it would hurt them to do so.

In a report in 2017 ASIC found that the broker’s commission could be reduced in some cases if the broker negotiated a big discount on the interest rate for the borrower. “This creates a clear conflict of interest,” ASIC said.

CONFLICTED

Brokers have no legal obligation to get you the best possible deal. Their legal obligation is to find you a loan that is “not unsuitable,” whatever that might mean. Given that billions of dollars of upfront commissions and trailing commissions are flowing through the broking industry every year, this conflict of interest is potentially very significant.

Choice, the consumer advocacy organisation, came up with some appalling revelations about mortgage brokers a few years back. They sent mystery shoppers into 15 mortgage brokers to see what happened. They mystery shoppers came back with stories of brokers pushing million-dollar loans onto them, not disclosing commissions, and providing advice that completely failed to meet their needs.

Out of 15 brokers, only one was rated “good”, and seven scored the lowest possible rating, “poor”.

The customers shopped at some of Australia’s biggest mortgage brokers, Aussie Home Loans, Mortgage Choice and Australian Finance Group. It is possible that smaller brokers might be different and it is also possible that mortgage brokers might have improved since the mystery shoppers went in.

BIG FAT MIDDLEMEN

I’m always suspicious of any industry with middlemen. I much prefer to cut out travel agents, for example, and book directly. The mortgage broker is pure middleman and, what’s worse, they’re not even the only middleman. There is usually also another entity, called an “aggregator”, who stands between the broker and the bank. They clip the ticket on the way through as well.

Banks own some of these brokers and aggregators, and when they do, it can skew where the brokers send their loans. For example, Commonwealth Bank owns Aussie Home Loans, and you’ll never guess which bank nearly 40 per cent of home loans brokered by Aussie Home Loans end up with. (It’s Commonwealth, and that 40 per cent is much higher than Commonwealth’s share of the overall market.)

The average mortgage broker makes $130,000 in revenue a year if they are a sole trader, and $86,000 after costs. (This can include brokers working part time.) The average mortgage broking business makes $357,000 and $120,000 after costs. These figures come from a new report by Deloitte Access Economics.

SO WHY DO WE NEED THEM?

While mortgage brokers look to have some concerning conflicts of interest, they would struggle to survive if they were plain bad value. And we haven’t considered the alternative yet! Imagine if your only option was to deal with the Big Four banks instead. Dealing with 1000 slippery snakes might sound hard until you realise your other option is to be eaten by one of four big tigers.

Sure, the Big Four banks compete with each other, but the ACCC finds they don’t compete all that hard.

“The pricing behaviour of each of the Inquiry Banks appears more consistent with ‘accommodating’ a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than consistently vying for market share by offering the lowest interest rates,” the ACCC said in a recent report.

It’s the lack of competition in mortgage lending that permits the mortgage brokers to pop up. And it is possible they’re not nibbling much out of the buyers’ side of the deal. It’s possible the hot, rich, blood-filled vein into which they’ve stuck their fangs is the banks’, not ours.

Brokers might even be doing us a favour by creating a bit more competition. It is far easier for a small non-bank lender to hook up with a bunch of mortgage brokers than to build their own sales network. The Productivity Commission found that brokers were “clearly beneficial for smaller lenders looking to diversify”.

“On average, we calculate that each would have needed to open 118 new branches to generate the equivalent market shares,” the commission wrote.

That extra competition is a big advantage of the existence of brokers, and you don’t necessarily have to use a broker to appreciate it. But brokers do provide benefits to borrowers as well.

The biggest advantage is for people who don’t have the time to shop around at all. If your plan was to walk into your bank and take the first thing they offer, then a broker will likely help you a lot. They are also good if you are not equipped to fill out all the paperwork. Customers report a 90 per cent satisfaction level with mortgage brokers.

Ultimately, the best people to keep mortgage brokers in line is us, their customers. If we ask no questions and take the first thing we get offered, we probably get what we deserve. But if we shop around, stay sceptical, quiz the bastards hard, and negotiate like our life depends on it, we can make mortgage brokers work for us, not just for the banks.

LOCAL REAL ESTATE AGENT

PROFESSIONAL MORTGAGE BROKERS IN PERTH

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