Puzzle Finance Blog


Getting the finance you need to ensure business success


BUSINESS lending is shrinking as banks continue to favour home loans over business loans in their short-term approach to capital use and returns.

It is stifling the economy and it is a major frustration for businesses that are seeking capital to fund their growth.

In its recent submission to David Murray’s Financial System Enquiry, Industry Super Australia confirmed that the amount of commercial lending for every dollar of residential property lending has plunged from $3.84 to $1.62 over the past 25 years. The land of opportunity has become the land of property.

How do borrowers navigate these changes? Communication between borrowers and lenders is the key to a successful banking relationship. Bankers do not like surprises.

As a borrower, be proactive and provide financial information that is both timely and accurate. Prepare and deliver on financial forecasts and projected financial covenant ratios. These add to a borrower’s credibility and offer opportunities to negotiate during the loan renewal process. Additionally, business owners should stay focused on their core business and have a solid business plan with contingencies in place.

So businesses who are seeking funding need to carefully consider the way they frame their finance proposal to their banker, positioning it in the best possible light.

A professional, well thought-out application with strong supporting documentation is critical. Understanding what banks are looking for will help you get it right first time and improve your chances of success.     

Banks typically look for three major elements when they assess your business’ credit risk. These are commonly known as the ‘three Cs’.

The first, critically, is ‘character’.

Bankers will assess your character by reviewing a range of documents that provide information about your history, track record and experience in business. They are seeking to understand your commitment to a relationship with the bank. Considerations include:

• Have you been able to meet your forecasts?

• What is your repayment history like?

• Do you do what you say you will do?

The bank will also want to see that you have plenty of ‘skin in the game’. Are you contributing enough to your own cash or equity to the purchase or new project?

The second thing a banker will look for is ‘collateral’.

Here the bank ‘credit department’ reigns supreme. They will be seeking all the first mortgage ‘bricks-and-mortar’ security they can get their hands on supported by a mortgage over your equipment, other assets of the business and personal guarantees from directors. Think twice about pledging all of your assets if you can avoid it as it limits your borrowing options in the future.

Thirdly, a banker wants to look at your ‘capacity’.

They need to know that your earnings are sufficient to pay the loan back without creating distress. When you apply for the loan, you will be asked to outline all of your income, and provide comprehensive financial data on the business. These will include cash flow and profit and loss forecasts and a robust business plan.    

Once you have satisfied the ‘three Cs’ there remains much devil in the detail. Your ranking in this area will determine how much negotiation leverage you have around some very important final points:

Covenants — These are the ratios and conditions that the bank will monitor to ensure satisfactory performance of your loan. They may include the ageing of your debtor’s maximum, stock levels and interest cover (the number of times your net profit exceeds your interest bill). Breaking these covenants give the bank the power to charge penalty interest rates and even call in your loan. So it is sensible to ensure they are achievable. While it is important to monitor them once in place, practically they are usually regarded as a guideline by the bank and a lever to deal with relationships that have deteriorated beyond repair.

Security — We live in difficult and uncertain financial times. While it is necessary to ensure the bank has ‘sufficient’ security, do not be overly generous. Look to exclude the home and personal assets where possible. Maintaining separate banking relationships for business and personal loans can give you options and keep each bank on their toes.

Repayment terms — Interest only terms take the cash flow pressure off your business by excluding the additional burden of the extra loan portion payment particularly in the early period of the loan. Banks however are keen to see a start to the repayment of their loan and are reluctant to extend interest only beyond two to three years.

Even if you satisfy the ‘three Cs’ and all other lending criteria, you may experience variations between banks so it’s important to get some advice. Some banks have particular industry focuses (and usually specialised products to match) and others will seek to reduce their exposure to a type of business purely because the bank has a high total exposure to that area they are seeking to reduce on a pure risk balance basis.

In a challenging borrowing environment a thorough understanding of how banks assess your position, a well thought-out finance proposal, and careful consideration of the terms will give you the best chance to obtain the finance you need to ensure business success.

Posted by News Limited Network on 20th October, 2014 | Comments | Trackbacks | Permalink
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Home loan rates will rise – so be prepared


 As economists talk about rising interest rates for mortgages – probably around mid-2015 – it's worth having a plan for repaying a home loan at a higher interest rate than the rate at which you borrowed. The risk here is pretty basic: you may have budgeted for monthly repayments of around $1700, but two years later the repayments are $2000. Now what?

The risk of defaulting on a mortgage, or going into arrears, is more evident when you consider that first-home buyers who bought a property in the past few years have never experienced rising interest rates. The last time the cash rate went up was in November 2010.

Finder.com.au research says that every 0.25 per cent rise on a $300,000 home loan costs an extra $50 a month in repayments; and in the current finder.com.au Reserve Bank survey, their expert panel predicts interest rates will increase 1.5 per cent in the next two to three years.

Whether you've recently bought your first home, or you plan to buy property this spring, here are some tips on avoiding the rising interest rate trap:
  • Understand that if interest rates rise by 1.5 per cent, it will add around $300 a month on a $300,000, 25-year loan, or around $600 per month for a $600,000 loan.
  • Be honest about your budget before you borrow. Lenders build a margin into your serviceability, allowing for rising interest rates. But those buffers are not credible if you have understated your monthly outgoings.
  • The "stress test" on a mortgage comes down to your household cash flow: if you're looking for a loan, don't "shop" to see what the mortgage providers will lend you – start with what you can afford. If you already have a variable rate loan, do your own stress test: write an honest household budget, and then – if you've borrowed at 5 per cent – run a scenario with rates at 7 per cent. Find where you are vulnerable.
  • Start an emergency fund and have a contingency plan in the event of you or your partner losing their job.
  • Prepare a plan by knowing the costs of closing-out an unaffordable loan and selling early if you have to.
  • Explore renting options. You can preserve your asset by renting-out the property and living in a cheaper rental, but will it work in your favour?
  • Know your refinancing options. Remember, once variable rates are rising, fixed rates are unlikely to be cheaper than variable; and if you refinance to a fixed rate now, you'll still need a plan for when it reverts to a variable rate loan (at a higher rate).
  • Investigate a 100 per cent offset account – it could allow you to build an equity buffer before the rates rise.
The most important aspect for those who have never experienced rising interest rates is to acknowledge and talk about the scenario in advance. If in doubt, speak to a mortgage broker or financial adviser about strategies.

Rising interest rates are not necessarily a disaster – but ignoring them is a big mistake.

Read more: http://www.theage.com.au/money/borrowing/home-loan-rates-will-rise-8211-so-be-prepared-20141015-116kh1.html#ixzz3GcUcO0xK

Posted by Mark Bouris - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Making the beach house pay


From the 1950s through to the 1970s, a beach "shack" meant exactly that, a fairly rudimentary house that celebrated its unique coastal surrounds. In more recent times, the "shack" has become the trophy home, with ensuites to every bedroom and several living areas to boot.

Although these beach homes come with all the bells and whistles, are they a good investment? Or are beach houses a lifestyle choice for those who aren't particularly concerned about the financial return?

Architect Andrew Maynard uses the word "shack" when he's designing a beach house for clients. This term already suggests an image in the mind of clients that a suburban-style home by the beach won't be presented to them.

"The problem at the moment, whether it's a beach or country house, is that it's often simply a replica of what people leave behind in the suburbs," says Maynard, who laments the rise of the "trophy" home.

"People think they need a large place to entertain family and friends, but that could occur only a couple of times a year," he says.

Maynard sees smaller as better when it comes to beach houses, not only for the coastal environment, but also for the return. Maynard's award-winning beach house at Anglesea, a couple of hours drive from Melbourne, is a renovation of a 1970s abode, owned by the same family since it was built.

Initially, Maynard's clients were thinking of a new beach house to accommodate the extended family. But that option would have come with a million dollar price tag. Instead, they went for the less expensive option, a renovation to the value of $450,000.

A bunkroom was added, together with a rumpus room and a second bathroom. A large outdoor deck leading from the living areas on the first floor, sits in the canopy of an established tree.

Maynard avoided suburban-style fixtures and fittings and kept the design of the Anglesea house as simple as possible. "Why do people feel there's a need to import tiles from Italy for a bathroom in a beach house? A simple bathroom and an out-door shower makes more sense," says Maynard.

ITN Architects also prefers to design simple beach houses rather than large suburban-style homes as weekenders. Its beach house, located at St Andrews Beach on the Mornington Peninsula, is simple and low maintenance.

Designed for a couple with three children, the idea was to ``channel" some of the great beach shacks built in Australia from the 1950s through to the 1970s. Clad in timber, the 200-square-metre beach house includes a sunken-style lounge in the living area, four bedrooms and two bathrooms.

Realised with a budget of $400,000, a few elements were altered to save money. Floor-to-ceiling glazing was replaced with off-the-shelf window frames and secondhand blackbutt was used for flooring.

The modest kitchen features plywood joinery and an insitu concrete bench. While some would have built a large expensive home on this site, many feel such a move would lessen the value of this type of property.

"In the long term, the suburban-style beach house holds less appeal for prospective buyers. It isn't a beach house," says architect Aidan Halloran, a director of ITN Architects. And for those thinking that building a beach house is a good investment, it's more for pleasure than financial gain.

"A beach house is generally not a great investment but it's something that can be enjoyed in the long term," he adds.

Keryn Nossal wasn't after a quick financial return when she commissioned ITN Architects to design the St Andrews Beach house.

"We wanted the house to be low key, definitely no marble surfaces," says Nossal, who didn't present Halloran with a budget on the first meeting.

"It was more about how we wanted to use the spaces."

The beach house wasn't purchased as an investment, but as a lifestyle choice that would remain in the family for generations to come.

"It was never about buying or selling real estate. I often say to friends and family it would be 'the last thing to go'," says Nossal.

Fortunately Nossal and Halloran were on the same page when they were discussing plans for the beach house.

"The last thing we wanted was a beach house designed just to impress people. It had to respond to this majestic site, not overpower it," says Nossal.

While architects such as Maynard and Halloran point to the pleasure of owning a simple beach house, others such as real estate agent Jamie Granger, director of Property Central, see the financial benefits of buying a beach house.

Property Central handles a number of property sales on the New South Wales coast including Wamberal and Avoca Beach.

While many beach homes at Wamberal fetch substantial amounts of money (well north of a million dollars), other areas, such as Blue Bay and Toowoon Bay, are less well known.

"Timing is everything when you're buying a beach house. Prices are starting to rise, particularly in the bay areas near Wamberal," says Granger, who also suggests Newcastle as a strong growth area for those looking for more affordable beach houses.

"It's starting to become a strong beach/cafe culture."

However, irrespective of the timing, creating a mansion-style house by the beach, customised to the nth degree, is not only costly, but importantly, not always a wise financial decision.

"Financially it doesn't stack up to add endless bathrooms and slick kitchens you'd find in the city. Do these things really add to the pleasure of getting away?" says Maynard. 

Read more: http://www.theage.com.au/money/investing/making-the-beach-house-pay-20141015-116iqe.html#ixzz3GcTrfsDh

Posted by Stephen Crafti - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Free credit record not always easy to find


Consumers are complaining that they cannot easily access free copies of their credit reports. Queries rolled in after Money ran a story recently about the new regime that came into effect in March, where monthly payment histories on loans and credit cards will be shown and reports will note any missed payments of more than 14 days.

Before March, credit reports, which credit agencies provide to lenders when they check on applicants, held only negative information, such as missed payments of more than 60 days and bankruptcies.

Credit agencies have to make available to consumers a free copy of their credit reports at least once a year. But readers have contacted Money saying they were unable to find the free reports. More than 2 million people, or 13 per cent of the estimated 16 million Australians using credit, are at risk of credit default.

That includes about 600,000 people who are at "high to extreme risk" of defaulting, an analysis of credit records by credit agency Veda found. It is not surprising that consumers want to check their credit reports.

"Veda themselves are charging ... for the most basic level personal subscription; where do you go for the free ones?" wrote one. "How exactly do consumers go about getting their annual free credit reports from credit agencies?", wrote another.

Veda wants people to buy its subscription services, which includes speedy dispatch of the report, email alerts when specific changes occur on the consumers' credit file and the credit score.

On the Veda web pages the paid reports are usually advertised heavily at the top of the pages. A red-coloured button on the Veda pages for the "Free File" is towards the bottom of the pages, just below another red button labelled "Buy Now".

A spokesperson for Veda, which is the market leader, holding more credit files on individuals than competitors, says it has made improvements to make it more accessible for consumers, such as increasing the size and dominance of the "Free File" button and using the same application form for consumers wanting to access the free or the paid credit report.

Previously, the free option required more identification documents than the paid credit report.

The spokesperson says more than 110,000 people have obtained a free report from Veda during the last 12  months. Getting a free report without internet access is difficult. The Credit Reporting Code requires the free report to be as available and easy to identify and access as a paid report.

Veda allows the paid copy of the credit report to be obtained over the phone, but directs the caller to the website for the free copy. Rival credit agency Dun & Bradstreet, on its website, gives equal weighting to the free report alongside its paid-for reports.

And on the website of the other major credit agency, Experian, the link to obtain a free credit report is clearly shown on the home page.

Experian does not appear to provide a paid report. Privacy Commissioner Timothy Pilgrim says access credit reports should be provided on the "same terms", regardless of whether the person is using the free or paid service.

"I have been very clear about my views on this and have written to credit reporting bodies outlining that I expect their websites to provide clear, easy-to-understand and prominent notices to individuals" on how they access their free reports.

Katherine Lane, the principal solicitor at the Financial Rights Legal Centre, says: "People need to know about their credit reports; it is their right." Consumer advocacy groups, including the Financial Rights Legal Centre, have lodged complaints about Veda with the privacy commissioner.


Read more: http://www.theage.com.au/money/borrowing/free-credit-record-not-always-easy-to-find-20141016-116t44.html#ixzz3GcSak5A7

Posted by John Collett - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Five real estate reasons why your house will not sell


 YOU’VE had it on the market for months but no one has made an offer yet.

You love your house but why doesn’t someone else?

Buyer’s agent Chris Gray, CEO of Empire, reveals the five reasons why your house hasn’t sold yet.

1. The house wasn’t priced correctly.

Mr Gray said people were emotionally attached to their own houses, especially if they’ve lived there for a long time. This often led them to think it was worth more than it was.

“You need to take a step back, look at it unemotionally and get the opinions of independent experts in order to know its true value and set a realistic price,’’ he said. 

2. You hired the cheapest agent.

“The agent that charges the cheapest commission can be the most expensive agent in the long run,’’ Mr Gray warned.

He said they don’t always get you the highest price possible and sometimes can’t even close the sale.

“Paying an extra $10,000 to $20,000 for the best agent gives you a better chance of a sale on auction day, and can often result in your house selling for $50,000 or even $100,000 more than what a cheaper agent could achieve.’’ 

3. The house wasn’t presented in the best light.

Believe it or not, everyone doesn’t have the same taste as you in furniture and decorating.

“If you’re moving out of the house you need to emotionally move out of the property at that instant — not after the property is sold,’’ Mr Gray said.

He advised sellers to take advice from their agent about what decorations to use and whether the home needs to be styled.

“It could be a reason as small as this why your house didn’t sell,’’ he said. 

4. No one knew it was for sale.

“You can’t sell a secret,’’ Mr Gray said.

“Many people think that by uploading their property onto a website that offers for sale by owner listings that their house will sell, however a lot of these sites have very little traffic.’’

To maximise your chances of selling at the highest possible price, he said you need to try every marketing tool available; online, print, main listing websites, agent’s websites and social media.     

5. You attended all the open for inspections.

“Many homeowners want to keep across what the agent does and what the buyers are saying, so they attend every open for inspection and pretend not to be the owner,’’ Mr Gray said.

You are not fooling anyone.

Mr Gray said homeowners usually stood out and it could really put buyers off as they don’t feel comfortable speaking openly with the agent when the owners are there.

Posted by News Limited Network on 18th October, 2014 | Comments | Trackbacks | Permalink
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Minimise tax on your investment property


It is no secret the property market has been hot over the past year. Sydney and Melbourne are in "boom" territory and the sunshine state is also giving Brisbane investors a warm feeling.

No wonder then that many investors, upgraders and baby boomers are cashing in on their nest eggs and selling for a profit while the good times roll on. After all, it was one of the world's most famous investors, Warren Buffett, who said: "Buy in gloom, sell in boom." Selling now could be a beautiful reward for years of hard work and sacrifice.

However, capital gains tax (CGT) can quickly eat into that attractive figure on the contract and make your cash payout much smaller than you originally thought.

Domain has spoken to the experts about the 10 best ways to minimise your tax when it comes to selling property.

1. Live and let live

One of the best-kept secrets to dodging capital gains tax is to live, then let live. In other words, you can live in your property, then let someone else live in the same property, but still claim it as your principal place of residence (PPOR) for up to six years.

General manager of ThinkConveyancing.com.au, Christopher Lane, said, generally speaking, your property was not your "main residence" once you had moved out.

"However, there are circumstances where you can treat a property as your main residence after you've moved out for the purposes of avoiding capital gains tax, under the CGT main residence exemption," Mr Lane explained.

"For a period of up to six years, you can treat your property as your main residence if you satisfy the eligibility criteria."

The six-year rule was established to allow for those who have job transfers, either regionally or overseas.

You could still technically move to the next suburb, just a few hundred metres away, according to Momentum Wealth managing director Damian Collins.

Mr Collins said just because you rented out your property did not mean you had to give it up as your PPOR.

"If you rent it out, you get all the benefits of interest deductions and potentially, depending on the debt, the benefits of negative gearing," he said.

"If you buy another property, you then have a choice. You can choose which one is your primary residence and you don't have to choose until you sell it."

The obvious big plus is that if you own two properties, the one with the most capital gain can be claimed as your PPOR. Talk about a good idea!

However, you cannot just guess. Mr Collins pointed out that it was important to get a valuation on each property at the time of renting it out, just in case you used another property as your PPOR later on.

"The other one would be subject to capital gains tax and so you need to know the market value the day you move out," Mr Collins said.

Mr Lane added that many investors and homeowners were not aware of the six-year rule, but it could save them thousands of dollars.

"Recently we sold a property for a James, who had lived in the property prior to moving in with his partner," Mr Lane said.

"They had decided it was time to upgrade to a larger family home so they were selling up. He had budgeted CGT into the equation and was thrilled when he discovered he was almost $27,000 better off by applying the six-year rule."

2. Keep your investment pad for more than 12 months

Cannot avoid capital gains tax? Then reduce it.

Chan & Naylor managing director Ken Raiss said anyone who had bought an investment property should hold it for at least a year, reducing the capital gains tax by 50 per cent.

"This reduced amount is added to the owner's normal income and taxed at the marginal tax rate," he explained.

Do not forget that your 12-month ownership is from the date of contract for both the purchase and sale of a property.

"Particularly in Sydney, Melbourne and even Brisbane at the moment, people like to take a quick profit," Mr Collins said.

"If you purchased a property in April and settled in May, then sell in March with a long settlement until June, it's not 12 months. You must go from the contract dates."

3. Make the most of a low-income year

We all have good and bad years and our income often reflects our personal circumstances, according to Mr Lane.

He said CGT was closely linked with income tax and so the timing of when you incurred CGT was critical to getting the best outcome.

"If you're having a low-income year and you think you'll be in a lower-than-usual income tax bracket, run your numbers on selling out and make the decision with time before the end of the tax year," Mr Lane said.

"Things to watch out for include maternity leave, job loss, extended periods between job contracts and unpaid, long overseas holidays. They all present great opportunities."

4. Delay the contract date

If you are keen to cash in on the Sydney boom, you might be better off waiting to sell until next winter, or more accurately, July 1. This would save you a whole financial year of payable tax.

"If contracts are signed on July 1, rather than June 30, the tax liability is pushed out by 12 months," Mr Raiss said.

"Holding onto your money longer is almost as good as a tax deduction."

You could also put the profits from your sale into an offset account, helping to reduce the tax payable on other mortgages in the meantime.

5. Buy the property­just not 100 per cent of it

Found your dream investment, but worried about holding costs? Why not go in with a partner? If you own 100 per cent of a property, you get 100 per cent of deductions, but you also have to pay 100 per cent of the capital gains tax.

"I'm always one to think that a dollar in the hand today is worth more than a dollar in 10 years," Mr Collins said.

"If it's a long-term investment, buy the property in the name of the person where it's most tax advantageous now."

That means if the property is positively geared, purchase in the name of the person on the lower income.

If the property is likely to be negatively geared, purchase in the name of the person on the higher income.

"It depends on the sort of property you buy and the income that flows from that," Mr Collins said.

6. Put your profit into your own super account

When you sell the property, consider putting part, if not all, of the profit into your own super account. It is just like salary sacrificing, meaning you will not be taxed as much.

"Depending on your age, a taxpayer can contribute a maximum of $30,000 or $35,000, including the 9.5 per cent super guarantee, into super," Mr Raiss said.

"For taxpayers aged over 55, they could even move into a transition to retirement to improve contributions further."

7. Purchase the property in a trust

Alternatively, it might also be a good idea to purchase a property with a number of people in a discretionary trust. Mr Lane said the use of trust structures was on a steady rise and might benefit those on lower marginal tax rates.

"Let's be honest, who knows where they'll be in six months' time, so anticipating your individual financial circumstances into the future is almost impossible," he said.

"A discretionary trust allows many of those decisions to be made closer to the sale event and the outcome better planned, which produces better tax outcomes. It allows you to decide which of the members of the trust will receive the profit from the asset sale. It means you can direct the profits to the most tax-effective person at that time."

8. Sell the lemon with the lemonade

The property market might be booming in Sydney, but not all parts of the country have had amazing results.  If you are selling for a profit, consider also letting go of the lemon.

The loss of the lemon and the profit from the lemonade in the same year will reduce the overall tax rate. For example, if the sale of a property results in a $200,000 gain, but a dud property results in a $50,000 loss, the taxable profit would be $150,000. Suddenly, that sour lemon would taste quite sweet.

9. Claim deductions and keep records

We all know you can claim deductions for things like rates, insurance and body corporate or strata fees, but have you considered all the possibilities?

"Expenses that are often overlooked include writing off any borrowing expenses, including lenders' mortgage insurance, costs associated with advertising the property, including furniture packs, and the original costs associated with investigating the purchase of the property," Mr Raiss said.

You also need to be vigilant with your record keeping. Mr Collins said a lot of people did not include renovation costs when it came to claiming expenses.

"This is part of the cost base of the property and the cost base, being high, means the CGT is reduced," Mr Collins said.

10. Pre-pax tax on another property

Well-known property author and investor Jan Somers said it was pretty tough to avoid the tax man, but investors who were selling and making a profit might also be able to pay their mortgage fees on a second property one whole financial year in advance, if they actually had the cash to do this.

For example, if property A is sold for a profit of $200,000, the interest on property B could be pre-paid for one financial year. This might cost $50,000 and reduce the overall taxable gain across a property portfolio.

"If you have a $1 million loan and you pay the 5 per cent interest on that, which is $50,000, you would have a $50,000 deduction for that year, but you have to have a financial advantage," Mrs Somers explained.

"You would need to get an interest rate of 4.92 per cent instead of 4.95 per cent and it's only worth it if you're selling within a few months of the [new] financial year."

Banking on the six-year rule

Empower Wealth founder and chief executive Ben Kingsley lives by the mantra of buying and holding.

However, he said the six-year rule, where you could claim a property as your PPOR even though it was being rented out, still applied to investors who preferred to hold. After all, you never know where you might be in 20 years down the track.

The property lover and his wife Jane bought a two-bedroom semi in Alexandria, Sydney, for $395,000 back in 2001. They lived there until 2004, when work commitments forced the couple to move to Melbourne.

Even though they rented the Alexandria property out from 2004 until 2010, they could still claim this property as their PPOR during that time, if they want to later in life.

"From 2004 to 2010, it's obviously one of the properties we're now considering for the six-year rule," Mr Kingsley said.

"In 2010 we had it valued, but we also bought a cracking property in Flemington [in Melbourne], which has had amazing gains as well."

The two-bedroom terrace in Flemington was purchased for the same price as the Alexandria property – $395,000 – in 2007. They lived in the terrace until 2009, which means the Flemington property could also potentially be claimed as their PPOR, instead of the Alexandria property.

It is a nice problem to have and it all comes down to which property has had the most capital gain. The property with the most gain could be used as their PPOR, on paper, once the couple hits retirement and sells, to avoid CGT during that period.

Mr Kingsley estimated the Alexandria property would now be worth $1 million, while the Flemington terrace would be worth about $850,000.

"The message is you don't have to sell," Mr Kingsley said.

"You can lock in the gain and have it revalued at the end of that period and that gain is potentially there to realise the benefit, if you ever choose to sell.

"A lot of people think you have to sell at that six-year point. The reality is you don't. The moment you move out, you should get a valuation done and keep it on file, the same way you keep capital costings on file."

Posted by Lauren Cross - The Age on 18th October, 2014 | Comments | Trackbacks | Permalink
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Don't blame the bogeymen for high property prices


It's usually investors and foreigners who take turns in the role of housing sector bogeyman but lately they've teamed up.

Yet foreign investors don't make that much difference to home prices except for off-the-plan apartments. As Rob Mellor, head of property research and economic group BIS Shrapnel points out, even if there were 20,000 mainland Chinese flouting the foreign investment rules – foreigners can't buy established dwellings – that would still only represent 1 or 2 per cent of turnover.

Home-grown, as it were, investors are also getting a bum rap, from the Reserve Bank of all places. Perhaps if it hopped on a plane to Perth it might not be so worried.

Or closer to, um, home it could check out how many Sydney investors are actually frustrated first-home buyers. Often they tell me they're investing in a unit to let because it's their only hope of ever owning a place.

Then there are others who only want to rent so they can live somewhere decent – they need investors to be buying dwellings.

No, blame high home prices on the global financial crisis five years ago. It gave us record low interest rates and a building slump even as the rate of population growth was increasing.

So demand was fuelled by low interest rates and supply constrained by a lack of new building.

If you believe the latest QBE annual Australian Housing Outlook, compiled by BIS Shrapnel, prices are going higher.

I must admit each year it seems overly optimistic about property prices but that was so only once in the 13 years it's been published.  Unfortunately that was a doozy because it got the direction wrong as well, and being in 2010 was just recent enough to survive my short-term memory.

In Sydney, the market where the shortage of housing stock is the most chronic and investors are apparently running amok, it predicts prices will rise 9 per cent. Oops, that's over three years. In fact, the forecasts are for 7 per cent this financial year, slowing to 5 per cent the following year and then falling 3 per cent.

Brisbane is the place to be. Its values are forecast to rise 17 per cent over three years with the Gold Coast not far behind with a projected 15 per cent.

On the other hand, home prices in Melbourne, where there's a glut of units, are forecast to rise only a smidgin: 3 per cent this financial year, then 2 per cent culminating in a 1 per cent drop in 2016-17. Maybe the Reserve bankers should just pop down to Melbourne?

Or perhaps not. They might not get past Docklands which I suspect is pulling the median growth rate down.

Anyway these are all averages. You've heard me say before an average is something that doesn't exist.

Nor is the growth in Sydney and Melbourne where you might expect. It's the middle and outer suburbs that have been going gangbusters, not the inner city.

Hmm, then again that shouldn't be a surprise since inner city prices were relatively high to begin with, not to mention high-rises materially adding to supply.

So why will prices drop in 2016-17? The reverse of why they'll rise first. Supply will be growing faster than demand.  Oh, and interest rates should be higher by then as growth picks up, not that they'll be at killer levels.  

But there's something else too. Australia's net immigration is falling. The number of arrivals on the employer-sponsored skilled workers  457 visa is falling as the mining boom fades away and departures "should increase due to the lack of opportunities for temporary migrants to extend their stay", as the report puts it.

This should please the Reserve Bank. It suggests the property boom is slowing down and will eventually self-correct.

And it may as well stop fretting about the rise in investment loans, mostly concentrated in its own backyard because that's the demographic trend. The  proportion of renters to owner-occupiers is rising, especially in Sydney.

Read more: http://www.theage.com.au/money/investing/dont-blame-the-bogeymen-for-high-property-prices-20141009-113b9g.html#ixzz3GHOOL3gz

Posted by David Potts - The Age on 16th October, 2014 | Comments | Trackbacks | Permalink
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Six reasons why you need an SMSF


Small business owners can reap huge riches from self-managed super funds. 

The popularity of self-managed super funds continues to grow unabated as more Australians look for greater control of their financial destinies through reduced fees, greater liquidity and the opportunity to invest in a wider variety of long term asset classes, including property.

According to research firm CoreData, as at June this year there were 528,700 SMSFs, representing almost 32 per cent of Australia’s total $1.6 trillion super pool. Ten years ago there were only 271,000 DIY funds. Aside from their ability to help fund an independent retirement, SMSFs are increasingly recognised as an effective means for small business owners to add extra funds to their super nest egg, as well as manage commercial properties more tax efficiently.

If you are a small business owner then you are likely to be highly adept at quickly responding to the changing business environment and conditions. Most business owners' guiding priority is to make money, make their assets work for them and create a more certain financial future. SMSFs are a good way to meet these goals. 

SMSFs have six key benefits for small business owners.
  1. Holding a business property in your SMSF, subject to an arm’s length lease arrangement, is an excellent way of increasing your super balance.
  2. If you own an existing commercial property then, subject to relevant state government laws, you may be able to transfer that property into your SMSF with little to no stamp duty (less than $500).
  3. Potentially you will pay little to no capital gains tax when the property is sold (subject to qualifying for the small business tax concessions).
  4. You can lend money to your superannuation fund and this debt can then be changed into non-concessional contributions over time by forgiving the debt, although you need to ensure you do not exceed non-concessional contribution caps ($180,000 per annum or $540,000 over a three year period – a bring forward provision for the under 65s). 
  5. There are no caps on how much you can lend to your super fund, providing the loan is at arm’s length and on a commercial basis.
  6. If you sell the business you can keep the building and use this as an income stream within your SMSF – the gift that keeps on giving.

There are various issues you will need to understand before holding a commercial property in an SMSF. For instance, while every loan to a super fund is a limited recourse loan, loan-to-value ratios are lower for commercial properties than their residential equivalent. Another point to consider is that any increased capital growth cannot be accessed in super. However other benefits include zero tax in pension stage and the ability to access the land tax threshold available to super funds.

An SMSF can be a great way for small business owners to boost their super fund balance above the normal contribution limits and become tax free in retirement, although any SMSF strategy should be based on sound independent financial advice.

Read more: http://www.theage.com.au/small-business/finance/six-reasons-why-you-need-an-smsf-20141015-3i13h.html#ixzz3GAGao5j4

Posted by Ken Raiss - The Age on 15th October, 2014 | Comments | Trackbacks | Permalink
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Crack the property valuation code


Mark Kelman started investing in property 10 years ago, buying two houses in regional NSW for $92,000 and $53,000. Today, he owns 15 properties, including a block of six units, and is the author of Become a Property Millionaire in your Spare Time (Major Street Publishing). His top tip: thoroughly research the value of properties before buying and renovating.

"Some people just get advice from a real estate agent or friends," he says. Or they rely on free bank property valuation apps. But the best information comes from property software such as that provided by  RP Data, Residex or Australian Property Monitors.

"You have to use the different softwares to really research the price the vendor has paid for the property; to know what the comparative valuations are; and if you are looking to renovate the property you want to know what similar properties, that have been renovated, have gone for in the area so you know exactly what your property is worth when you buy it."

 It's particularly important if investors want to build a property portfolio quickly.

"The easiest way [to build a portfolio] is to buy a property, add value to it and then refinance," Kelman says. "But if you want to skip that step you can add value to the property during the settlement period and then have the bank use the end-value in order to do the deal."

In such situations, it's handy to have strong relationships with finance professionals. "Mortgage brokers can be very useful if you're doing creative property deals because the bank's lending criteria changes all the time," Kelman says.

"The good brokers, that work with more experienced investors, keep on top of which banks are allowing which strategy and they have good relationships with bank managers."

The 36-year-old says during the GFC the values placed on his properties came in lower than expected and that slowed the pace of his investment strategy.

"It was basically just a way that the banks could give themselves a bit of extra security," he says.

As Scott McCray, an adviser at Smartline Personal Mortgage Advisers and an experienced property investor explains: a valuation reflects the expected time frame for selling a property, typically 90 days.

"If it must sell within 30 days, then that's going to be a different price," he says.

During the GFC, some banks moved to a 30-day time frame, which affected values. Valuers can err on the side of caution if a property hasn't been sold for some time.

"Because valuers are independent of the bank, they can be legally liable if they over-value the property."

Valuations also depend on who is at the helm. "A bank has a panel of valuers – three or four companies that they use – and some companies can be a bit more conservative than others; some individuals can be more conservative than others," McCray says.

So how do you prevent your plans from being thwarted by a conservative valuation? McCray draws on data from the four property software providers to form a solid opinion of a property's value for clients.

He may also ask a bank for an upfront valuation before a client applies for a loan, which is better than challenging a lower-than-expected valuation.

"I'd say 99.9 per cent of all challenges get declined," he says.

Chris Gray is the chief executive of Empire, a property buyer's agency, as well as an accountant and a mortgage broker, with his own property portfolio. He explains banks may only ask for a "desktop valuation" relying on property software comparative data, rather than doing a "full valuation" where the valuer actually visits the properties.

When he refinanced his portfolio about five years ago, the bank did a desktop valuation, until he insisted on a full valuation because all his properties had been fully renovated. "They then did that and the valuation moved 10 per cent."

Often a full valuation is only carried out when the loan-to-value ratio is more than 80 per cent. To help present your case to the bank, it can be worthwhile obtaining an independent valuation for bigger deals or portfolios. But Gray warns unless you use a valuer who is on the bank's panel, it may not be accepted.

ACTION PLAN
  • Be aware lenders have different valuation policies.
  • Thoroughly research comparative values.
  • Forge relationships with experienced mortgage brokers.
  • If in doubt, get an upfront valuation.
  • Consider an independent valuation for bigger deals or portfolios.

Posted by Christine Long - Money Manager (Fairfax Digital) on 15th October, 2014 | Comments | Trackbacks | Permalink
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Top 5 kitchen renovation tips


Updating your kitchen is one of the best renovations to improve home value. We asked award-winning interior architect, George Livissianis, for his top kitchen renovation tips.

A leading residential and commercial interior architect, George Livissianis has created the interiors of some of Sydney’s most famed eateries, including The Apollo, Longrain and, most recently, the much-lauded Cho Cho San in Potts Point.

Livissianis knows a thing or two about designing stunning interiors that do not compromise on functionality, and when it comes to kitchens, there is no room for error.

“I think everybody values the kitchen space,” Livissianis says. “It’s one of the most highly regarded items when someone’s looking at a house to buy, and if it’s not, then you are very aware that will be one of the first things you do – ‘I’m going to renovate the kitchen and bathroom’.”

Whether the kitchen is the heart of your home, or you are putting a property up for sale or as a rental property, nothing screams ‘deal breaker’ quite like a tired old kitchen.

Here are Livissianis’ top kitchen renovation tips.

1. The quick kitchen renovation

If a complete overhaul is out of the question, here are some quick kitchen renovation ideas that will immediately lift the space and add value, according to Livissianis.
  • Upgrade appliances – a sparkling new cooktop, dishwasher, toaster or fridge not only looks fantastic but will be a pleasure to use. If it’s for a rental property you can claim depreciation on permanent fixtures.
  • Replace benchtops – if the kitchen joinery is in reasonable condition, replace the benchtops. They are one of the most visible and most used features of any kitchen and offer the opportunity to make a design statement. Livissianis favours textured natural materials like white granite.
  • Replace joinery and lighting – consider replacing the cupboard doors and drawer fronts for an immediate visual lift. Updated lighting will modernise the kitchen and can be used as a design feature. Joinery that is in decent condition may benefit from a fresh paint job, but Livissianis recommends replacing worn or damaged joinery rather than re-covering or painting.


 2. Optimise your kitchen layout

It’s all about having a comfortable amount of space in the right places: “You learn a few things from doing commercial kitchens,” says Livissianis. “You need a set-down space on either side of the cooking area and you need ample preparation space. You can water that down into a functional residential kitchen.

“Make sure there is nice flow – if you’re chopping up vegetables then the bin should be close by and you should be close to the sink so you can wash them. When you open up the dishwasher, you don’t want to close off half of the kitchen and have to step over it.”

The kitchen’s aesthetic and floorplan will be dictated by where it’s located and the size of your home. “If it’s on show versus being tucked around a corner, that starts to direct how you design your kitchen,” Livissianis explains.

“If you’ve got a generous-sized three-bedroom apartment, then you don’t necessarily want to be viewing the kitchen from the living space it’s big enough to have the kitchen as a separate room. But in a studio apartment you are forced to integrate the kitchen as a part of the living area.”

3. Consider an island bench

Though designing an industrial kitchen often centres upon the head chef’s cooking requirements and the type of food being prepared, Livissianis has found an island bench is a key design inclusion.

“The kitchens I feel work better are the ones where you have a formal cooking line and an island in the middle. They’ve got a circular rhythm to them – working around that central island table.

“I think an island is a nice thing to gravitate to and depending on how it’s detailed, it can look less like a kitchen and more like a beautiful object,” Livissianis explains. “It’s a gathering spot, really. A lot of people, if they’ve got a formal dining room, choose to eat day-to-day in the kitchen, rather than in a separate space.”

4. Choose the right kitchen appliances

When choosing appliances you need to decide on functionality as well as quality. Livissianis has noticed a trend towards the big-name suppliers that offer longer-term guarantees and follow-up services. If purchasing a number of appliances at once, it is also worth considering buying all in the same brand. This way the set will match – details such as dials, railings and overall geometry will be consistent, and you may be able to obtain a discount.

5. Consider your flooring options

Livissianis’ top renovation tip when it comes to kitchen flooring is consistency. “My choice in the floor is determined by the bigger concept, not the fact that it’s in the kitchen,” says Livissianis. “I’d rather see the floor flow throughout the space so it is all connected, rather than having it as a separate surface just in that zone.”

Make sure you allow at least four weeks for the renovation of your kitchen, excluding planning and design time.

And our final kitchen renovation tip: if perusing the latest kitchen trends is a guilty design pleasure, Livissianis suggests keeping an eye on the leading kitchen joinery companies. Suppliers like Poliform and Boffi create innovative designs that tend to filter through the market.

Posted by Jacqui Thompson - Domain on 14th October, 2014 | Comments | Trackbacks | Permalink
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Top 3 tips for moving with pets


Moving house with a pet adds a whole new dimension to the process. Your pets are particularly precious cargo and require special consideration. 

Make a short-term plan for moving your furry or feathered friends with as little fuss and frenzy as possible, and also think longer-term about how to ease their transition to a new and unfamiliar home. Before you move

We hope that in the process of renting or buying a new home, you’ve had your pets’ best interests at heart, too. Have you asked yourself the following questions:
  • Does your new home have enough space for your pets?
  • Is your new home pet-proofed? For example, if your dog will spend time in the backyard, will he be safe from other animals or obstructions? Is he at risk of getting out and running away? Are there other hazards in the home, such as open staircases or a pool, that could pose a danger to your pet?
  • Have you found a reputable local vet who can care for your pets?

You’ll also want o make sure your pet’s microchip is working properly and updated with your new address. It’s a good idea, too, for the pet to wear an ID tag. Moving day

When moving day arrives, the key words for your pets are safety and stress-free. If you’re moving by car, make sure you invest in safe, sturdy and comfortable travel equipment for Fido, Felix and Tweety. For dogs, this may mean a crate, a carrier or a seatbelt restraint. For cats, a proper travel box or carrier. For birds, their cage. If possible, include some of their favourite toys or familiar-smelling bedding or items of clothing. If your pet suffers from anxiety or motion sickness in a car, talk to your vet about medications or other alternatives. And don’t forget: plenty of treats and words of encouragement!

If you’re moving interstate, you’ll need to work with the individual airlines to coordinate your pet’s travel with your own. Alternatively, companies such as Jetpets can help you with travel arrangements. Most airlines do accept animals, and they may be able to be on the same flight as you, but in Australia, your pet will travel in cargo in the undercarriage of the plane. Again, speak with your vet if you have any concerns around flying with your pet. After the move

Your new home will be full of new nooks and crannies and new smells to explore and investigate. Let them — again, keeping safety in mind. Experts recommend keeping cats indoors at your new location for two or three nights, so they feel safe at home before exploring their new neighbourhood. Dogs, on the other hand, enjoy walking around their new surroundings. Now’s a good time to check out the local dog parks! And depending on how much you’re at home with your pet, you may also want to research local dog walkers/sitters once you settle in.

If you follow this advice, the hope is your pets will find moving house as exciting as you do. And did I mention treats?

Posted by Hannah Hempenstall - Domain on 14th October, 2014 | Comments | Trackbacks | Permalink
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How to choose the right block of land


 ASSUMING you’ve got your finances in order and you’ve settled on the general area you’re going to build in, it’s time to find the right plot of land.

To the untrained eye, there’s usually little to suggest that one plot is significantly different from the next. Menace often lurks beneath the soil, though — or in the nearby offices of local council bureaucrats, or other places you haven’t considered.

The particular plot of land you choose could easily make tens of thousands of dollars’ difference in construction and maintenance costs, and could also determine whether or not you can build the type of home you’re after. In the worst possible scenarios, it could even represent the difference between a stable, well-built house and one that’ll bring you grief and misery for years to come.

It might all sound a bit dramatic — but knowing what to look for when you’re hunting for a plot of land can make a tremendous difference.

WHAT DO I NEED TO CONSIDER?

There are a lot of things to take into account when you’re choosing a plot. Some of them are only relevant in obscure circumstances, others may determine whether you can build at all. Many of these issues will be dealt with by builders, developers, solicitors or conveyancers, but it’s still worth understanding what’s involved.

SIZE, SHAPE, ORIENTATION AND SLOPE

Got a particular house style or design in mind? It’s not normally a problem on bigger plots, but in suburban and urban areas, the width and depth of the plot will determine what sort of house you can build.

Likewise, if the plot is on a significant slope, either the land will need to be cut and filled, or you’ll need to build a house that takes that slope into account. It’s worth remembering that while these things might make your house more spectacular, they’re also likely to cost a fair bit more.

Depending on the angle of the slope and what’s built on neighbouring properties, a slope can also reduce your exposure to sunlight — which in turn can affect how much light you get in living areas, and your potential to harness the sun both for passive solar heating and for collecting solar power. Where we live in the southern hemisphere a north-facing slope is ideal for solar access — a steep south-facing slope not so much.

Another thing to remember about sloping land or land at the top of a hill is that in bushfire prone areas, it’s likely to increase your BAL (bushfire attack level) rating (fire moves faster up a hill). This in turn has the potential to affect the materials you can build with, or force restrictions on how you build.

WHAT TO DO:Check the width, depth and slope of the block against the dimensions of the kinds of houses you would like to build — and consider how neighbouring structures and trees may affect solar access (now and in future). Check with the local council to see if there are any boundary setback requirements or other conditions that will determine where on the block of land you can build, and whether the plot is in a bushfire prone area.

SOIL TYPE

Different blocks will have different types and compositions of soils. One of the most important things to consider when you’re building is how ‘reactive’ the soil is — how much it’s likely to move, particularly in response to increased or decreased moisture content. This is called the ‘site classification’. It’s normally more expensive to build on more reactive soils, simply because special measures like deep pilings or specially engineered slabs are required to keep the house stable.

When you’re choosing a plot it also pays to investigate what the land’s been used for in the past. Nobody wants to buy a plot only to find out the soil’s loaded with DDT or some other noxious pesticide from a farm that existed there decades earlier.

WHAT TO DO:Get a geotechnical report on the plot. This will determine the composition and reactivity of the soil, and allow you to determine what sort of subfloor is required.

EASEMENTS, RIGHTS OF WAY AND ACCESS

An ‘easement’ is defined as a proprietary service that exists on someone else’s land — like an access road to a neighbour’s house, or an underground cable or pipeline that runs through your yard. If an easement exists only to service your needs (i.e. an access road) it’s said to be a benefited easement, while other easements that run across your property are called burdened easements.

In theory, telephone companies, gas companies or even your neighbours can knock down fences, gardens or buildings if you deny their right to access their respective easements. Easements on a plot will affect how you’re able to build, and you will need to understand what kinds of easements exist on a parcel of land before you buy it.

WHAT TO DO:Check with your solicitor or conveyancer to confirm that all easements, covenants or other restrictions have been properly identified. In some states, a vendor’s statement outlining these sorts of things is mandatory, but in others it’s a case of caveat emptor (buyer beware).

EXISTING ROADS AND ACCESS TO ESSENTIAL SERVICES

If you’re building in a newer or more sparsely populated area, you’ll need to take into account how and when basic services will be provided to the plot.

While this obviously includes roads (which you’ll need to get construction gear in unless you’ve got a very impressive helicopter), it also includes things like sewage pipes and water supply, electricity supply, natural gas, telephone lines and broadband internet.

WHAT TO DO:Arranging for the connection of basic services is normally taken care of by the builder. To clarify anything related to access or the provision of any kinds of services in remote areas, have a talk to the local council.    

RESTRICTIONS ON HOW YOU CAN BUILD

Different councils can have very different rules, which can limit how you build. Depending on the council, there may be rules about what style of house you can build, what colours and materials are appropriate, where on the plot you can situate your house and even what kind of fence you can have (among other things).

Also, expect resistance from existing neighbours! If you’re pulling down an existing house to build afresh (or planning big renovations), there’s every chance that they’ll object for any number of reasons.

WHAT TO DO:Call the council for information on local restrictions, heritage overlays or other circumstances that may limit what you can build. Different councils also have different rules about the circumstances that require you to notify neighbours about plans to build. Find out what these are.

PROXIMITY TO PUBLIC/CROWN OR COMMERCIAL LAND

Is the block of land too close to noisy industrial sites? Will it be less safe if it’s right next to a suburban park or alleyway? Visit the site at different times of the day, both on weekdays and on the weekend and take in everything that’s going on. This will let you know how much noise to expect — and also let you know if the neighbours rehearse death metal in their garage or have a motocross track in their backyard.

Property adjoining some crown land has the potential to be real blessing too — especially if it backs onto a nice bit of virgin bushland or an otherwise inaccessible river frontage.

OTHER THINGS TO CONSIDER

There are a few other important things to keep in mind when you’re looking for a good plot to build on. Some of these include:

• How high the plot is above sea level — particularly a concern if you’re building in an area that’s prone to flooding.

• What’s being built nearby — nobody wants to buy a plot of land only to find out a truck stop’s going in next door. Check with the council, or use planningalerts.org.au or a similar service to keep tabs on nearby developments.

• Privacy — nobody wants an entire apartment block staring into their bedroom window. Carefully consider what’s next door, what you’re building, and how secluded you can make it.

• State of existing structures — planning on retaining parts of an existing building or structure? You’ll need to get it inspected to ensure it’s in good shape.

This article originally appeared on Build.com.au and was republished with permission.

Posted by News Limited Network on 14th October, 2014 | Comments | Trackbacks | Permalink
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Styling to Sell


Once the preserve of prestige properties, having a home professionally styled to sell has become, well, increasingly commonplace.

More and more savvy homeowners across the city, looking to give their property an edge in a competitive marketplace and maximise its value, aren't thinking twice about calling in stylists and home stagers to help give their residence a face-lift – anything from a cosmetic touch-up to a full-scale makeover.

"What's changed in the last 10 years is that it's become much more mainstream," says Lisa Hipkins, who runs styling outfit Hiphouse with Heidi Groen. "It started with high-end homes but now it's everyday (places). We do a lot in the middle suburbs."

A major component of styling is refurbishing a home with decor – furniture, colour-matched soft furnishings, artwork and the like – that fit the style and architecture of the home. In many cases, particularly with new homes, this involves a wholesale set-up.

With older homes, property stylists are more likely to supplement, upgrade, rearrange or replace chattels, depending on what already exists. Sometimes, furniture is worn and cat-scratched, outmoded, the wrong tone or scale. If a table's too big or a rug is undersized, for instance, the room can appear smaller. They'll focus on high-trafficked areas, such as living and dining rooms as well as kitchens, bathrooms and master bedrooms. "Deals are made or lost in kitchens," says Keyhole Property Investment's Melissa Opie.

But stylists are quick to point out it's not simply about wheeling in new sofas with some lamps, cushions and a throw rug. Fiona Mallinson, a senior stylist with Melbourne Home Details, says it's about improving flow, making sense of difficult spots (fashioning a study nook from a dead corner, for example), creating points of difference between spaces and visuals that tantalise the eye. "It's finding the best way the house can be used," she says.

Neutralising spaces, through de-cluttering and de-personalising, is crucial. Often larger families with small children will move out during the campaign, placing in storage what's in the way. Splashes of colour (flowers, fruit), warm and welcoming accessories and small details (fragrant soaps, hand-rolled towels, open cookbooks) are important too.

"Our job isn't to make the house look pretty," stresses Hipkins. "It's to make the house look sellable (and) as attractive as possible to the broadest audience possible."

Agents recommend styling because it produces winning campaign shots and bestirs buyers' pocketbooks. "You aren't buying four walls and a ceiling, you're buying a lifestyle," says Marshall White agent Kate Strickland. "We buy houses on feelings and emotions."

At the same time, Jellis Craig's Richard Earle says it's essential to project an idyll without stripping charm and character. "Some buyers prefer to see the odd crack and blemish."

Of course, styling a house properly costs. Consultancy fees vary but typically ring up a few thousand dollars, before rental and storage charges and any purchases. In addition, styling frequently involves more substantial sprucing: a fresh lick of paint; installing carpets, blinds and surfaces (a stone bench in place of laminate); and general repairs.

With our love of all things alfresco, vendors are also increasingly investing in styling the outdoors – returfing, repaving, adding plants, trees and furniture. "You'd be amazed what a big difference a high-pressure clean makes," says Brent Parsons, whose company Phipps Parsons handles general  livability people both aspired to and desired. Style counsel – 10 hot styling tips to sell your property
  1. Neutralise rooms – strip the house of clutter, personal items from bathrooms and anything that interferes with buyers imagining themselves living there.
  2. Ensure furniture and soft furnishings play to the property's architecture.
  3. Scale furniture to fit spaces – smaller if the room's tight (a double bed instead of queen-size), bigger if it's cavernous.
  4. Create an open-arm welcome – keep spaces fluid and open. Don't back a sofa, for instance, to a doorway; don't simply push furniture against the wall to create roominess.
  5. Add "pops" of colour – flowers, fruit, anything that brightens and lightens the house.
  6. Invest in new accessories – cushions, throws and rugs can transform rooms (and hide stains).
  7. Give the house a fresh, new look and smell – a coat of paint (especially the front door), new carpets and, externally, a high- pressure clean.
  8. Keep driveway clear of cars.
  9. Hire a professional who isn't too close to the property and can introduce a dispassionate eye; know the market you're styling for.
  10. Enter the house as if you're a buyer not a seller.



Case study: What a stylist can achieve for you

Having decided to relocate to their native New Zealand with their three children, Sandra and Cam Downs knew they had one shot at selling the family's renovated Californian bungalow in Glen Iris

"We needed to have the home styled to give ourselves the best chance of selling the property for the best price," Sandra explains.

Although they had looked at magazines and shows about selling homes, the couple believed a professional touch was necessary, turning to Von Haus Design Studio interior designer Fiona Parry-Jones, who had worked on the couple's renovation.

Parry-Jones altered the layout of the house, recasting a formal dining room as a second sitting room and a child's bedroom as a guest's, replacing the single bed with a queen-size and adding bedside tables and artwork.

Alternative furniture and artwork were also introduced to other areas of the house to lighten and modernise the place - including a couch for the sitting room, bar stools for the kitchen, a table for the hallway - with existing furniture stored. The Downses also bought soft furnishings.

With repainting, the couple spent $12,000 all up, including $1700 for the stylist. But the investment, says Sandra, was well worth it. Campaign photos, web video and inspections generated huge interest, with the auction smashing their reserve. "We received $200,000 more than we expected," smiles Downs.

Posted by Paul Best - The Age on 12th October, 2014 | Comments | Trackbacks | Permalink
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How to find the right home loan


 THE average Victorian mortgage is at a record $333,000 — $39,700 more than last year — and with interest rates tipped to rise it’s never been more important to get the right home loan.

Commonwealth Bank executive manager of home loan pricing and offer management Ray Ters said it was important to understand the different features offered by different loans and which worked best for individual borrowers.

“A fixed loan gives customers the assurance of knowing their repayments for a set period of time, giving customer confidence to budget accurately,” Mr Ters explained.

“Variable home loans offer a variety of features and flexibility such as the ability to redraw extra repayments and make unlimited extra repayments and can be linked to an offset accounts.

“A split loan gives customers the best of both worlds; offering a balance of certainty associated with a fixed loan, combined with room to move if they want to pay off their variable rate loan sooner.”

Interest-only loans were popular among investors, providing flexibility to reduce loan commitment during the interest-only period, Mr Ters said.

“Alternatively, customers can pay principal and interest to pay off their home loan as soon as possible to own their property,” he said.

While the Reserve Bank last week left the official cash rate at 2.5 per cent, a survey of banking experts by comparison website finder.com.au found most expected interest rates to rises next year.

“The good times for property buyers are not expected to last much longer,” spokeswoman Michelle Hutchison said.

“The cash rate is expected to gradually increase over the next two to three years and hit a ‘new normal’ level of 4 per cent.

“If you’re an existing homebuyer or hitting the property market this mortgage season, make sure you prepare a buffer for when interest rates rise.”   

First-home buyers Tim Wilson and Melanie Cooper are making extra payments on the loan they took to buy their Bentleigh East home last month.

They plan to pay off their mortgage more quickly while they living in the home, then use it as an investment once a chunk of the principal has been paid.

The couple weighed up various loan options before deciding on a principal and interest, variable rate home loan.

“What we initially thought was to split the loan in half — so half fixed and half variable. But looking at the fine print, it only allowed us to pay off $8000 a year,” Mr Wilson said.

“Because it’s our first loan we wanted to see what the market was doing. Down the track, once we’ve got more of a handle on it, we’ll think about fixing it,” he said.

Mortgage Choice spokeswoman Jessica Darnbrough said there was little difference in the interest rates offered by the major banks for their three-year and five-year fixed-rate loans.

“The three-year fixed rates are, on average approximately five basis points lower than the five-year fixed rate,” she said.

“As such, the difference in monthly mortgage repayments between three-year fixed rates and five-year fixed rate products is tiny.”

She said fixing for a shorter period of time of one to three years gave borrowers certainty about their repayments without locking them into a lengthy commitment at that repayment level. If their circumstances changed within the fixed term, such as having a child, they did not have as long to wait to change their loan structure and might not have to pay as much to break the fixed term.

Investors with multiple properties could bundle loans together with the one lender to lower bank fees, or negotiate better interest rates, Ms Darnbrough said.

“It is important to note that if a borrower does choose to bundle all of their assets together and cross-securitise their loans, they will have to attach every loan to every asset. The problem with this is that if something goes wrong and they are forced to sell a property, the bank has recourse to all of their assets, not just the troubled one,” she warned.

Ms Darnbrough also recommended an annual home loan health check to ensure a mortgage continued to meet a borrower’s needs.

Posted by Melissa Buttigieg - Herald Sun on 12th October, 2014 | Comments | Trackbacks | Permalink
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Buying well the key to long-term success


 It's probably a sign of how stable our economy is that we wait for the slightest change in wording when the Reserve Bank decides on the cash rate.

Last Tuesday the RBA board met and decided to keep the official interest rate at 2.5 per cent – not only a historically low rate compared with the 5.2 per cent average since 1990, but also a rate that's been kept the same since August 2013.

But it was the way RBA governor Glenn Stevens expressed himself on property prices and the Australian dollar that is worth looking at during the remainder of the year and into 2015.

For more than a month we've heard strong commentary from economists about unhealthy price inflation in the property market, driven by low interest rates. Some of that comment has predicted an end to negative gearing.

I haven't joined this discussion because lenders' figures don't suggest a problem in the property market, and the Bureau of Statistics' House Price Index series shows we are just slightly above the index average since 2002.

However, the RBA governor in his statement did mention investment property: "Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets."

I think Stevens was right to address the property market with a bland statement like this. If nothing else, it's a reminder to property investors that they must do their homework and invest wisely regardless of what official interest rates are doing.

With an investment property, you are interested in a good location and access to infrastructure such as schools, shops, railway stations and playing parks. And you are also interested in average rentals and some historical data on rental yields.

But the first step in a good investment is buying well. This means not just paying a good price for the year, but a good price for the 10 to 20 years you want to generate income from  this property. If you pay too much you'll lose on capital appreciation and it will take longer to generate clear funds from the rent.

It's one thing to get carried away at an auction and pay too much for the house you love, but an investment property is a business that must earn income and capital growth for many years. So keep a cool head.

The other element mentioned by the RBA – that they expect the Aussie dollar to fall further against the US – is something that might give a boost to our economy. When our dollar was at parity with the US, Aussie exports were expensive and local manufacturers found it hard to compete in foreign markets. 

Now that our dollar is at 85USc – and expected to fall further – our non-mining economy has a chance to pick up, expand operations and create jobs. 

So don't be alarmed at the lack of big headlines from the Reserve Bank this month. A steady economy is a great thing when you consider the alternative.

Read more: http://www.theage.com.au/money/borrowing/buying-well-the-key-to-longterm-success-20141009-113ftl.html#ixzz3FtD2zxcl

Posted by Mark Bouris - The Age on 12th October, 2014 | Comments | Trackbacks | Permalink
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More Victorians are living the dream by building a new home


 MORE Australians are achieving the dream of home ownership — one brick at a time.

Building approvals for detached houses climbed almost 20 per cent in the 12 months to August, with plans for 22,916 new homes given the green light, according to Housing Institute of Australia figures. This compares to 19,127 approvals for the same time the previous year.

The HIA’s survey of the country’s largest volume builders also showed sales of new detached houses rose ­26.3 per cent in Victoria to 16,108 in the year to August.

HIA economist Diwa Hopkins said the detached house segment of the residential building sector had improved markedly.

“Broader conditions around new home building remain favourable,” Ms Hopkins said.

“Victoria’s population has been growing strongly for a sustained period, lending rates are low and new housing is becoming an increasingly attractive option for home buyers, given the strong growth in established house prices.”

The City of Casey, in Melbourne’s southeast, is the state’s home building hot spot. Australian Bureau of Statistics figures, supplied by the Master Builders Association of Victoria, shows 2772 new houses were built in Casey in the 2013-14 financial year, the most of any municipality.

It was followed by Wyndham with 2472 new houses, Whittlesea with 2158 and Hume with 1511.

Latest data from Oliver Hume shows the median lot size in all growth areas has shrunk to 444sq m, a far cry from the quarter-acre block which was once the great Australian dream. While most new housing estates are found on the Melbourne fringe or in regional areas, there are a smaller number of “infill” developments in established suburbs.

Oliver Hume’s project director Gerrard Ellis said the company, which marketed over 25 per cent of Melbourne’s land, had seen most of the activity in the west and north of Melbourne.

“Traditionally most projects are selling on average 10 to 12 sales per month,” he said. “But over the last six months of this calendar year, sales have accelerated in these corridors from 20 to 25 per month.”

Intrapac senior development manager Max Shifman said a new home had the benefits of up-to-date designs and was equipped with environmentally sustainable materials and features.

However, he said buyers should ensure a particular housing estate suited their lifestyle before signing up.

“You need to be close to things that actually matter to you — like schools, cinemas, parks, childcare,” Mr Shifman said. “In some estates those things will be created over time, in other new developments, they are already in established areas.”

Mr Ellis said 54 per cent of buyers of new homes were first-home buyers.

First time buyers who opt for new homes over established are still eligible for the $10,000 first- home grant. They can also pocket a 50 per cent saving on stamp duty which is open to all first-home buyers.

Investa Land Victorian general manager Paul O’Brien said first-home buyers were generally looking for a house-and-land package priced between $300,000 and $385,000.

“They are looking for a minimum 160sq m, three-bedroom house, ideally with a double garage and good quality finishes,” Mr O’Brien said.

RESEARCH THE KEY TO BUILDING 

ROLANDO and Karen Navis liked the idea of building their own home so much they are doing it again.

The couple are hoping to move into their new four-bedroom house in Intrapac’s Somerfield estate in Keysborough by Christmas.

Mr Navis said building their own house also offered a saving on stamp duty but that was not the main incentive.

“The major advantage of building your own house is that basically you can design it to your own tastes and requirements and lifestyle needs,” the father-of-two said.

“And you’ve have got less maintenance issues as it is new.”

The family has been living in its current house for three years and wanted to stay in Keysborough.

“The good thing with Somerfield is that it is not as far as other new estates,” Mr Navis said.

“It is still a reasonable distance from the city.”

Mr Navis said he would recommend building but prospective homeowners should do their research including finding out what infrastructure was available.

“People should look at other properties that are in the area they are looking to build in to see how much their land and property value has gone up,” he suggested.

“Also find out what infrastructure like schools, transport is around and if it fits in your lifestyle.”

Posted by Neelima Choahan - Herald Sun on 11th October, 2014 | Comments | Trackbacks | Permalink
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How to turn your new home dreams into a reality


 BUYERS have several options when it comes buying land and building a new home.

Investa Land Victorian general manager Paul O’Brien said the first option was to buy land off the plan.

“Buying off the plan means the land is not titled — they haven’t put the roads, the gas, water and services in,” he said.

“But you get in early to secure your preferred lots and use the settlement period to choose your builder and be ready to start on site as soon as the land is titled.”

Mr O’Brien said buyers who took this option were relying on the performance of the developer and their track record to deliver the estate infrastructure.

Another option is to buy titled land where all the connections and services are already in place.

Under both scenarios, buyers then choose a builder to build their home. They can go for a large building company that has many set designs, also known as a volume builder, or a custom builder that offers more individual designs.

House-and-land packages are another, popular choice.

This usually involves buying a block of land and a home design that has been packaged together by the estate developer and their building partners.

Master Builder Association Victoria chief executive Radley de Silva said house and land packages generally offered good value, especially for first-home buyers.

First-home buyers Daniel Gilbett and Catherine Calleja chose a house-and-land package because it was more affordable and gave them more say in their home’s design.

“We could choose the design,” Mr Gilbett, 25, said.

“We selected all the interior colours, tiles, ceiling heights, the layout of the house, position of the windows.”

The couple hopes to move into their four-bedroom house in Investa’s Bloomdale estate in Diggers Rest later this month,

They stand to benefit from a stamp duty saving of about $10,000.

“Buying a house-and-land package just seemed like a smarter move,” Mr Gilbett said.

Choosing a builder

KEY QUESTIONS

● Is the builder registered?

● Can the builder provide references for homes they have recently completed?

● Have I read and understood the contract?

● Does the contract comply with all the requirements of the Domestic Building Contracts Act 1995?

● Are building permits and planning approvals needed and what is the cost?

DO’S

● Obtain at least three written quotes.

● Check recent projects completed by builders and if possible ask clients their opinion of workmanship.

● Check that the builder can provide warranty insurance for the building work.

● Determine whether the work requires a building and town planning permit.

DON’TS

● Sign the building contract before you read it thoroughly and ensure you understand it.

● Forget to gain knowledge of your site from council, such as sewerage or septic tanks, bushfire areas and termite zones etc.

Master Builders Association of Victoria chief Radley de Silva

Choosing a housing estate

CHECK TRAVEL TIME:Travel time to the places you regularly go is far more important than distance. Good access to highways is a major plus.

DRIVE AROUND:If the estate is established, get a feel for the area, its open spaces and the quality of the homes.

MEET THE NEIGHBOURS:Spend time in the parks and speak to existing residents about the area.

TEST THE AMENITIES:Are you close to schools and shopping? Also, look for childcare services, access to healthcare and sporting and recreational facilities.

ASK YOURSELF THESE QUESTIONS WHEN CONSIDERING BUYING IN A NEW DEVELOPMENT:

● Is it better value to buy new than buy an existing home and rebuild or renovate?

● Do you want a house with a big garden, or a smaller lot with a lower maintenance home?

● Are there plenty of open spaces like parks, walking and bike trails?

Posted by Neelima Choahan -- Herald Sun on 11th October, 2014 | Comments | Trackbacks | Permalink
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The art of securing a home loan


Mortgage  lenders are aggressively chasing new customers as property prices continue to strengthen in the main capitals but that doesn't mean lending institutions are letting their credit standards slip.

The truth is that gaining approval to borrow the sum you need to buy property isn't always as easy as the advertising campaigns of the big banks suggest. This is certainly the case if you have little equity and are asking for a loan  that requires repayments that cannot be supported by your income. But these tried-and-tested ways to prepare for a loan application will boost your chances of success:

- Equity is everything. If you own a property or part of one, or have a deposit of 20 per cent or more of the value of the asset you intend to buy, your loan application is far more likely to sail through.

- Before you approach a lender, "stress test" your finances. Can you meet the repayments if interest rates go up by 1 per cent? What happens if your income falls? What if one half of your household leaves work to have a baby?

- Borrowers must demonstrate consistency of income. Patchy employment records aren't helpful. But it's a competitive finance market - lenders now ask self-employed applicants for one year's proof of financial returns. The standard used to be two years. 

- Many people are applying for interest-only loans in the hope that property's value will rise. It's easier to qualify for these than for a principal and interest loan, but if you buy a dud property with an interest-only loan you can quickly end up out of pocket.

- The banks can't lose in a market in which prices are rising - and they know it. Beware of incentives such as "free" holidays or a bonus $1000 credit card for borrowing $300,000. It isn't free if you pay back more interest than you need to.

 - Lenders balance risk and reward. You might think securing a new job is great news, but lenders may want to know if you're going to stay in the position long-term.

- Banks are more attuned to their customers regularly changing jobs than they used to be. Even so, some won't give you a loan until you've completed a three-month probation, so try to arrange loans before changing jobs.

- If you've left work to have children and are now returning to the workforce, most lenders will apply the standard three-month employment restriction before approving  a loan. You may get around this rule, however, if you return to a similar job with a former employer.

- Mortgage brokers take the legwork out of negotiating loans and can greatly help investors and owner-occupier buyers. Brokers charge the lender a commission for signing you up for a loan, so it's vital to ensure a broker isn't making conflicted recommendations based on commissions received.

- Consider every lender: big and small banks, online banks, credit unions and building societies. A savvy mortgage broker can help to identify lenders who may be prepared to loosen their loan criteria.

Posted by Chris Tolhurst - The Age on 10th October, 2014 | Comments | Trackbacks | Permalink
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How to survive the first year of the mortgage


Before Luke Abraham and his now wife, Carly, bought their first home they put themselves on a training regime.

At that time Luke was paying about $100 a week in board and Carly was living at home rent-free. Neither of them had ever rented. While it meant they were saving, it wasn't helping them learn how to manage the costs of home ownership.

So they decided to test what it would be like to have their potential mortgage repayments coming out of their bank account.

Their try-before-you-buy exercise was a real eye-opener. They quickly realised their expected repayments weren't going to gel with their plans to start a family and drop to a single income in the near future. "We [thought] we're going to be eating vegemite and toast every night," says 28-year-old Luke.

And just like that: they dropped their purchase price by $100,000.

It also highlighted areas they could cut back. They decided on a fixed-rate mortgage and set a goal of saving a buffer of about $2000-$2500 — or a month's mortgage repayments. Even so, Luke, who now works as a mortgage broker, says the six months after buying their Brisbane home, were a little stressful.

"It probably took about six months until it became normal and you didn't have to check the bank account every second day to make sure the cash was in there."

Adjusting to the weighty costs of home ownership can make the first year of a mortgage challenging, particularly if rates rise shortly after you take the plunge. In June the Westpac Home Ownership Report revealed that 31 per cent of borrowers believe the first 12 months of their mortgage are the most challenging, with the perceived difficulty dropping off significantly after that.

The factors that made the first year tricky? Paying the deposit and stamp duty, said 36 per cent of respondents; understanding the best loan structure for their situation (32 per cent); and adjusting their lifestyle to accommodate repayments (25 per cent).

In March the Genworth Homebuyer Confidence Index showed 39 per cent of first home-buyers surveyed were expecting to have difficulty meeting their mortgage repayments in the next 12 months, up from 32 per cent in September 2013.

So what can you do to make the first year of a mortgage painless?

Start well

Do some solid prep-work. Jessica Darnbrough, head of corporate affairs, Mortgage Choice, has several suggestions: "Know your budget; know exactly what you can afford; know exactly what outgoing expenses you will have on top of the mortgage and then think about what's the best way to structure the mortgage so you're still in that home but not breaking the bank to do so."

Acquaint yourself with all the home-buying costs: stamp duty, solicitor's fees, moving costs and potentially, mortgage insurance.

"You need to think of it as a 10 per cent deposit plus costs," says Darnbrough. "That might end up being 15 per cent or 17 per cent."

Upfront decisions on the loan structure may include fixing all, or part, of the mortgage. With lenders competing aggressively, Darnbrough says: "We might not be at the bottom of the rate cycle but what buyers can be comfortable with is the knowledge that fixed rates are competitive."

Peter Cerexhe, a former consultant lawyer specialising in property and author of Only 104 Weeks to Your Home Deposit (Allen & Unwin), has some post-purchase tips for weathering the transition to life's biggest financial commitment.

Don't be rattled

First, Cerexhe takes aim at the emotional turmoil of mortgage stress: "The first rule is don't panic. You must remember that people have had faith in you already. They are lending you a large sum of money. They have looked at your capability to pay."

Think survival tactics. Next, concentrate on getting through the first year and becoming comfortable with the rhythm of repayments.

"Your focus has to be on survival. Not being distracted by ideas of paying down the principal faster or restructuring things when you feel a little edgy."

Spend consciously

If you feel backed into a financial corner, cutting expenses is one way to come out fighting. The Westpac survey showed men tend to cut back on alcohol while women target spending on grooming products, shoes and clothes. Cerexhe advocates putting unnecessary spending on hold for the first year: "You don't need a new car that year or a box set of Game of Thrones DVDs."

Use comparison websites to find competitive deals on utilities and insurances, says Darnbrough. Plus switching to a debit card will help you spend what you have.

Protect yourself

Protecting yourself will help ensure a happy-ever-after home ownership experience.

"I think we need to understand that the next direction for variable interest rates is probably up," says Cerexhe, suggesting variable rate borrowers ask their lender to make sure they can handle a 2 per cent rise in rates.

A home loan with a redraw facility or a mortgage offset account is a way of building an accessible and tax-effective emergency buffer. And income protection insurance can ensure your home is safe if anything happens to your earnings.

But protecting yourself is more than having a financial safety net. Cerexhe encountered a couple who separated after only a few weeks of marriage. "They moved into a new home and the change was so sudden and so rapid in every part of their life that it tore their relationship apart," he says. Ultimately it's about ensuring your financial arrangements don't jeopardise the important things in life. WHY STRESS?
  • One third of first-home buyers are using more than half their income to service their debts, compared with a quarter of home owners.
  • Underemployment was the main cause of first-home buyer mortgage stress (63 per cent), compared with 32 per cent for home owners.
  • Higher costs of living was more likely to lead to mortgage stress in home owners (49 per cent), than first-home buyers (25 per cent).
  • First-home buyers were twice as likely to consider refinancing to another lender in the next 12 months, (47 per cent), compared to 23 per cent of home owners.


Source: Genworth Homebuyer Confidence Index March 2014

Read more: http://www.theage.com.au/money/borrowing/how-to--survive-the-first-year-of-the-mortgage-20140924-10l9n4.html#ixzz3Ffcugcyr

Posted by Christine Long - The Age Money on 9th October, 2014 | Comments | Trackbacks | Permalink
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Patchy outlook for investors


Investors have been driving property prices higher on the back of record-low interest rates.

Property prices have risen by about 50 per cent in Sydney and Melbourne since the start of 2009, says researcher RP Data.

In the apartment market, which is favoured by investors, prices have risen by about 11.5 per cent in Sydney over the past year to September 30. In Melbourne, which is still suffering the effects of oversupply of inner city apartments, prices have risen by about 5 per cent.           

Baby boomers investing with an eye to retirement and home owners upgrading to a bigger or better house have sidelined first-time buyers. Investor housing loan approvals account for almost 40 per cent of the total value of housing loan approvals, the highest share in 10 years.

However, property analysts expect price rises in Sydney and Melbourne to rise in-line with, or a little in excess of inflation over the next several years as interest rates start to rise.

Rate rise tipped

A major reason for the strong rise in prices is interest rates at historic lows.

But analysts are expecting the cash rate and, therefore, mortgage rates, to start rising within the next 12 months.

Robert Mellor, the managing director of BIS Shrapnel, is expecting a rise in the cash rate of about 1 percentage point by the end of 2016.

Due to competition in the mortgage market, mortgage interest rates will probably not rise by the full one percentage point, he says. "We think that the headline (or advertised) variable mortgage rate may rise from 5.95 per cent now to about 6.8 per cent", Mellor says.

That is not much of a rise by historical standards. However, because of the large size of the typical mortgage even a modest rise in interest rates will affect affordability, Mellor says.

Forecasts contained in OBE's Housing Outlook for 2014, conducted by BIS Shrapnel, shows Sydney dwelling prices are expected to rise only by a cumulative 9 per cent over the next three years, or only marginally above inflation.

"Momentum" in the Sydney market could see stronger price growth this financial year with even less growth in prices in the two subsequent years, Mellor says.

He is "less positive" on Melbourne with a forecast of only 5 per cent cumulative growth in prices over the next three years. And, after strong price rises during the winter months, it looks as if property markets are already starting to cool. RP Data says that prices were almost flat across the five largest capital cities over September.

The levelling in price growth over September is largely attributed to slowing of growth in Melbourne and Perth, with both of these capitals recording a slightly negative result over the month of September.

"It remains to be seen whether these softer conditions will persist throughout the rest of spring," says Tim Lawless, RP Data research director.

John Edwards, the founder of researcher Residex, expects price rises to slow and consolidate through 2015; rising in line with inflation.  He says, for would-be investors there is "no rush as there will be good opportunity in 2015, once the market moves into a consolidation phase".

Segmented markets

Mellor says Melbourne is a particularly segmented market. There is continuing oversupply of apartments in Melbourne's central business district, Docklands and Southbank, Mellor says.

There is even a risk that prices of inner Melbourne apartments could fall by 5 to 10 per cent over the next three years, he says.

Louis Christopher, managing director of specialist property researcher SQM Research, agrees that investors should be wary of Melbourne inner city apartments. He favours apartments in South Yarra and St Kilda as likely to provide good capital growth over the long term.

He is positive on Sydney apartments overall. However, investors need to be careful not to overpay, he says. "Some developers in Sydney are pricing [their apartments] at top dollar and getting it," he says.

"Some are charging in excess of $14,000 per square metre for off-the-plan, which is full on," Christopher says. Richard Wakelin, Director and founder of Wakelin Property Advisory in Melbourne, says it is land values that drive capital growth.

Wakelin says the best bets are apartments in small blocks – 10 to 20 unit blocks that are within two to 10 kilometres of the Melbourne central business district. He favours older apartments (and "character" houses) in areas where no more apartments are being constructed.

"Fads" should be avoided, whether it is Gold Coast units, time share or opportunities in booming mining towns, Wakelin says. He is wary of off-the-plan property.

"In Melbourne, we can count the number of multi-unit high rise blocks that have actually worked for investors," he says.

"All the enticements, rental guarantees and all of the glossy stuff can be thrown out the window if the asset is not sound," Wakelin says.  John Edwards says it is "easy to overpay for a property at this point in time and over payment will not be covered by increasing property values over the balance of this growth cycle".

Novices on notice

First-time landlords need to consider the tax and financing issues of owning a property at the outset.

"Many of these issues need to be considered before purchase, such as ownership structure," says Peter Bembrick, tax partner with accountants and advisers HLN Mann Judd Sydney. Other issues include how the property is to be financed. 

Many investors take advantage of "negative gearing".

This where is where the costs of making the investment, such as interest on the mortgage are greater than the rent from the property, the shortfall can be used to reduce income tax paid on the investor's other income.

Bembrick says a loss is a loss, even if there is some tax benefit and positive gearing is preferable.

Investors who negatively gear are hoping to be able to eventually sell the property for a price that more than makes up for the losses incurred along the way. Bembrick says it is very important for would-be investors to be able to cover any shortfalls in cash flow.

"For example, the impact of inevitable periods when the property does not have a tenant, as outgoings still continue even if the residence is empty," Bembrick says.

Consideration should be given to whether some, or all, of the mortgage should be at a fixed interest rate in order to help reduce the impact of future interest rate rises, he says.

Beware of spruikers

 Property spruikers and mortgage brokers are tapping into the booming self managed superannuation funds sector.

Their pitch is that investors can hold investment property inside a SMSF and enjoy superannuation's confessional tax rates.

Some are showing disregard for investors' individual circumstances, says John Hewison, managing director of Hewison Private Wealth, which has many SMSF clients.

Those who do not have the money in their super fund to buy an investment property outright are being advised to take out a mortgage. Hewison says borrowing to invest inside super can be an appropriate strategy for high net worth individuals.

However, younger investors with minimal account balances are encouraged to borrow large amounts of money in order to buy properties in their super funds, Hewison says.

Older people, who should be risk adverse and who will need to draw an income stream in retirement, are also being led down the path of gearing property, Hewison says.

Richard Wakelin is also concerned. Super is a nest egg that most of us are relying upon for a comfortable retirement, he says. "Unfortunately, there are companies that are using the growing interest in SMSFs to market sub-investment grade property developments to the public," he says.

"We're worried that many of these investors will suffer losses that could compromise the investor's retirement lifestyle," Wakelin says. Anyone thinking of going down this path should engage a reputable, independent accountant or financial adviser to look at their specific circumstances, Wakelin says.

They should advise you on the merits of establishing an SMSF and using it to invest in residential property, he says. The Australian Securities and Investments Commission and the prudential regulator of SMSFs, the Tax Office, have issued repeated warnings to the public about property spruikers targeting the  trustees of self managed funds.

Real estate giant moves into advice

News that one of the biggest real estate agencies, Ray White, intends to establish a financial advice arm has sparked concerns it would be used to help facilitate the sale of real estate and mortgages  to people with self managed superannuation funds.

The White family owns a string of real estate agencies across Australia, and also owns a mortgage broking business and an insurance business. These are commission-based businesses.

The new advice business, Wealth Market, which is expected to open before Christmas, will be part of the mortgage broking business, Loan Market.

Sam White, the chairman of Loan Market, has said that, initially at least,  Wealth Market will focus on providing "insurance opportunities" as well financial products from an "approved product list" to clients.

"Our advisers will not be recommending properties to our clients," he said.

Action plan
  • Don't invest for the tax breaks
  • Beware of spruikers recommending property inside DIY super funds
  • Units in smaller blocks can offer a higher land value component.
  • Lower-priced properties will often have higher rental yields, but may have lower capital growth.
  • Factor-in higher interest rates from the current record lows.
  • Consider fixing whole or part of the mortgage, though there may be costs if the loan is terminated early.
  • Make sure there is sufficient cash flow to cover temporary loss of rent

Posted by John Collett - The Age on 8th October, 2014 | Comments | Trackbacks | Permalink
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Home loan interest rates continue to fall on fixed and variable mortgages, but be ready for a rise


 INTEREST rates on fixed and variable-rate home loans are falling despite the nation’s cash rate failing to budge in 14 months.

Savvy home loan customers who haven’t locked in their rates will be pleased they waited as more than 80 lenders have dropped their rates in the past month on nearly 100 fixed rate mortgages.

Some lowered them by as much as 0.7 per cent.

Variable rate home loans are also continuing to fall with dozens of mortgage rates decreasing by up to 30 basis points, new figures by financial comparison site Finder.com.au found.

MORE: Home loan customers on a mission to smash mortgages

The Reserve Bank of Australia kept the cash rate on hold at 2.5 per cent yesterday with Governor Glenn Stevens highlighting the sharp fall to the Australian dollar.    

He said the global economy was “continuing at a moderate pace” and the nation’s “weakening property market” was an upcoming challenge.

RELATED: Australian house prices could fall

Finder.com.au spokeswoman Michelle Hutchison said lenders still had leeway to drop loan rates even further as they continued to hover at historically low levels.

“Variable rates generally don’t move out of cycle but it really does show that lenders do have room to move,’’ she said.

“They haven’t passed on all the cash rate cuts since they started dropping rates since November 2011 so they still have room.

“Lending has got cheaper for the banks and it’s good to see some are passing on rate cuts to their home loans.”    

Ms Hutchison said patient borrowers would have the last laugh now as historically low rates continue to drop.

According to their database the lowest available two-year fixed rate is 4.29 per cent, lowest three-year rate is 4.39 per cent and five-year fixed rate is 4.79 per cent.

All three rates belong to the Newcastle Permanent.

The lowest advertised variable rate is 4.54 per cent, offered by loans.com.au.

But 1300homeloan director John Kolenda said home loan customers would be lucky to see many more fixed rate falls in the coming months despite predicting a further cash rate fall.

“It would be very difficult to see that you would get a much better deal over the next six months,’’ he said.

“I don’t think rates will rise and I think for the next six to 12 months I still think there is a 50 per cent change of rates coming down again.”

HSBC’s chief economist Paul Bloxham said the RBA is unlikely to cut rates further and he expected a rate rise mid-next year conditional to the Australian dollar falling further.

Posted by News Limited Network on 8th October, 2014 | Comments | Trackbacks | Permalink
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No bubble in RBA lexicon


When it comes to housing bubbles, our Reserve Bank prefers not to use the word 'bubble' at all. It doesn't even want us to think about it.

Luci Ellis, the RBA's head of financial stability, appeared before a senate committee in Canberra last week to talk about housing affordability.

Thanks to that meeting we now know that the central bank will soon announce how it plans to clamp down on speculative investor activity in the runaway property markets in Sydney and Melbourne.

Ellis said the RBA was very concerned about the rate at which house prices were growing. But she refused to use the word 'bubble' to describe house prices in Sydney, which have risen by 15 per cent in the past year.

"I don't think that's a particularly helpful way to frame the problem," Ellis told senators.

"What matters is how much speculation there is in the market and what that might mean for a subsequent price cycle, and at the moment there is more speculative activity than we are comfortable with." But given her dislike of the word, it was still surprising to learn that the RBA doesn't spend much time trying to identify housing bubbles.

Ellis admitted so. And her reasoning does make sense. As she put it, when you try to pinpoint bubbles, "you end up with a debate about whose model is best, and people who confidently announce that prices have deviated X amount from fundamentals are usually using some pretty simple metrics to devise that, and they usually turn out to be quite misleading," she said.

"People will confidently proclaim that they can identify bubbles but usually they end up identifying 18 of the last three [property] crashes."  

Ellis said some models may look only at the run-up in house prices, but "that is often not helpful". "The run-up in prices in the United States was not big compared to some of the markets that didn't have the same kind of crash," she said.

"You have to look at the whole picture, including whether there's been overbuilding — which there was in the US and in places like Ireland. You have to look at what lending standards were and what the resilience of the household sector is, to who can afford house prices."

She said that's what the RBA and the Australian Prudential and Regulation Authority have been doing — looking at the bigger housing sector picture.

But having taken that look, they've decided to do something about it.

Read more: http://www.theage.com.au/money/borrowing/no-bubble-in-rba-lexicon-20141004-10powe.html#ixzz3FfbTN2Fl

Posted by Gareth Hutchens - The Age Money on 8th October, 2014 | Comments | Trackbacks | Permalink
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Family trusts still offer investment advantages


Long before self-managed superannuation funds were invented and became today's investment accessory of choice, there were family trusts.

There are 534,000 SMSFs in Australia and about 350,000 family trusts.

The extraordinary growth in SMSFs does not mean that family trusts are no longer relevant. In fact, family trusts provide tremendous flexibility for managing investment portfolios and family wealth. Family trusts are discretionary trusts that have elected with the Tax Office to limit the potential beneficiaries of the trust's annual distributions to "family members". Family members listed can include relatives within two generations. Trusts generally distribute their income annually to beneficiaries who are then required to pay tax on that income. In the case of discretionary trusts the trustee can use his or her discretion to determine which family members to distribute the income to. Generally, income is distributed to those family members who have the lowest taxable income and who will incur the least amount of tax.

Family trusts have an advantage over SMSFs as they have far fewer restrictions and rules. Unlike an SMSF, money can be added to or lent to a trust with no restriction, money can be borrowed from the trust and distributions can be paid out or reinvested. There is no age restriction on adding to or drawing funds from the trust and family businesses can be run through them.

The assets of a family trust are administered and controlled by the trustee of the trust rather than by the individual beneficiaries. This can provide excellent asset protection advantages in certain circumstances, for example, if a family member is sued.

Family trusts are also useful for estate planning purposes. Through a family trust, the ownership of assets such as a share portfolio or holiday house can continue uninterrupted even when a key family member dies. This is because the family member doesn't own the asset, the trust does.

Consequently, the assets don't form part of the individual's estate for the executor to have to distribute. This can make the administration of the estate simpler, and the outcome regarding family assets more certain. Trusts can be multi-generational, and a life cycle of up to 80 years is allowed for trusts formed in NSW.

For those wanting to invest a substantial amount, say more than $300,000, and have either maxed out their contributions to super, or want more accessibility than super provides, a family trust can be worthwhile.

This is particularly so if there are low-income beneficiaries in the family group to whom taxable distributions can be allocated. The reason for suggesting an investment amount of greater than $300,000 is because there are costs to running a trust, such as the preparation of a tax return each year.

The fees incurred need to be outstripped by the tax saved, or the value of other benefits such as asset protection that are obtained.

Michael Hutton is a personal wealth management partner at HLB Mann Judd.

Posted by Michael Hutton - Money Manager (Fairfax Digital) on 1st October, 2014 | Comments | Trackbacks | Permalink
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Seven tips for a financially festive Christmas


I can't believe that I'm writing this but it's less than three months until Christmas. Just getting that sentence down makes me feel a little ill at the thought of everything I want to achieve and complete before the year finishes but it also makes me feel queasy because the lead-up to Christmas for many of us is incredibly busy and let's face it, downright expensive.

There are so many catch-ups with friends and family before the big day, numerous presents to buy, a new outfit or two to purchase and more than one bottle of champagne to take with you if you're a Christmas function guest. Never mind the cost if you're the host of either Christmas day itself or drinks before the big day.

When it comes to presents and functions, I know many of us want to be generous at Christmas to those who  matter to us. That's because we've bought the story that has been sold by Hollywood and Hallmark that it's the season to show those you love just how much you love them. And of course the more you love someone, the more you'd want to spend on them, right? Wrong!

I believe if you truly cared for someone you wouldn't want them to get into financial difficulty through a misguided act of showing you how much they love you. I also believe if you asked your kids to  write down all the presents they received last year they couldn't. They might be able to list their top five but I bet that's it.

That's why I'm an advocate for sitting down three months out (which is now) and working out a budget for the silly season so you don't find yourself in financial difficulty once the tinsel is packed away.

Of course I know some of you are going to be thinking, how incredibly unromantic that sounds: writing a list and setting a budget. You can't put a price on love!

Well actually you can. It depends on how much you have available to spend and how much you can save up between now and Christmas time.

Maxing out your credit cards and being unable to pay off the balance until halfway through the year or spending all your savings and jeopardising long-term plans is not showing yourself kindness. Surely it's time this year to give yourself some Christmas love by keeping your spending in check and starting the new year on a great financial footing.

So if you, like many of us, struggle at Christmas time to keep your spending under control, why not start now with me to ensure that this year is the best year yet, financially and festively. Here are my top seven tips for having a financially festive Christmas:
  • 1 Write a list for everyone you want/need to buy for and put an amount next to each person's name and then total the amounts. If the amount is not realistic or is more than you are able to spend then consider culling your list or reducing the individual amounts.
  • 2  Consider talking to your friends and family and either putting a limit on the amount you are going to spend on each other or organising a kris kringle where you purchase for one person only.
  • 3  Talk to your kids about the budget you have for them this Christmas and ask them to consider presents within the budget or explain that with so many kids in the world Santa has had to put a budget on presents this year and the limit is X amount. Or if they want a pricier item then start searching now on eBay or other secondhand sites. It's never too early for kids to understand that there isn't a never-ending money tree that presents simply appear from.
  • 4  If you as a grown-up genuinely don't need anything (which let's face it, is many of us) why not as a group of friends or a couple decide to donate the amount you would have spent to charity and then buy something silly and cheap for each other instead
  • 5 Write a list for each function you are hosting including a budget for all food and alcohol and make sure you stick to it. Prepare menus and start shopping for items now so the big Christmas food shop cost is reduced.
  • 6 Consider asking guests to bring either nibbles, dessert or alcohol to help reduce the cost of the big day or other functions you maybe holding. That way the cost and the time in preparing and shopping can be shared.
  • 7 Start now. Once you've made your lists, start buying now to spread the cost across a few months rather than a week. But don't be tempted to lift the limit on the presents or hand them over early – find a great hiding space and tick them off.



Christmas can be a wonderful time of year but it can also be financially devastating when the new year hits. This year if you really want to show how much you love them through how much you spend, why not make that "person" a needy family or a charity and do something meaningful with the ones you love instead. Now that would be a worthy hallmark moment.

Posted by Melissa Browne - Money Manager (Fairfax Digital) on 1st October, 2014 | Comments | Trackbacks | Permalink
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Bit by bit, bitcoin is gaining currency


When you can buy a round of drinks at the local with something that can't be seen let alone held, you know bitcoin has made it.

That, or it's the world's most elaborate pyramid scheme.

The Old Fitzroy pub in Woolloomooloo, Sydney and the Grumpy's Green, coincidentally in Fitzroy, Melbourne, many small businesses and big online retailers from Amazon to Zappos accept bitcoins as payment.                  

Flash your phone with its pre-loaded electronic wallet at the till so the two swap computer codes and the drinks are yours. 

Never one to miss a trend, billionaire Sir Richard Branson's Virgin Galactic accepts bitcoin for your next outer space holiday.

It's a bigger challenge to paper money than even plastic cards which, come to that, are also threatened.  

There's even an experimental bitcoin debit card from CoinJar that can be used in supermarkets or anywhere that takes eftpos. The "swipe" card converts the bitcoins into your linked bank account.

So how does bitcoin work? Wish you hadn't asked that, but suffice to say it's all about mathematical algorithms so fiendishly complicated that they're impossible to break.

That, as you'll see, isn't quite the same as saying bitcoins are hacker proof.

Anyway they only exist in cyber space. They have to be held in an electronic wallet on a computer, phone or tablet which is protected by a password.

Forget it and your electronic wallet is forever lost with your bitcoins in it.

Your bank can't send you a new password because bitcoins are outside the financial system, probably part of their appeal.

So if there's no central bank behind them who issues them? Aha, nobody and everybody.

Geek get together

Bitcoins were invented by a Satoshi Nakamoto who probably doesn't exist. Let's just say some geeks got together and designed a computer program that would be the closest thing to a central bank for a crypto currency.

The program restricts their number anywhere in the world to 21 million and we're already halfway.

This is a safeguard to protect their value and prevent inflation. But one bitcoin can be divided into 100 million, um, bits, known as satoshis, named after Mr N.

The weird thing about bitcoins, except for not really existing, is that anybody who's software savvy can create them. Known as mining, far from being frowned upon – and besides, nobody's there to frown in the first place – it's what makes the system work. Miners verify a transaction for a reward of bitcoins which will progressively shrink as more are issued.

Like something out of quantum physics, which perhaps it is, a bitcoin simultaneously doesn't exist yet can never disappear either. Unless an electronic wallet is misplaced, that is.

So for most the only way to get a bitcoin is by buying it from somebody else. Every bitcoin transaction is recorded on a public register, a sort of digital Domesday Book.

Which brings me to the weak link. To cash in bitcoins you must use special exchanges which like bitcoin aren't regulated.

The problem is these can be hacked. The biggest one, Mt Gox which was based in Tokyo, recently went belly up after being sabotaged.

Shady reputation

At least bitcoin has shrugged off its shady reputation from its early days, which only go as far back as 2009, though a lifetime in the digital world.

Contrary to popular belief, bitcoin is a lousy way to launder money because it leaves an electronic trail which is tamper proof.

Although this doesn't show names it does publish the unique address of the wallet it's come from and where it went. When it's cashed out there's another trail at the exchange.

"In many regards it's an auditor's dream. Anyone with a computer browser can see where a bitcoin came from and where it went," says Ron Tucker, chairman of the Australian Digital Currency Commerce Association.

Hmm, that seems to rule out the possibility of a digital pyramid scheme.

The next step of putting a name to an address can't be far off, especially as cyber currencies have attracted the attention of tax departments and central banks.

"Sooner or later it'll be publicly stated whose wallet's whose," Tucker predicts.

The Australian Tax Office, grappling with whether bitcoin is a fair dinkum currency, has issued a draft ruling saying ... well, it's not sure.

On everyday transactions they incur GST that you'd be paying anyway.

But unlike currencies, capital gains tax rules apply if the bitcoins cost more than $10,000. Bitcoin's value fluctuates wildly, a weakness or strength depending on your point of view.

In the few minutes between ordering a $4 coffee and paying by bitcoin it might have cost you $50.

These price fluctuations almost certainly have a lot to do with its attraction. It's a form of payment and a flutter on the side all in one.

Wouldn't you know, one exchange, igot.com, has already set up bitcoin futures so you can lock in a value.

Mind you, it seems to be settling down as it matures. So far this year, at least as we speak, it's held around $500 to $560. At the end of last year it hit $1300 just before China, the biggest bitcoin user, banned its banks from dealing with it.

It's just as well bitcoin ATMs have sprung up at Westfield Central in Sydney and Emporium in Melbourne. From vinyl to virtual

The old and the new are as one for Bill McWilliams.

A finance consultant by profession Bill and his wife Chelsea, an accountant, have followed their passion for music by opening Touch Records, so named because you can see and feel vinyl records.

But they're accepting a crypto currency, bitcoin, which you can neither see nor feel.

They're also riding an unlikely renaissance in vinyl records with demand doubling in the past year, according to the Australian Recording Industry Association, and that's not counting booming second-hand sales.

In fact the most visited part of www.touchrecords.com.au is the section selling record players.

It's not just sentimental baby boomers who are buying, either. Nor for that matter are those paying by bitcoin only Gen Ys and Xs.

But Bill has no doubt that bitcoin, which he started accepting early this year, has pulled in the young.

And not just because they tend to buy online which is bitcoin's natural habitat as a digital currency. It's more like a club.

"What I've been surprised by is that there appears to be a whole bitcoin community that I was unaware of. Those who own bitcoin keep up to date with the latest news about it and are all very supportive of the merchants who accept it," Bill says.

The other pleasant surprise has been that since the website started accepting bitcoins, offshore inquiries have more than tripled "even though I've never marketed Touch Records overseas," Bill says.

The downside of the digital currency is the wild swinging in its value. A merchant selling something for $700 which might have been one bitcoin might only get $500 when it's cashed in.

But it hasn't been a problem for Touch Records.

"It's still only a very small percentage of turnover. It's almost in my marketing budget. And I'm not a massive owner [of bitcoins]. I use CoinJar which converts them to dollars straight away costing 0.5 per cent."

ACTION PLAN

To use bitcoin you need to find an exchange or go to the special ATM at Westfield Central Sydney or Emporium Melbourne.
  • Set up an electronic wallet with a password.
  • Keep your wallet's coded address somewhere safe.
  • If you lose your coded address or password, you lose your bitcoins.
  • Unless speculating or planning a purchase, cash in a new bitcoin straight away to avoid its price fluctuations.

Posted by Money Manager - Fairfax Digital on 1st October, 2014 | Comments | Trackbacks | Permalink
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Big four bank credit cards: Are you paying too much


 IF YOU have a credit card with a major bank, you’re paying way more on interest than you should, according to consumer advocacy group Choice.

Choice completed a review of the credit card market in Australia and found that the Big Four banks — Commonwealth Bank, NAB, ANZ and Westpac — still charge around 20 per cent interest on their credit cards despite official interest rates falling 2.25 per cent since November 2011.

“Choice has long-standing concerns that credit cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and ‘low’ annual fees,” Choice head of media Tom Godfrey said.

“While the major banks try to convince you their ‘low-rate’ cards are worth considering with an interest rate of 14 per cent, they are still a long way from the best deals on offer.

Mr Godfrey said the Reserve Bank of Australia identified, in August, the average high rate credit card charges 19.75 per cent. Mr Godfrey said the best rate on offer is 8.99 per cent through Community First while Victoria Teachers Mutual Bank, the Maritime, Mining and Power Credit Union, and Bank Mecu had good rates.    

Essentially, it’s what Choice has dubbed the ‘lazy tax’ — extra charges on those too overcome with inertia to make the move and switch to a lower interest card.

By way of illustrating the difference, consider this scenario: someone with a $2000 debt and paying off $50 a month at the higher 19.75 per cent rate would take five and a half years to pay off the card and would be hit with interest payments of $1289. In contrast, someone with the same level of debt and repayments on the lower 8.99 per cent rate would take four years to pay it off and will have only been charged $386 in interest in the process.

Mr Godfrey said: “Not one credit card from a domestic major bank is in the top 20 products available. If you have a credit card with a big bank, you are paying far too much interest and it’s time to shake off the lazy tax and move your money.

“With 30 per cent of us carrying a balance on our credit cards and most of us still banking with the big banks, there are also big savings to be made by switching to a credit card offered by a smaller financial institution.”

Choice’s advice is that anyone with an interest rate above 14 per cent is getting a raw deal. And that if do want to stay with a major bank, you should ring up and ask for a better rate.

Posted by News Limited Network on 1st October, 2014 | Comments | Trackbacks | Permalink
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Debt that's good, debt that's bad


If you've gone through the pain of paying off a big credit card debt, you'll know it can leave you reluctant to ever go into debt again.

But often borrowing can help us build funds for the future. So what does it take to move through that resistance and discover that debt doesn't have to be a dirty word? For starters, it helps to recognise that there are different types of debt. Some drags you down, while others can give you lift-off. Financial planners like to label the two: good debt and bad debt.

Good debt involves borrowing to purchase an asset that should appreciate in value or provide an income stream. It might be a home; an investment property; shares; managed funds; a business. It's generally secured against the asset so if you can't meet the interest payments there is something to sell that will (hopefully) cover the outstanding debt. Apart from a mortgage, the interest cost is generally tax deductible.Scott Heathwood, executive chairman of Wealthy and Wise Lifestyle Planning, says there can be a great upside to borrowing to invest, particularly in assets such as property, that are not subject to constant revaluations.

 "Good debt can super-charge the return on your equity," he says. "It can double or triple the return."

"If someone has got $200,000 in a super fund if they turned that into a $600,000 property asset and borrowed $400,000 through the bank and say they got a 6 or 7 per cent return on that then they'd be getting 6 per cent on $600,000 as opposed to 6 per cent on $200,000.          

"Assuming the tenant is paying the rent and the rent is paying the interest cost ... then you've got 6 per cent on the bank's money.

In effect, you're getting $36,000 on $200,000 as opposed to $12,000 so it's three times the return."

Bad debt, on the other hand, is associated with spending on things that will have little value in the future. Think holidays; clothes, eating out, groceries.

It might also include an 'asset' that begins depreciating the minute you drive it out of the showroom or furniture that goes onto the nature strip before you've paid off your no-interest-for-24-months loan. It's unsecured and is not tax deductible.

"Credit card debt is the bad one because it's unsecured, it's expensive and it's at a very high rate," says Heathwood.

So far, so straightforward but debt doesn't always slot neatly into textbook categories. You can still find your so-called 'good debt' growing horns and sporting a pitchfork if you lose your job, experience a drop in income; a relationship breakdown or an accident.

A Jekyll to Hyde switch can also be caused by a dramatic change in the financial weather.

Crisis strikes

Caroline and Craig Makepeace owned an Australian investment property debt-free when they decided to use their equity to fund some wealth-building manoeuvres.

"We used the equity from that to invest in property in America and we also used some of the equity to invest in shares and a couple of other things," explains Caroline.

"We were looking to create our own business so we got sucked into that internet world of how to make money overnight and we chased those kinds of schemes all over the place."

What happened next: the global financial crisis triggered a financial crisis for the couple. In the space of two years their good debt turned horribly bad.

"The investment property in the United States just collapsed so that went really badly and the shares went really badly so everything kind of fell apart for us."

The couple ended up walking away from the American property and selling their Australian investment property. But the two-year struggle to try and hold it all together left them with $30,000 of credit card debt.

"In the end because our situation was so bad we were using the credit card to invest in different things but also to cover our living expenses," she says.

As Caroline's yTravelblog.com details they spent the next three years doing everything they could to pay off the debt including moving in with Craig's family and using bonuses to pay off large chunks of debt.

"Even when everything was falling apart we knew the ramifications of bad debt," says 38-year-old Caroline.

"We'd always been very good with money up until that point so we knew that it was something that we had to get on top of."

Once the debt was repaid they started a travel business and it now funds their travels around Australia with their two children. While they plan to return to investing in property, their financial confidence has taken a body blow.

"I'm not confident enough at the moment to get back in," says Caroline. "It really shook me. It really shook my confidence a lot and I guess I'm kind of frightened of that responsibility."

As their story shows adding debt firepower to your returns is something that needs to be handled with care.

How secure are you?

Heathwood says one of the first things that should be considered is security of income.

"Are you secure in your job? Do you have mobility? One of the things that concerns me sometimes with people is they may have a good job but if they lose it they are going to be unemployable."

Relationship stability can also be key. The quality of the asset is crucial.

"Don't buy exotic investments. Don't go into structured products," says Heathwood.

"If you're just an average person stick to plain vanilla stuff — average sustained growth over time is good."

He advises people to buy quality property assets in growth corridors in capital cities and to look for areas earmarked for infrastructure developments or urban renewal.

"If you're going to invest somewhere and the government is spending money on a hospital or a railway system – get in early – not after the event. If you get in during the planning stages you'll make money."

Similarly, he advises sticking with quality stocks, adding: "We wouldn't gear anyone more than 50-50 because the market has got to drop 30-35 per cent or more before you're in margin call."

Borrowing capacity and your investment time horizon will impact whether borrowing to invest is a good idea. It's not for someone on the verge of retirement. You also have to be able to withstand interest rate rises, ideally an extra 3 per cent in rates.

Wally David, a Melbourne financial planner and the author of thesmartmoney.com.au, thinks we have become too comfortable with carrying large amounts of debt and he advises clients to get rid of most – if not all – of their non-deductible home and car loans before borrowing to build wealth.

From a tax point of view it's going to make most sense for someone on a reasonable income.

"If there will be a shortfall in terms of what you are paying in interest vs what you are earning in income the tax benefit is obviously more skewed if you are on a higher tax rate," he says.

"There has also got to be money left over in your week-to-week expenditure to allow you room to service that extra commitment which if you've previously been making repayments on your home loan now you can redirect it elsewhere." Turning debt to your advantage

Using a credit card doesn't necessarily mean you are doomed to a debt disaster.

Plenty of people turn a rewards credit card to their advantage. According to creditcardfinder.com.au's Winter 2014 Insights Report, one in five cardholders chose a credit card for the rewards program, compared with only 6 per cent two years ago.

There are now 49 cards offering bonus points on sign-up, up from 21 in 2013.

Brisbane resident and author of The Travel Tart blog Anthony Bianco makes the most of his credit card linked to an airline rewards program. To rack up points he puts everything on his card including concert and sporting tickets on behalf of groups of friends.

"I've also volunteered to pay for work functions which are a very quick way to rack up points," he says. He only uses the points for international flights as the points required per kilometre are less than those for domestic flights. His point-hoarding strategy has already translated into several overseas trips, including one round-the-world trip involving five stops.

Michelle Hutchison, money expert with creditcardfinder.com.au, says rewards cards are not for everyone. To get the benefit out of one you have to spend $12,000 to $14,000 a year and pay it off in full each month.

That's because the average purchase rate for a rewards card is 19.66 per cent and the average annual fee $180, compared with 15.9 per cent and $65.34 for a non- rewards card.

Those with the highest sign-up bonuses – American Express Platinum offers 80,000 points and the Citi Select Credit Card 60,000 rewards points – have annual fees of $1200 and $700 respectively.

A lesser known feature of the Amex card is that you can apply to have its annual fee of $395 waived. That card comes with a complementary economy return flight to one of seven international destinations and 29 domestic destinations or an overnight hotel stay.

Check out the add-on costs too. American Express card-holders pay higher surcharges than Mastercard and Visa credit card-holders. Hutchison says there can be conditions imposed on the sign-up bonuses.

For instance, "ANZ's card has a bonus 50,000 points but you need to spend $1500 on eligible purchases within three months."

Could people sign up, grab the bonus points and then switch to another card? Yes, says Hutchison, but be aware of the impact on your credit file.

Plus, she adds: "Some credit card providers will look at how many times you've switched in the past, say 12 months, two years, and if you've switched a certain number of times within that period you may be rejected." ACTION PLAN

To make the most of "good debt":
  • Ensure you have job and relationship stability
  • Check you can withstand interest rate rises
  • Stick to quality assets
  • Check you have the excess cash to service any shortfall between the income from the asset and the borrowing costs
  • Cover yourself against any loss in income through an accident or job loss

Posted by Money Manager - Fairfax Digital on 24th September, 2014 | Comments | Trackbacks | Permalink
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Mortgage customers falling into interest-only repayments trap


 MANY mortgage customers are opting for interest-only repayments on their own homes and failing to pay off any mortgage debt despite rates hitting their lowest ever levels.

A large portion of borrowers are failing to make any headway into their borrowings by choosing interest-only repayments in what experts say is a dangerous move that could lead them to financial trouble when rates do rise.

ING Direct figures show about one quarter of owner occupiers taking out new loans opt for interest-only repayments.

ING Direct’s manager of mortgage products Loren Wakeley said there had been an increase in the past five to ten years of owner occupiers paying interest-only on their home loans.

“At the moment there are definitely more owner occupiers that are choosing interest-only loans,’’ he said.    

“Customers sometimes want more flexibility with their loans so rather than us dictating the amount of money that needs to be paid back on the loan at any given time they are choosing how much they want to pay back that suits them.”

Mr Wakeley said interest-only repayments are usually permitted for two five-year periods but once 10 years passes it “can be tough” to continue on interest-only repayments.

National Australia Bank data shows about 32 per cent of all new home loans taken out by both owner occupiers and investors are for interest-only repayments.

Interest-only repayments are popular among investors as it allows them to minimise their mortgage repayments in the short term and rely on capital growth in the long term.

But experts said home loan customers should be making significant headway and paying down their mortgage debt given interest rates are so low.

HSBC chief economist Paul Bloxham said the record low cash rate at 2.5 per cent was likely to come to an end in 2015.

“I don’t think interest rates are going to stay in their lows in perpetuity,’’ he said.

“We think the Reserve Bank of Australia may start to lift interest rates from the middle of next year and households should keep that in mind when they are making choices about their repayment behaviour.”    

Mr Bloxham said despite some borrowers paying interest-only on their own homes, RBA statistics showed the average Australian was at least 24 months ahead of their home loan repayments.

Westpac figures show a four per cent increase in interest-only loans in the first half of July 2014 compared to the same period last year.

But the bank’s head of home ownership Melanie Evans said the increase of interest-only loans had been driven by the “investor market and their desire to manage their interest expenses for tax purposes.”

“At the same time some owner occupiers have also opted to take out interest only loans for increased flexibility with their monthly repayments,’’ she said.

Comparison website Finder.com.au figures found on a 30-year $300,000 home loan with the average standard variable rate of 5.34 per cent, monthly principal and interest repayments would be $1655 compared to $1325 for interest-only repayments.

On a 30-year $500,000 home loan with the average standard variable rate of 5.3 per cent the monthly principal and interest repayments would be $2776 compared to interest-only repayments of $2208.

But Solace Financial director Scott Quinlan said opting for interest-only repayments on a home loan was not a good idea for owner occupiers.

“Rates are quite low at the moment so if you are on interest-only and that’s all you can afford and rates increase you could be in a lot of trouble,’’ he said.

“The banks will be asking for a lot higher repayments on interest only once rates rise and you won’t have any scope or fat to move your repayments around.’’

Posted by News Limited Network on 21st September, 2014 | Comments | Trackbacks | Permalink
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Selling in season: When’s the best time to sell?


Though springtime is the traditional selling season for real estate, some properties are better suited to sale during the other seasons. It depends on the property, the current market and your presentation and marketing.

It’s no wonder people traditionally sell their homes in spring: everything’s in bloom, brighter and looks great. But talk to real estate agents and drill down on sales results, and you’ll find that the best season to sell your particular property isn’t necessarily spring.

The right season depends on a huge variety of factors, including the property itself, its surroundings and area you live in. For example, are you in a tourist spot? A beach suburb? Or are there events on at certain times of the year that turn your normally quiet street or suburb into a car park?

There can also be a huge advantage in marketing your home during traditionally quiet periods – winter, for example, or from mid-January into February, when other sellers are still on holidays. With fewer properties to choose from, more of the buyers will get to see your place.

Regardless of the time of year you decide to sell, there are some absolute must-dos:
  • Thoroughly clean your property from top to bottom – inside and out
  • Trim overgrown gardens; remove weeds and dead growth and refresh garden beds with mulch
  • Address any off-putting maintenance issues, such as peeling paint, worn or marked carpets, cracked tiles, dirty grout and loose or rusted gutters (if you’re selling a knockdown or “renovator’s delight”, this step often isn’t necessary)
  • Banish any pet smells
  • Furnish the home in an attractive but not overly cluttered or personal way, to give potential buyers a perspective on room sizes and to present the home in its best light
  • Pay for professional photographs and good marketing
After you’ve tackled the any-time-of-year jobs, you can focus on seasonality and how it may influence how you present and market your home.

Spring

Ensure the property is well aired, especially if you’re just moving out of cooler weather and the home has been closed up a lot. Remove any mould spots from ceilings, walls and window frames that might have crept up in winter (diluted clove oil or an 80 per cent white-vinegar solution both kill mould). Because people favour the outdoors in spring, it’s a good time to focus on getting those outside areas up to scratch. Fertilise the lawns and gardens to freshen them up from winter. If your pavers are dirty, pressure-wash them, and recoat tired, weathered decks. Finally, add some bright touches to suit the season, such as cushions and towels.

Summer

Some properties, such as holiday houses by the coast or river and elevated properties that get cool breezes, particularly lend themselves to being sold in summer. Likewise, homes that are generally quite dark and cold in winter. If a property has a lot of unshaded, west-facing windows and gets particularly hot in the afternoon, it may be worth holding inspections only in the mornings, or you may want to consider selling in a different season. If you do need to cool down a property, try to do so a few hours before any inspections so that potential buyers will feel very comfortable as they look through. And this season, when looking at accents such as cushions and throws, opt for cooler blues and greens.

Autumn

Autumn can often be a busy time in real estate, as families have had time to recover from the summer holidays and get into a new school year before thinking about moving house. As the weather can vary, again remember to keep the home comfortable during inspections. In autumn, that could mean turning on the air-con one day and the heater the next! For accents, think a few cosy touches that suit the cooler temperatures, such as textured cushions and warmer colours.

Winter

Homes that get great winter light can really stand out during the cooler months. Those west-facing windows that were a problem in summer can make for a real bonus from June through August. Draw back the curtains and blinds on all windows and let as much light and warmth in as possible.

In the cooler parts of Australia, the focus should be on feeling warm and comfy. So light the fire or switch on the heat, turn on all the lamps and add some warm reds and oranges to your soft furnishings.

Also, be sure to consult your agent about the best time of day to show your home. For example, if you have lots of north-facing windows and receive plenty of winter sunshine, you’ll probably want to show it during the day.

Armed with these presentation tips and tricks, you’ll have a better shot at selling your home – no matter what the season.

Posted by Carolyn Boyd - Domain on 17th September, 2014 | Comments | Trackbacks | Permalink
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What makes a great suburb ?


  Think with the heart of a homeowner and the head of a property investor when it comes to choosing which suburb to buy in.

Buying your first home or investment property is a major financial commitment and the location you choose will significantly affect your real estate’s value. There are rational drivers that impact the value of an area, but don’t dismiss the emotional experience of actually living there.

According to Shannan Whitney, director of BresicWhitney, a leading Sydney-based boutique real estate agency, home buyers are motivated by a very different set of criteria to property investors when deciding where to buy property.

“Most people making a decision about where they are going to live are driven by what they can afford, not necessarily by what they want,” says Whitney. “I guess the second thing is what they personally desire. That’s a very different channel to an investor.

“There are two key things that investors have to consider. One is capital growth and the other is [rental] yield.”

Reviewing a potential suburb through the different eyes of a home buyer and an investor can offer telling insights, regardless of which you are. Home buyers: what suburb should I live in?

The process of finding the right area for your new home is dominated by your personal and financial circumstances.

“Two things are affordability and suitability, and under the umbrella of suitability comes personal enjoyment, convenience, all the things that people desire in the environment where they want to live,” says Whitney.

Evaluating the local sale prices in an area offers a clear guide to affordability. When it comes to suitability it is worth considering:
  • Proximity to your work and social network
  • Access to services including medical centres, hospitals, transport, day care, community centres, schools, universities and shopping centres
  • Proximity to parks, beaches, town centres, cultural destinations, places of worship, dining and bar precincts and nightlife.
Life stage, relationship status and personal interests will all dictate which attributes shape your decision.

“Having close access to great bars and restaurants is interesting for some but not others … I think that’s one of the industry levers. People say you’ve got to buy close to transport, you’ve got to buy close to infrastructure, you’ve got to buy close to food and entertainment – all those sorts of things,” says Whitney. “It is certainly relevant for some profiles but for others it is not. I don’t think it necessarily determines the prospective value or the future value of a particular area.”

As an investor, looking at a suburb from a homeowner’s point of view will help you understand the demographic of the area and gain insight into the potential rental market. Property investors: what suburb should I invest in?

Investing in property is all about gaining a return on your investment, so you need to estimate potential capital growth (the increase in value of the property) and rental income of a location. Domain provides detailed market reports on specific areas, which delve into median prices, rental rates and population demographics.

The other important consideration is the term of your investment. Are you looking to sell the property after an initial upgrade? Or are you in it for the long haul with plans to lease the investment property out?

“Rental demand is a big one, and the second thing that dominates is what is going to go up the most [in value],” says Whitney. “In that regard, I guess, those more structural components come into play.

“That is, who is the demographic living there? Why are they there? What’s the depth in the rental market in a particular area? And of course, what are the prospects for the area into the future: development prospects or any significant political decisions that have been made, or might be made, that could alter the fabric of what the suburb is now and what it might become?”

A broad checklist includes:
  • Rental vacancy rates, average rental prices and median sale prices
  • Potential rezoning and infrastructure changes
  • Potential property developments and resulting impact on housing supply
  • Availability of property management
  • Basic population demographics including employment rates and age.
Home buyers will also benefit from an investor’s impartial outlook when evaluating a suburb. Considering future changes to an area will help avoid unexpected lifestyle upheavals and achieving capital growth will improve a homeowner’s personal equity.

Finding a healthy balance between the emotional and financial considerations will help you determine the best location.

Posted by Jacqui Thompson - Domain on 17th September, 2014 | Comments | Trackbacks | Permalink
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Consumers fear getting fingers burnt, again


When interest rates are slashed to record lows, it's meant to encourage people to take a few more risks with their finances.

But the latest figures on what consumers are doing with their savings must have made frustrating reading for Reserve Bank governor Glenn Stevens.

On the one hand, there are many of us who are stubbornly keeping our money in the bank because we're still cautious.

But at the same time, there's a big group who are intent on doing the exact thing that Stevens would prefer we'd cool off on: putting money into property. 

The latest consumer sentiment report from Westpac and the Melbourne Institute published last week, included a question on where is the "wisest" place to put savings.

Despite puny interest rates that mean the returns on a deposit account are going backwards after inflation, some 34.3 per cent of people nominated the bank as the "wisest" place to put savings, the highest in almost two years.

On face value, that suggests households remain deeply cautious. But it's not that simple. The other place where Australians are increasingly keen to put their savings is property, favoured by 25.7 per cent of respondents.

Shares, in contrast, are still only the preferred choice for 8.5 per cent of people.

CommSec reports that with 60 per cent of consumers either preferring banks or property, it's the most polarised result for savings intentions in 20 years.

Why is this a problem? Well for one, the high priority given to savings accounts suggests many remain deeply cautious about the economy.

With unemployment still high at 6.1 per cent, slow wage growth and job insecurity, it seems many people are still reluctant to spend more, which is likely to keep growth sedate.

At the same time, however, it also shows the surging interest in the property market. Despite double-digit house price growth, and despite Stevens' warnings that prices can fall as well as rise, one in four consumers still view property as a winner.

This is significant because it highlights the bind facing Stevens.

The economy remains weak, as a record-breaking mining boom goes into reverse, and other businesses struggle to fill the gap. But to solve that problem with even lower interest rates would be a risky move indeed.

As the governor spelled out  earlier this month, pumping any more cheap credit is not the answer to Australia's economic weakness. It would only risk further inflating "already elevated" house prices - something he last month said would be an "unwise" thing to do.

Lower interest rates have undoubtedly helped the economy - but they are not going to solve its problems and could also create new risks, if the housing market continues its bumper run.

Posted by Clancy Yeates - The Age on 17th September, 2014 | Comments | Trackbacks | Permalink
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How to find a good financial adviser


Trust in financial planning must be at, or near, an all-time low.

The string of failures in the financial planning sector that has cost investors, mostly retirees, billions of dollars over the past decade has not just been at the fringes. Revelations about dodgy advice at the Commonwealth Bank in the past have likely further dented trust in personal advice generally.

Planning is still evolving into a fully-fledged profession and consumers have to do their own checks. While the majority of planners would never dream of doing the wrong thing by their clients, there are those working in business models where advice is used to disguise product sales.

Business models

The financial advice industry can be divided broadly into two types - planners who work for independently-owned planning firms and those - the vast majority - who are aligned with one of the big financial institutions. Independently-owned advisers operate their own licence and can independently decide on what products and strategies they will use.

Aligned advisers, such as those either employed directly by the big banks or working for an advice firm that is owned by a big bank, usually recommend their employer's products.

However, advice from a non-aligned planner is no guarantee of good advice. It was, for example, mostly non-aligned advisers who, in return for big commissions, recommended investing in property developer Westpoint, which collapsed in 2006.

Non-aligned advice firm Storm Financial, collapsed in early 2009. Storm advisers recommended only one "strategy" to clients.

They were advised to borrow, often with their homes as security for the loan, and invest in the sharemarket. The strategy unravelled when the sharemarket crashed as a result of the GFC.

Many had to sell their homes to repay their lenders and were left to rely on the age pension. Even accountants have not been immune from the disasters. It was mostly accountants who recommended the tax-effective agribusiness schemes such as Great Southern and Timbercorp that collapsed in 2009.

Improvements

Mark Rantall, the chief executive of the Financial Planning Association, (FPA) points to a number of recent changes that will help lift the professionalism of planning.

The big banks and AMP have said they will lift minimum educational standards of their planners. Also, from the start of next year, there will be an online register of financial advisers.

It will likely include the planner's work history going back five years, qualifications, ownership of the planning firm and any bannings or other sanctions against the planner made by the Australian Securities and Investments Commission.

The register will, for the first time, allow the regulator to know the details of everyone licensed to give personal advice.

Rantall says there is more work to do with FPA members, regulators, government and industry bodies to "ensure we live up to the expectations of our profession and its clients".

Rantall says there are other things to ask an adviser besides qualifications, membership of professional associations, who owns the licence and how the planner charges for advice.

Consumers should ask the planner if he or she can refer you to those who have used their services. He says consumers will also find a lot of valuable information in the planning firm's financial services guide.

Rantall says there are some tell-tale signs of whether an adviser is likely to be acting in your best interests or not. "If they try to sell a product from the minute you walk in the door and if it sounds too good to be true, it usually is," he says.

"There is no short-cut to wealth creation," Rantall says. "If anyone is offering a short-cut; that means taking higher risk," he says. "The smart way to wealth generation is a long-term strategy and saving as much as you can, and managing down debt to an acceptable level," he says.

It is also about building the super nest egg and not incurring high interest rates on debt, such as credit cards, Rantall says. Sometimes the best advice does not involve a product recommendation at all, he says.

Where investments are recommended they should be "solid". If money is borrowed to make an investment the gearing levels should be conservative, he says.

Avoid pitfalls

Claire Mackay, a certified financial planner (CFP) and a chartered accountant at Quantum Financial, says there are a number of filters or screens that consumers can use to help choose a suitable planner.

The first is membership of the FPA as members must adhere to a code of conduct, ethical standards and undertake continuous education. New practitioner members of the FPA must have a relevant university degree.

About 5600 FPA members also hold the CFP qualification, which the association promotes as the "gold standard" of financial planning. Mackay says there is no filter that gives an absolute guarantee.

There are those who have the bare minimum and those who have gone "above and beyond", she says. Some have specialisations such as expertise on self-managed superannuation funds, for example.

Consumers should be aware that advisers work for firms with different business models. Some people like the comfort of a big brand, such as a big bank. "They are there to sell their services," she says.

There are free tools available for those with straightforward financial circumstances, MacKay says. This includes the Australian Securities and Investments Commission's MoneySmart website at moneysmart.gov.au, where there is a budget planner and a mortgage calculator as well as other calculators, including for superannuation and retirement.

Simple superannuation advice is also available over the phone from your super fund, she says.

How to pay for it

Many people pay for advice through an "asset-based fee", which is a fee charged as a percentage of the money under advice that is ongoing rather than paid upfront.

That can be a problem, because it may mean the planner has an incentive to make product recommendations and less likely to recommend paying-down the mortgage or buying an investment property.

That is because they can only capture an asset-based fee by pushing products. Many non-aligned advisers, including Claire Mackay, ask clients to pay a fee each year for advice. She says some people baulk at paying upfront. However, it is value the client is getting for the money that counts, she says.

Ratings service

Conducting a beauty parade of potential advisers is probably not that practical for most people. To make the search easier, Beddoes Institute, a consultancy, has launched its Most Trusted Advisers Register. It is designed to serve as a referral source for consumers.

Adam Tucker, the director of the Beddoes Institute, says thousands of clients of more than 150 advisers have been questioned. Of these 150, more than 30 have so far made it onto the network.

Tucker says these are the planners that are providing exceptional client service and performance. "Most trusted advisers also rated higher on their qualifications, experience and technical skills than other advisers," Tucker says.

Planners pay nothing to be listed on the network. It is not funded by any financial advice or financial services firm. Nor it is funded by any association. More planners will be added to the network over time. The website is at mosttrustedadvisers.com and there is also a free mobile phone app at  the Apple store.

Case study

Jon Boughton, 68, a retired clinical psychologist and management consultant, was prompted to seek financial advice in 1989. He had been relocated by his employer from Sydney, his home town, to Melbourne, where he has lived ever since.

After relocating to Melbourne, Jon's wife Sandra, who is also clinical psychologist, heard financial planner Michelle Tate-Lovery of Unified Financial Services speak at Sandra's workplace.

"We contacted Michelle because my wife was very impressed with the comments she had made," Jon says. "At that stage, I was doing a lot of international work and was away from home quite a bit," he says.

"I was more inclined to spend my time with my family, rather than rooting around in documents trying to find out what the latest tax situation was or what the super situation was," he says. On meeting Michelle for the first time, he said he felt a connection straight away.

"It is not only a connection with the nature of the service offered," he says. "If you are going to share personal financial information with somebody you need to feel comfortable and confident with the person," Jon says.

Without advice they would have bumbled along, Jon says. "But there is no doubt we are significantly better off from having advice," he says. Michelle Tate-Lovery gets paid a fee-for-service. "There has always been openness and transparency about the manner in which fees are charged," he says.

Posted by John Collett - The Age on 17th September, 2014 | Comments | Trackbacks | Permalink
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Seven deadly real estate sins


With around 2000 auctions a weekend scheduled in Melbourne and Sydney this month, Super Saturday spectaculars could turn into a slaughterhouse for naive, gullible or poorly prepared buyers and sellers.

It’s a jungle in the “for sale” hoardings-draped suburbs of the nation’s capitals, with predators setting traps for the careless or inexperienced.

Industry veterans claim the industry’s worst practices – including under-quoting by up to 60 per cent and dummy bidding – are rampant, despite the threat from regulators of big fines or possible loss of licences.

Most professionals in the industry are qualified, mindful of the rules, work hard and do a great job for their clients. But ­industry rules and their enforcement comprise a confusion of competing regulators, loopholes and lax enforcement overseeing real estate agents, accountants, developers, lawyers, financial advisers, self-managed super fund specialists and buyers’ agents.

According to industry specialists, the chances of anyone being pinged for breaches are less than one in 100 and ­probably more like one in a 1000, if the number of detected breaches and fines compared with the number of auctions is any guide, despite efforts by regulators to prevent buyers being duped.

Licensing rules intended to provide consumers with protections, such as for buyers’ agents, are flagrantly breached by real estate agents offering their services on the internet.

Forewarned is forearmed in this winner-takes-all world of street auctions. This week, Smart Money asked specialists to pinpoint the seven deadliest practices and how to avoid them.

False bids

Vendors’ relatives, auctioneers’ friends, estate agents or other parties interested in selling the property raise a hand to get the bidding going. The competition can scare off the ­genuine bidder and, in the worst case, the property might be sold to a dummy bidder.

False bids are hard to detect. One strategy is to find out who is going to auction a ­property – it’s normally scheduled weeks ahead – and attend a few to become familiar with the format and faces. In NSW, all bidders now have to be registered.

Underquoting

This technique is rampant, says buyers’ agent David Koren of Morrell and Koren. Houses are publicly listed at tens and ­sometimes hundreds of thousands of dollars less than what they eventually sell for. Sellers do it to generate interest and increase pressure on buyers. It’s unlawful, but cases are rarely prosecuted. Research the type and location of the property to estimate a fair price. If a quoted price sounds too good to be true, it probably is.

The offer that’s not an offer

In the game it’s called “conditioning the seller”. An offer well under the reserve is made at an open house. It’s not expected to be accepted – the idea is to condition the seller into being prepared for a lower price. Industry specialists say such offers are often made directly to the seller, rather than the agent, and can be “very ­effective”. Once again, do enough homework to detect a con. If in doubt, check what ­similar properties in the area have been ­selling for. Don’t get carried away in the heat of the moment.

Photoshopping and furniture

It’s easy to edit a photo to remove the ­towering block of flats next door, the railway line behind, a freeway flyover that over­shadows the front fence or the power lines over the house. Also, the right size furniture can make a room the size of a telephone box look like a ballroom. Personally inspect the property and ­contact the local council about any ­development plans for the area.

Overquoting to vendors

Agents will sometimes promise vendors a price well above market value to secure the property for listing. It’s seller beware. Don’t be flattered into a bum deal.

Withheld offers

Unscrupulous agents might be tempted not to pass on low-ball offers, forcing their ­clients to wait for a higher price that pays them more commission.

Exaggerated rates of return

Property investors are offered double-digit rates of return and told that “all property ­doubles in value every 10 years”. Any night of the week, investors attending property ­seminars are being told – usually by a ­commission-earning agent – that they will be able to sit back and relax as tenants’ rent pays off their mortgage. If only it was that easy. Spruikers clear regulatory hurdles by ­claiming they are providing “general advice” – market speak for a sales pitch.

Case study: Calling in the experts

Mathieu and Eva Durox used a buyers’ agent after deciding the tricks and traps of the real estate market would take too much time and effort to crack.

Mathieu, originally from France, and Eva, from Hong Kong, lived in the inner Melbourne suburb of Camberwell and were looking to spend about $400,000 on an investment property.

Reading, searching the internet and talking to property specialists answered some of their questions, but they felt uncomfortable about committing, particularly as they did not have a car and it was difficult to get around and inspect.

“We decided we needed an agent that would represent us,” says Eva.

The agent knew the market and what was available, says Mathieu, an engineer from Paris. He could compare prices and provided insights into fair value.

“The agent invited us to look at houses and told us we could do better for our money, which was very helpful,” Mathieu says.

They originally considered Sunshine, in Melbourne’s northern suburbs, believing it would benefit from improved public transport.

Their buyer’s agent encouraged them to consider other suburbs, and they eventually chose a single-storey, three-bedroom, brick-veneer house in the bay-side suburb of Seaford, on the other side of Melbourne. They were attracted by its proximity to a railway station and the beach.

“We found a house within a month and it was pretty straightforward,” says Eva, a former journalist with the South China Morning Post.

They plan to eventually subdivide the property.

According to recent surveys, one in three buyers are using, or considering using, a buyers’ agent.

Posted by Duncan Hughes - Australian Financial Review on 15th September, 2014 | Comments | Trackbacks | Permalink
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Ten ways to read the economy


Your own economy isn't hard to work out when you focus on your occupation, your income and your expenses. But when you want to make financial decisions and investments outside your normal expertise, then you'll want to work out the broader economy and what it means for your decisions. Here are my top 10 ways to read the economy.
  • Gross domestic product: GDP is a litmus test for how strong the economy is over all. It is household consumption, plus business investment, plus government expenditure, plus the difference when you minus imports from exports. GDP growth really matters: it's currently 3.5 per cent, above the global trend. Higher growth is expected.
  • Household consumption: Household spending equals confidence, and it accounts for more than 70 per cent of GDP. It's currently rising. Final consumption expenditure (mostly household spending) rose 0.3 in the June quarter.
  • Business investment: While mining investment is slowing this year, non-mining business investment is starting to rise, albeit from a subdued base (business credit growth is moving upwards too). If investment continues to grow, expect employment and GDP to grow with it.
  • Government investment: Currently subdued in line with below-trend economic growth.
  • Exports/imports: We had trade surpluses at the start of 2014, but we have deficits again as exports slow. Trade is determined by the growth of the Asian zone: it takes 75 per cent of our exports.
  • Unemployment: Currently at 6.4 per cent, which is now higher than the US. It's been rising since June 2011, so unemployment was going up during the resources boom. Rising business investment should create employment.
  • Inflation: While the economy is tepid, inflation – the general rise in prices of goods and services – is currently at 3 per cent, or the top of the historic 2-3 per cent range.
  • The dollar: It has lost ground to the USD since 2013, which is not a bad thing for achieving balanced growth in our GDP. It's probably still over-valued against the USD.
  • Interest rates: The single most important factor in the price of housing. We currently have historically low interest rates, contributing to a stimulatory effect. Many economists say we can expect these low rates into 2015. Mortgage quality is good too: more than 30 per cent of Australian mortgage borrowers are at least 24 months ahead of their repayment schedules.
  • The RBA: Makes a decision on official interest rates each month, to ensure that inflation is within the 2-3 per cent band. The low cash rate of 2.5 per cent is likely to be sustained into next year because the RBA thinks it will help economic growth.
A good resource for learning about the economy is the RBA web site, which aggregates national and global data. Use this to gain insight into factors that could effect your investments: low interest rates mean rising property prices; a growing economy usually means solid gains in the top stocks etc.

As always, do your homework, be patient and find an adviser if you're confused.

Mark Bouris is executive chairman of wealth management company Yellow Brick Road.

Read more: http://www.theage.com.au/money/investing/ten-ways-to-read-the-economy-20140911-10f91e.html#ixzz3DLzLU3bM

Posted by Mark Bouris - The Age on 15th September, 2014 | Comments | Trackbacks | Permalink
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Offset or redraw, which one leaves homeowners better off ?


 MORTGAGE offset versus mortgage redraw – many homeowners are unsure which option is better.

Any way that home loan customers can reduce the principal on their home loan will help bring down interest costs and put a bigger dent into their mortgage, but experts say the two types of facilities serve different purposes.

Analysis by financial comparison website RateCity found 69 per cent of all home loans have a redraw facility, while 40 per cent have an offset account. Some have both.

Offset accounts are used as daily transaction accounts and the balance is taken off the total loan amount, which reduces the daily interest charges.

Redraw facilities hold extra repayments made on a loan and help create a buffer. However, they are not as easy to access because there is no card linked with this facility.  

National Australia Bank’s general manager of consumer, Melissa Reynolds, says both types of home loan facilities can be a great way for savvy customers to reduce interest costs.

“An offset gives you day-to-day access to your funds. For example your pay and the daily balance in your offset is then offset against your home loan,’’ she says.

“The reason a redraw account becomes more popular is because customers like to think they are building up the equity in their home loan and keeping it separate.

“Because you have to access your redraw amount and then move it into your transaction account or other account and access that money through an ATM, then you are less likely to eat into that equity and into those funds.”

NAB figures show of all its home loans, 14 per cent have an offset facility and about 35 per cent have a redraw facility.

RateCity’s analysis found about one in five offset accounts are not 100 per cent offset and instead are only partially offset.

On the flip side, some redraw facilities have fees applied to make withdrawals, so consumers can get stung if they pull out funds.

RateCity spokesman Peter Arnold says offset accounts can be a good way to cut down interest costs but they can be tempting to dip into, given the ease at which they can be accessed.

“An offset account is a good way to minimise your interest and offset every possible cent towards your home loan for as long as you need it,’’ he says.

“For people with good discipline it’s a good way to do it, but it’s important you don’t dig in too much and defeat the purpose of having it. Whereas a redraw is what you’ll have as a safety net.”

ME Bank’s manager of products, Luke Easton, says for owner occupiers having an offset account or a redraw facility is critical.

“They would be better off using these types of accounts to save, instead of taking out a savings account where you get paid interest and pay tax on it,’’ he says.

Posted by News Limited Network on 14th September, 2014 | Comments | Trackbacks | Permalink
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Top ten things that devalue your home


 FROM crazy colours to dirty dishes, some things have home hunter running a mile, while other turn-offs are less obvious such as narrow corridors and dimly lit streets.

Mirror-image semi-detached homes, same suburb apartments or a row of terraces can all seem the same but have different prices. In many cases it is because owners and potential buyers know the hidden things that can devalue a property.

Here are 10 things that can cause a property to lose value.

1 LOCATION

The location is the single most important factor that can reduce the value of a property — and not just because it’s in a tough suburb or miles from anywhere. Location can also be about where one apartment is compared with another in a block of units or what side of the street a house is on, says WPB Property Group chief executive and valuer Greville Pabst.

“Generally, apartments positioned on higher or top levels tend to experience greater capital growth because they are not only more attractive to investors and owners but also to tenants,’’ he says.

2 AMENITY

It sounds like one of those planning terms that no one really understands, but amenity is a big value adder and detractor. This is all about services and things people want near their home such as shops, schools, businesses, recreation and community facilities. It’s also about what people don’t want near their home such as a fast food outlet, a party pub or car wash. You want to be close to the good things and away from the bad.

“Properties within five or 10 minutes walking distance to the local village and transport generally have a higher capital growth than properties further away,’’ Pabst says.

Being within a desirable school zone can add tens of thousands of dollars to a home, while being on the wrong side of the street and outside the zone will reduce the value.

3 RENOVATIONS

Instead of adding value, bad and cheap renovations can actually destroy the value of a home. Buyers and valuers will be forced to discount the price in order to demolish, remove and then replace poorly designed or constructed additions and renovations.

“Only renovate to your target market,’’ Pabst says. “Research the local market, know the general age group and the needs of those households.”

4 FLOOR PLAN

A versatile floor plan is going to be in more demand than many larger properties with little flexibility or poorly planned rooms. The way a house flows, open plan areas and ability to use rooms for different uses is one of the most important things buyers and investors look for.

“A bad floor plan is a major draw back,’’ Metropole Property managing director Michael Yardney says.

“It’s not the size of your property that matters but the efficiency of the floor plan.”

Narrow corridors, clusters of rooms, walking through rooms to get to others will discount the value. Floor plans are also one of the crucial factors when a property is listed for sale and can often be the make or break decision to inspect a home.

5 TRANSPORT

Being too close or too far from transport options can impact the value. The extra foot traffic and transport noise from being too close to a train station, for example, will lower the value of a property. Too far away and it reduces the number of potential buyers or tenants, our experts say.

Main roads, however, are usually the biggest price plunger, says independent buyers advocate Catherine Cashmore. “Traffic isn’t the only problem. The front windows will also need to be shielded from people walking past, for noise and privacy, there will be an increase in rubbish that’s dropped on the street, blowing in to the front,’’she says.

“Worse still, getting out of the driveway or waiting to turn on to a busy road is very frustration and potentially dangerous.”

6 NOISE

Noise is increasingly a modern day scourge. It can be a very real problem for occupants of a property, which means it is automatically an issue for all future buyers and, of course, valuers. Noisy neighbours, loud neighbourhoods, public transport, industry or restaurant issues and road noise will be a stumbling block when it comes to putting a price on your property, Cashmore says.

“This can be diminished by soundproofing the windows, however, that’s not much help in summer months.” Good quality construction is important to reducing internal noise.

7 HIGH DENSITY

High rise and high density living is not for everyone, Cashmore says.

“It’s important to focus on housing that appeals to home buyers, not just investors. Buying a small apartment in a high-rise block carries a risk,’’ she says.

“Supply is increasing for these types of dwellings and, therefore, it’s reasonable to suggest demand will wax and wain depending on the number of investors in the market.” Ideally you need to purchase a property that appeals to all buyers, she says.

8 NATURAL LIGHT

Be aware of neighbouring buildings and the impact they will have on light and blocking sunlight, Resi Group spokeswoman Lisa Montgomery says. “Nobody sets out to buy a dark and lightless place, if there’s one thing plenty of natural light does, it’s make property feel bigger,’’ she says.

The right aspect is also important, north facing is often the most desirable for natural light and sunlight, Montgomery says.

9 SECURITY

Well-lit streets, easy and safe access to public transport or parking and, of course, the calibre of the neighbourhood are going to impact on the security value of a property. Security and privacy are important issues that should not be underestimated, Montgomery says.

10 PRESENTATION

Sure it’s superficial but crazy colours, “personality decor”, poor street appeal, even clutter and messy furniture placement can make a huge difference when it comes to people putting a price on a property.

“It’s important to keep your colours neutral and perhaps decorate with colours,’’ Montgomery says.

Unusual or unique is also not such a great idea, says Cashmore, as it can “stick out like a sore thumb”. “Exotic features are just not appealing to the vast majority of people,’’ she says.

Posted by News Limited Network on 14th September, 2014 | Comments | Trackbacks | Permalink
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Don't fall for the mortgage traps


As mortgage rates fall lenders are loading repayments with extra charges.  

The banks are pushing loan packages with discounts on the interest rate, home insurance premiums and credit card fees, but they come with an annual fee between $395 and $750.

For example, banks will waive the annual and second cardholder fee on credit cards but not the penalty interest rate.

Nor are the extra inducements cheaper than shopping around for the best deal. 

Credit card issuers such as Citibank are also charging a handling fee of 3 per cent on balance transfers to their introductory zero rate credit cards.

ANZ has the cheapest package for a variable home loan of 4.98 per cent but is undercut by 206 mortgages on finder.com.au including a no annual fee and  4.54 per cent home loan from  loans.com.au.

Bigger imposts are reserved for first home buyers and investors with a deposit under 20 per cent of the property's value paying lender's mortgage insurance.

Even re-financing to a cheaper loan incurs a slug of about $500, despite the abolition of exit fees. This includes an administrative fee from the lender you're leaving and a state levy.

Discounts within the bank package deals may not be cheaper than you could find separately, according to Smartline adviser Karen Forbes.

"You might get a cheaper home insurance quote yourself. Or the bank branch might not tell you there's also a no fee loan available," she warns.

Independent research group Canstar agrees.

"You can probably do better by shopping around for the individual components. The big saver is the discount on the loan rate. Other bells and whistles are nice, but an 0.8 per cent discount is the big ticket item," says research manager Mitchell Watson.

He estimates the threshold where a package deal beats a more basic loan is a mortgage of about $200,000.

"There's also the convenience of only having to deal with one institution," he says.

Another trap is lender's insurance, which can cost thousands and has nothing to do with protection against illness or losing a job.

In fact it protects the lender from you, if you default and your repossessed home  sells for less than what you owe.

Lender's insurance is a one-off premium that can cost thousands of dollars and is either front-loaded on to the home loan – exacerbating the insufficient valuation ratio which caused the problem in the first place – or is capitalised and so accrues interest.

Some lenders will also add up to 0.5 per cent to the mortgage rate.

Caught out

Borrowers with a loan exceeding 80 per cent of a property's value who re-finance for a lower rate, can also be caught out by the fact that lender's insurance can't be transferred; you need to take out a new policy and so pay another premium.

Premiums can vary enormously between banks and other lenders, and can quickly wipe out any gains from a seemingly cheaper loan.

"An extra $4000 in lender's mortgage insurance premiums requires an exceptionally good rate to balance out the cost," Forbes says.

Lenders use different scales of loan amounts to set the premiums.

"Some lenders' scales go up in one or two percentage increments. One of the major banks adds a loading for self-employed people, and most lenders have a loading for investment properties.

"This information isn't published on lenders' websites, so you don't know the premium until you're well and truly advanced in the home loan application process," she warns.

Parents or grandparents giving or lending "a few thousand" to first home buyers can save $10,000 in mortgage insurance, says Tony Harris, director of  themoneystore.com.au.

Most lenders offer insurance for borrowers as well but few take it up, even though it is protection against a disability preventing work or involuntary unemployment.

ANZ's website shows borrower's insurance on a $200,000 home loan with monthly repayments of $1300 costs $37.31 a month.

Only one-quarter of borrowers recently surveyed by mortgage insurer QBE had mortgage repayment protection insurance.

This dropped to just one in five "for those who have struggled with repayments in the past 12 months," says Jenny Boddington, chief executive of QBE LMI. Securing a better deal

What you're told by a bank's mobile lender may not be its best offer, as Danielle and Glenn Waterson discovered.

That's despite their hands being tied because they had to pay $6000 in lender's mortgage insurance, which they'd be up for all over again if they switched lenders.

 They were on a NAB package rate but when it came to buying their second property, and keeping the first as an investment, the bank's mobile lender offered 4.82 per cent but with no new fees for the second loan.

Luckily for the couple they were frustrated by his follow-up, or rather lack if it. So they contacted mortgage broker Chris Howitt of Mortgage Choice, who had been recommended by a friend of Danielles.

In fact they've never met him – "we're both at work so it all had to be by email and phone but for me that's perfect," says Glenn – which didn't stop Howitt squeezing a better offer from the bank.

"We tried CBA but the rate wasn't as good and we would have had to pay $6000 mortgage insurance again. NAB was our only option but Chris said he was confident he could get a better rate. It was all so simple and effortless," Glenn says.

They finished up with 4.77 per cent, no extra lender's insurance and even a $375 cash refund thrown in.

Read more: http://www.theage.com.au/money/borrowing/dont-fall-for-the-mortgage-traps-20140911-10dsyv.html#ixzz3DG4Fqtho

Posted by David Potts - The Age on 14th September, 2014 | Comments | Trackbacks | Permalink
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Mortgage customers should demand discounts on their home loan


 A NEGOTIATING expert, working undercover, has proven how tens of thousands of dollars can be saved on a mortgage simply by demanding a better deal.

Picking up the phone and haggling to get the best deal possible has resulted in numerous offers including the wavering of fees, huge interest rate reductions and cashback offers.

Property guru and negotiation expert Steve Jovcevski posed as a mystery shopper including a first homebuyer, refinanced and investor and contacted the big four banks to ask for a competitive mortgage deal.

In nearly all scenarios he scored himself a further discount beyond advertised home loans deals.

CONSUMER LAW BREACH: Clawback fees charged by mortgage brokers

FIXED MORTGAGE RATES: Forecast to start rising in November

The research compiled by comparison website Mozo showed Jovcevski grabbed a huge 1.16 per cent off a standard variable rate loan for a $500,000 mortgage to 4.7 per cent and had a package fee waived.

This could save the customer more than $6,000 in the first 12 months.

Jovcevski also nabbed a 1.21 per cent discount off a variable rate on a $1 million loan bringing it down to 4.67 per cent and had the package fee waived.

This would save a customer more than $12,000 in the first year.

Mozo spokeswoman Kirsty Lamont said there are plenty of bargains to be had if home loan customers push for a better deal.        

“We found lenders are offering deep rate discounts and other incentives to those prepared to haggle on their home loan,’’ she said.

“When pushed the banks are prepared to offer far better discounts than their standard published package loan discounts.

“But you need to do some hard bargaining to get access to the biggest discounts because they are very much under the table and they are not publicised.”

Lamont said they usually won’t offer their best deal in the first instance because they want to “boost their profit margins” and she said the onus was on borrowers to “push hard.”

Jovcevski said the critical formula of combining “research with haggling” can deliver excellent results for frugal borrowers.

“Often the lender will say they can only give you the best rate if you’ve put in an application,’’ he said.

“You have to be upfront, you don’t need to do an application to get the best deal.

“Give them a rate that they can match or do better on because as soon as the lender’s pricing department see an actual rate the more likely they are to move.”

He said sometimes it will take several calls to the same lender to score the best deal.

1300homeloan manager director John Kolenda said the lengths financial institutions will go to in order to give a customer a competitive deal with vary.

“Some won’t budge on rates but they may waive the application fee, so you have to make a number of calls to various lenders because they are all aggressively competing,’’ he said.

“If your loan to value ratio is lower then you get better a rate, but if you borrow more money you get a better rate.’’

Posted by News Limited Network on 13th September, 2014 | Comments | Trackbacks | Permalink
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Daily habits can help us hit financial targets


I work with a colleague, Lauren, who gets up at 5.30am every morning and either runs or goes to the gym. I admire her dedication and each week I tell myself that I should start exercising in the morning before the distraction of work sidetracks me and stops me doing something at the end of the day. Of course I'm not a morning person and the morning exercise never happens. And unfortunately, I don't get any fitter by thinking I should do it.

The difference between Lauren and I is she has created a daily habit which means that every day she is ensuring she exercises. I'm sure she doesn't enjoy getting up as early as she does and would rather sleep in some mornings but she has a long term goal of completing a half-marathon within a particular time. So she simply does it.

Often we set lofty goals and things we want to achieve but before long the daily grind sets in and it becomes too hard and we quickly lose focus. Athletes don't get to the Olympics by hoping or by waking up in the morning and deciding it's too hard and hitting the snooze button. Instead they set up a series of daily habits and rituals that cover everything from when they get up, what they repeat to themselves before a race, what time and how often they train, what they eat and perhaps even the underwear they wear. It's all designed to create a series of habits to help ensure success and the achievement of their long-term goals.

It's the same for us mere mortals. It's often too hard if all we're doing is focussing on the long-term goal which may seem so far away, particularly when the bright shiny thing we want is in front of us today. However, by setting up a series of rituals and habits we are more able to set ourselves up for success when it comes to achieving our goals.

So if we're talking money and achieving our financial goals, what habits or rituals can we employ that might help us achieve our long term goals?
  • Have a daily mantra. This might seem silly, but we often carry around money messages in our head that are self-defeating. They might be, "I'm terrible with money", "I can't save" or "I'll never be able to buy a home until I meet my future partner". Just as a successful athlete or even a successful business person might repeat a daily mantra about how they want to achieve success, why not create a daily mantra about how you want to view money. I'm not talking the Secret here but rather positive money messages that will infect the way you think. Stick them up on your mirror so you see them every day and start replacing unhelpful thoughts with affirming ones.
  • Set up daily rituals. These are the small things you do every day that will help set you up for success. You might be buying your lunch each day from the shopping centre food court and going for a window shop which often leads to purchasing something after you eat. Instead, one of your daily rituals could involve getting up 15 minutes earlier so you can make your lunch each day that you take to a nearby park where you go for a walk after you've eaten. It's all about swapping one habit that is not so good for you for another one that will set you up for success.
  • Keep track. There's nothing so motivating as a series of small wins on the way to a big win. So keep track of what you're spending and saving so you can see the effect of your daily rituals. There are many free apps you can use to track your expenses including some free ones provided by the government on the Money Smart website which work on your phone and are incredibly easy to use.
  • Be accountable. There's a reason why professional athletes have coaches. Sure they might be able to do it by themselves but it's much easier when there's someone there pushing them along, celebrating with them and keeping them accountable to what they say they are going to do. It's the same with the rest of us. It might be a paid adviser, a good friend or your partner – the most important thing is to be accountable to someone regularly to help keep you on track.


There's nothing like having to turn up once a week or once a month and having to eyeball someone and admit that you didn't do what you say you were going to do to keep you on track Often we see the athletes on the podium but we don't see them at training again the next day.

At the recent Commonwealth Games a reporter asked Sally Pearson if she was going to take time off to celebrate now that she had won Commonwealth Gold. She laughed and said she'd eat some Tim Tams and have a day off but then it was back to training and racing a few days later. That's because Sally understands the importance of daily habits. It's the unsexy side of success - lots of small and often tedious steps. But once these steps or daily habits are set up, they will help carry you towards successfully achieving your goals.

Melissa Browne is an accountant, adviser, author and shoe addict. 

Posted by Melissa Browne - Money Manager (Fairfax) on 11th September, 2014 | Comments | Trackbacks | Permalink
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Property investing not a good fit for all


I cannot tell you how many times I have read that you double your money in Australian property investment every 10 years. It is the core assumption in all property marketing, it seems.

Of course, to make any money out of that implied 7 per cent return a year your rent has to cover your financing costs. The good news there is that with a tax break from negative gearing, it just might. But the financing costs are not the whole equation.

That 7 per cent return also has to cover that expertly hidden finder's fee - you know, the one that's rolled into the price of your overpriced off-the-plan apartment without you realising. It also has to cover the real estate agent's commissions, legal fees, stamp duty, the depreciation of any white goods and the cost of keeping everything just dandy.

It also has to cover any renovations, managing agent fees, rates, the time you spend mending the toilet, fixing the lights, replacing the roof tiles, unblocking the plumbing, replacing the boiler, let alone finding the property, selling the property, fighting tenants in court, dealing with body corporates and anything else that crops up, like stress and sleepless nights. And all this is before inflation, and inflation is not 3 per cent as the government claims.

Anyone who has ever paid a utility bill, bought food, filled the car or paid a private school fee knows that we all have our own personal inflation rates and it has nothing to do with a government calculation designed to dumb down the real inflation rate. For decades even the government inflation rate has averaged over 4 per cent anyway, leaving you a 3 per cent real return on property, and that's before you are taxed. Still think property is a "gimme"?

You can see why an equity investor finds the whole property thing a bit of a conundrum. When you buy BHP shares you don't have to fix the loo, send them $45,000 to renovate or worry about that finder's fee, the real estate commission, stamp duty and legals. You can buy it online for a competitive commission and after that you don't have to find a tenant, worry about interest rates going up or do anything at all in fact, but decide when to sell it (easier said than done). Plus you can sell it in bits.

Try selling your house one bedroom at a time to pay the school fees, or buy a car or go on a holiday. Plus you can do it in an instant, online, in the bath, on a whim, from your mobile phone from a bar, and unlike the property market you can liquidate multimillion dollar portfolios in minutes. Try doing that after you've bought "12 properties in  12months", as some of that marketing would have you believe is normal. 

In shares you can also get exposure to large gains and extraordinary gains. When did a unit in Bendigo last go up 20 per cent in a year or thousands of per cent in a lifetime? In the past year, 38 per cent of the ASX 100 was up over 20 per cent and plenty of stocks have been up thousands of per cent.

 So why is property so popular? The basic advantage of property over shares is that it is a more reliable, less volatile asset. Because of that the culture is different.  The culture says you can safely borrow a lot of money to invest in it and in so doing make money out of other people's, out of the bank's, money as well as your own.

 The crux of property returns is not that you earn a paltry 7 per cent but, if the rent covers all the borrowing costs, you get the whole 7 per cent return as a return not on the value of the property but on the value of your deposit. In other words, on an 80 per cent lending ratio, if you buy a property for $100,000 and make $7000 a year, you are actually making $7000 on your $20,000 deposit, which is not a 7 per cent return but a 35 per cent return. That's why you invest in property instead of shares, because of the gearing.  It's powerful stuff. 

Of course, you could do the same in shares. You could easily borrow 60 to 70 per cent on the big stocks, but you'd be mad to do so because whereas property is "safe and steady", shares are volatile and risky. At least that's the perception.

Ultimately they are different asset classes with the emphasis on different. It is not one or the other, it is both, or whichever one you're best at. If you're good at equities, which are hard, stick to equities.If you know the property market, stick to property.

I have both. You probably do, too, and there's nothing wrong with either. 

Posted by Marcus Padley - The Age on 10th September, 2014 | Comments | Trackbacks | Permalink
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The hidden costs of buying a home


Got preapproved finance? Check. Enough income to cover the bills? Check. But do you really know how much it costs to secure that new home?

Some expenses, while commonly overlooked, are essential to consider when you’re stepping into the property market for the first time.

Prepurchase inspections

Building, pest and land inspections can be essential, depending on the type of property you want to buy and your reason for buying it. Although there is a fee, you could inevitably save thousands in potential repair costs.

You can try to cut these costs by simply asking the vendor for any reports they may have. They are not always attached to the contract provided by the agent, so sometimes it’s best to just ask.

Legal fees and disbursements

As a rule of thumb, conveyancers often charge a flat service fee, while solicitors generally charge by the hour. So if your property purchase is relatively straightforward (that is, there are no property rights in conflict or unwanted covenants burdening the property), then you could probably save money by simply going with a conveyancer. But as always, shop around to get the best value.

Council rates and strata fees

Although a house or apartment might appear “cheap”, its upkeep may end up costing you in the long run. Ask the vendor for a copy of the council rates notice or strata report to understand your expected outlay every quarter. And when it comes to strata, check that the sinking fund isn’t running dry – you don’t want to be called upon at the next owner’s corporation meeting to pay more in strata fees than you expected.

Stamp duty

Although in some states concessions and grants are currently available for eligible first home buyers of new homes, be mindful that stamp duty can be quite a hefty chunk of your purchasing budget. Luckily, there are online calculators to help you determine how much stamp duty you will be liable to pay.

Insurance

Home, contents, landlords … They are all worth considering before buying a property. To protect your investment, you want to take out insurance sooner rather than later, making sure your property is covered from the day you exchange contracts.

Renovations

If you’re buying a fixer-upper, be sure to factor in the cost of carrying out renovations. Then double it. Renovations – even the best-planned ones – can spiral a budget out of control pretty quickly!

Mortgage establishment fees, interest and penalties

Consider up-front mortgage-setup fees and talk with your financial provider about securing the best deal. Are they able to waive the establishment fee for a long-term or new customer? It doesn’t hurt to ask and shop around.

A savvy budgeting plan addresses all of these potentially hidden costs so that your first-time purchase goes smoothly.

Posted by Belinda Gadd - Domain on 9th September, 2014 | Comments | Trackbacks | Permalink
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Do you know your credit history ?


 A story in the newspapers this week told of a company that offered a free credit score and had its website crash from all the traffic.

I'm heartened by the story because it suggests there are many people out there who are interested in how the financial services industry scores their credit worthiness, they know it affects their ability to borrow in in the future, and – I assume – they want to do something about it.

A credit score tracks your application for and repayment of debt. Obvious debt includes a mortgage, car finance and credit card, but phone companies and other utilities also run credit accounts.

A credit reporting agency receives information from finance companies, banks and utilities, and adds it to your credit file. Those things worth reporting include arrears on a bill (usually more than 60 days late), missed loan repayments, new applications for credit and defaults. Most of this information remains on file for around five years.

Credit reports collect change of address, change of job, court writs and insolvency action. And they capture information such as you becoming a  guarantor on someone else's loan.

While an agency collects your credit history and gives you a score, it's the lender you are dealing with who makes the final credit-scoring, in deciding what kind of risk you represent.

New home buyers, especially, can become nervous when they approach a mortgage lender – they can't remember their credit histories and what might be in a credit file to hinder their chances.

There are a few steps people can take:
  • Clean up Start by getting your repayments organised for credit cards, bills and loans. You can't change history but you can influence your financial future.
  • Job and house Take the easy points on a credit score and don't change your address or job for a year before applying for a mortgage.
  • Applications Try not to apply for unnecessary credit. Typically people that chase zero balance transfer rates and change their credit cards multiple times each year can get scored down, so be careful.
  • Get a report You can go to the web site of a reporting agency such as Veda to access your credit report. Once you know your score – and the reasons for it – you can start planning. Note that obtaining your credit report does not impact your credit score.
  • Broker Some mortgage brokers provide a free credit report because it will help determine which lenders will consider your loan application. If you're working with a mortgage broker, be sure to ask about this service.
  • Build the positive Changes introduced this year mean you get to build a score on positive credit behaviour. This means that every on time repayment is a small positive mark on your credit file. It's worth thinking about how to take advantage of this.
Credit reports are a fact of life if you want to borrow money – they can be really helpful, so learn how they work and start planning. Good luck.

Read more: http://www.theage.com.au/money/borrowing/do-you-know-your-credit-history-20140904-10c7rd.html#ixzz3Ckm2eO6j

Posted by Mark Bouris - The Sunday Age on 7th September, 2014 | Comments | Trackbacks | Permalink
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5 ways to pick a growing suburb


  Behind every great investment property there is a great neighbourhood just waiting to be discovered.

Finding the right suburb to invest your money in may seem like an arduous task, and perhaps sometimes you take a gamble, but we’ve gathered a few proven tips and ideas to make your decision a whole lot easier. Look at sales data

Many online organisations offer  property sales reports, either free or for purchase. These property reports can show suburb price growth using monthly, yearly and 10-year comparisons. Take the time to obtain and analyse this data – it will help you identify market peaks and troughs, as well as dormant suburbs that are on the verge of a property price boom.

Other online tools and sources from which you can collect sales data include  PriceFinder, local newspapers,  known property experts or your local real estate agent. The Australian Bureau of Statistics also provides analytical articles; a QuickStats tool that gives you access to summaries on an area’s people, families and dwellings and lets you compare it with state and national data; community profiles; and more. Go for second best

Often, the most popular suburbs have already experienced a price peak and boom, and it could be another seven to 10 years before they achieve a similar cycle. If you invest in these suburbs, you could be paying top dollar for a slow return compared with a less popular suburb.

So, when looking for a suburb to invest in, go for the next best option – one that’s similarly priced. Chances are, you’ll be buying into a suburb that has yet to boom and will provide you with the fruits of that return. Supply and demand

If you’re looking to invest in a house or unit, consider the market impact of surrounding developments, such as new housing estates and high-rise constructions. Generally, the more properties available for sale in a suburb, the more diluted the return on your investment. Think outside the box

Try not to mentally restrict yourself to the suburb you’ve grown up in or by the type of asset you want. Many investment opportunities exist within the property market, including off-the-plan, rural and commercial property. Be open to the possibilities. Jump in your car, hail a bus or catch a train to a section of your city or area you’ve never explored and get to know it a little better. Keep an eye out for planned infrastructure

Properties located near train stations, schools, shopping centres and other amenities bode well for investment growth. This is a result of their increased rentability and lifestyle appeal for renters and buyers.

When spotting a good investment suburb, look for any planned infrastructure, which may positively impact the future sales price of the property. You can get this information from local council websites and government transport organisations.

Follow these helpful tips and you’ll be well on your way to finding the right investment.

Posted by Belinda Gadd - Domain (The Age) on 3rd September, 2014 | Comments | Trackbacks | Permalink
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Boost your borrowing capacity


  It’s a sure bet that any applicant who gets turned down for a mortgage loan on the basis of insufficient borrowing capacity will want to know what their maximum borrowing capacity is and how they can increase it.

You can embrace various strategies to increase your maximum capacity to buy a home or investment property. These strategies generally involve minimising outgoings while increasing your net income. Do away with debt and eradicate expenses

A key strategy is to reduce and, when possible, eliminate personal debt, including credit and store card debt, personal loans and hire purchases. This will result in your paying less interest, which in turn increases  borrowing capacity. It also demonstrates to a lender your ability to control your finances and therefore meet your  loan repayments.

If you can’t immediately pay off all your card debt, you need to try to reduce the maximum limits and consolidate the debt onto one card. Cards can attract annual interest rates of up to 30 per cent. The upshot of this is that even a manageable card debt can significantly reduce borrowing capacity in the eyes of a lender.

Reducing or eliminating any unnecessary expenses is another way to minimise outgoings. Any savings on groceries, alcohol, fuel and utility bills, clothing and entertainment can collectively go a long way towards growing your borrowing limit. Increase income

Increasing your net income at the same time as you minimise outgoings will also help. It doesn’t have to be by means of a promotion or pay increase at work, although this would be ideal. Other ways could be to take on a second job, take in a paying flatmate or rent out a spare room in your house.

Having more income would also make it easier to save for a larger deposit, which will boost your borrowing limit by giving you more equity to offer when applying for a loan. A larger deposit will also impress a lender with your ability to save and potentially to meet loan repayments. Tackle taxation

Reducing taxation is another strategy to increase net income and boost the borrowing limit. If you are not already doing so, you should employ an accountant to reduce tax paid on your personal and investment income.

If you’re serious about upping your buying potential, making a few key financial changes can get you closer to your home-buying goal.

Posted by Liam Egan - Domain (The Age) on 3rd September, 2014 | Comments | Trackbacks | Permalink
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Adding value with home renos


Certain renovations please most of the people most of the time, and they practically guarantee a return on investment. So what do the experts recommend?

When you’re renovating your home, of course you want to improve your standard of living, whether it’s fixing what’s broken or outdated, making something more comfortable or attractive, or adding on space. But it’s also important to consider the renovations that will optimise the value of your property. Here are our tips for what to save on and when to splurge. Kitchens and bathrooms

Save: If you have only enough money to redo one area, make it the kitchen. “The best thing you can give someone is a working kitchen,” says interior designer Nikoll Nobay. It can also be cheaper than redoing a bathroom. “A bathroom often takes longer, whereas you can do a kitchen in one or two days.”

Interior architect Kate Bell agrees, saying that spending money on the kitchen makes the most sense. “The kitchen and living area are the most visible and most used areas of the house.”

The most economical way of making over a kitchen is by installing new cabinetry and benchtops. “Provided that your appliances are still in good shape, this can transform a tired, dated kitchen into a refreshed contemporary space that adds instant market value to your home,” says Nobay.

Splurge: Stick to travertine, limestone and caesarstone. And according to real estate agent Jason Pantzer of Phillips Pantzer Donnelley, neutral colours appeal more to the masses. “Darker colours and stones or marbles with veins are very personal choices,” he says. “So, from a resale standpoint, it’s better to be conservative. After all, the more demand for a home, the greater the return.”

Next, think about the bathroom. Pantzer points out that floor-to-ceiling tiles and underfloor heating are standard hits. Perhaps even more important is adding a second bathroom. According to the  Turf Industry’s recent survey of real estate agents, buyers perceive a second bathroom as one of the top prerequisites when purchasing a house. Walls and floors

Save: Without question, paint your walls. A coat of white paint can make all the difference. If you have carpet in the living areas, rip it up and either polish the floorboards or, for an effective and inexpensive alternative, paint them.

Splurge: Pantzer says quality oak floorboards provide a timeless, classic look. Backyard

Save: Maintain your garden. Weeding, watering and mowing all cost next to nothing and can add real value. The Turf Industry’s survey found that a lawn adds 18 per cent value to your house.

Splurge: Add decking. Bell says a deck and lawn combination ticks all the boxes. “People like grass, and people like hard surfaces.”

As for a pool, Pantzer says, “It can be a trap, as not everyone wants one.” Going up

Save: Putting an extra bedroom and ensuite into a roof’s attic is a great way to add interior space without losing precious garden area.

Splurge: If you’re adding a second storey in a family area, Pantzer suggests putting all the bedrooms upstairs. “Generally, parents don’t want their children on another level.”

Whether you’re investing $5,000 or $500,000 of your hard-earned cash in home renos, do so wisely with a close look at what’s important for your home-improvement goals.

Posted by Emily Lawfrence Gazal - Domain (The Age) on 3rd September, 2014 | Comments | Trackbacks | Permalink
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Five easy tips to save yourself hundreds of thousands of dollars


 YOUR superannuation statement is due in the mail imminently but if you’re like most people, chances are you barely give it a second thought.

That decision could cost you hundreds of thousands of dollars on retirement.

Here are five tips to put you on the right track:

1) FEES

Fees have the potential to significantly erode your nest egg. If you’re 30, on $72,800 a year and pay two per cent a year in fees, you’ll be about $400,000 worse off at retirement versus someone who pays one per cent in fees.

That’s the equivalent of a boat — or 20 first-class trips around the world. Superannuation funds in Australia generally charge too much in fees — $19 billion in 2014, to be precise. If you’re in a fund that charges more than 1.5 per cent there’s good evidence to show that your net returns (returns minus fees) are likely to be lower than someone who pays one per cent or less in fees.

Some super statements are ambiguous and you may need to visit the fund’s website to find out what fees you are actually paying. Don’t forget to include “adviser fees” in your fee calculation. If you’re young and the only advice you have received is to invest in a ‘growth’ fund because you’re far from retirement you’re probably paying an adviser for very little value-add.   



2) INVESTMENT MIX

For anyone young with more than 30 years until retirement, your investment mix should be focused on assets that have averaged higher long-term returns (typically shares and property, which are riskier than cash and bonds but provide higher long-term returns). So if you have a long-term horizon you can ride out short-term movements to harvest these higher returns.

As a rule of thumb, someone with a long investment horizon can have at least 70 to 80 per cent of their portfolio in high-growth assets like shares and direct property with the balance invested in lower risk assets like infrastructure, fixed interest, private equity and cash. Super funds with this type of investment mix are typically called ‘growth’, ‘high growth’ or ‘aggressive growth’ funds.

As you approach retirement the amount of your portfolio exposed to growth assets like shares and property is likely to decrease in line with your increased reliance on stability and income. Medium-risk funds are often called ‘diversified’ or ‘balanced’, and low-risk funds you may see being called ‘stable’ or ‘conservative’ or ‘capital guaranteed’.

ASIC’s super calculator can help you find the right investment mix. Some super funds also offer calculators but be aware they may not be completely honest about fees and are often designed to funnel you into their super funds.

3) INSURANCE

Many super funds offer insurance cover for their members: death cover, total and permanent disability cover (TPD) and income protection cover (IP). You may choose to increase, decrease, or cancel your default insurance cover. To pay for insurance, premiums are deducted from your super account balance as opposed to you getting a bill.

Purchasing insurance through your super can be cheaper than buying it outside of super. Cover is usually limited and if you move from one fund to another your cover may end without notice. Also, if you have more than one super fund you may be paying for insurance twice unnecessarily.   



4) TRACK RECORD

Many super funds have been bragging about their 12 to 15 per cent returns over the past year. Don’t get too excited about that because the market returned the same amount and most of these returns just came from the asset classes they invested in rather than skill.

It is very hard for super fund managers to beat the market return over the long term. Make sure you are looking at after-fee returns over five to 10 years when weighing up your super fund’s track record. In February, APRA released the returns for every super fund in Australia over the last 10 years.

Only two of the top 50 performing funds were retail (for-profit) super funds, which typically charge higher fees than corporate or industry funds.

5) CONTRIBUTIONS

Check the contributions from your employer are correct. From July 2014, the Superannuation Guarantee rate increased to 9.5 per cent (from 9.25 per cent). Next, using the ASIC calculator you can determine whether you will be able to retire on your desired level or income, or whether you need to supplement your super with additional contributions where you can.

Other options exist to boost your super including salary sacrifice and concessional or non-concessional contributions. But you may prefer to invest excess cash away from your super fund so you are not locking your savings up until retirement. Investing in a property or a low-fee investment portfolio are options.

Posted by News Limited Network on 1st September, 2014 | Comments | Trackbacks | Permalink
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How good is your credit history? Credit website ranks consumers financial history and ability to get loans


 AUSTRALIANS can determine their creditworthiness instantly and their likelihood of getting a loan through a new website.

The site — launched today by GetCreditScore.com.au — ranks consumers credit history from zero to 1200, giving them a realistic snapshot of their financial status before they approach a lender.

Eighty per cent of Australians have never checked their credit history and many would have no idea of what is on their file until now, experts say.

Independent consumer advocate Christopher Zinn said a lot of “confusion and ignorance” remained around credit scores and credit reports.

“People don’t really know that they have a credit score or how they can access it and what it means, it can affect their availability to credit and the cost of credit,’’ he said.

“If you have the confidence of a good credit score it can put you in a good position to ask for something that is better than is what’s put on the table by the lender.”

Consumers need their basic information including name, address, date of birth, email address and driver’s licence number or passport number to access their score.

Mr Zinn said the nation’s average credit score is 749 and it can be affected by late payments, whether an overdue bill was eventually paid, the amount owed in a missed payment and whether there were consecutive missed payments.

If a consumer has a good or excellent score — between 622 and 1200 — Veda spokeswoman Belinda Diprose said the consumer “can feel confident when approaching a credit provider for credit.”

“It puts the power back in consumers’ hands,’’ she said.

“It is up to each individual lender on how they assess people when they apply for a loan, they all have their own individual policies.”

Consumers can access their full credit reports for free from the nation’s credit reporting agencies including Veda and Dun and Bradstreet.

Posted by News Limited Network on 1st September, 2014 | Comments | Trackbacks | Permalink
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Money experts warn customers over fixed rate home loans


 A GROWING number of lenders are offering fixed home loan rates in the rock-bottom 3 per cent range but experts are warning customers they could get caught out by these enticing deals.

Expensive application fees, ongoing fee costs and hefty revert rates once the loan term expires — some as high as 5.79 per cent — are among the ways customers could get stung by taking short fixed rate loans.

Heritage Bank last week dropped its one-year fixed year loan rate to 3.99 per cent but financial service firm Canstar’s research manager Mitchell Watson said borrowers should think twice before being “induced” by these offers.

“Twelve months is a very short time when it comes to the life of the loan so those going into one-year fixed deals should look closely at the revert rate,’’ he said.

“It’s a big task to refinance again after 12 months and chase better deals.

“Over 10 years you may be worse off by choosing one of these loans.”

The revert rate on some of these deals once the 12-month period expires jumps almost 2 per cent.

Canstar data found if a customer took out a $350,000 loan on the average basic variable home loan rate of 5.17 per cent, over a 10-year period, the loan would cost $230,655.

But if a customer took out a one-year fixed rate of 3.99 per cent, they could end up paying up to $241,000 over a 10-year period once the fixed rate expired and jumped to the revert rate.

Mr Watson urged customers not to chase the “headline rate” and look at the revert rate and comparison rate on the loan.

Lenders recently started a war on five-year fixed rates to below 5 per cent signalling the tough competition to lure new customers.

Mortgage and Finance Association of Australia’s chief executive officer Phil Naylor said customers should work out whether “the savings on these loans are worth it.”

“You need to look at the whole cost of the loan and not just the interest rate,’’ he said.

Australian Finance Group’s chief executive officer Mark Hewitt said fixed loans spanning several years were the most popular for customers who opt to lock in their loans.


“A one-year fixed rate is similar to an introductory loan rate,’’ he said.

“Two to three-year fixed loans are the most popular and three-year fixed loans are the real battleground at the moment.”

The Reserve Bank of Australia’s board meet on Tuesday and it is expected they will keep the cash rate on hold at 2.5 per cent where it has remained since August last year.

Posted by News Limited Network on 31st August, 2014 | Comments | Trackbacks | Permalink
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Plan ahead when buying first home


When interest rates are low, house prices usually rise and first home buyers can feel shut out of the market. But all is not lost – first home buyers should stick to a few simple tips: 
  • Deposit: Lenders want to see you have at least 5 per cent of the purchase price as genuine savings (generally you'll need 10 per cent overall). You can top up with money from your parents or grandparents, but you have to show at least six months of your own savings. Start saving, now …
  • Savings: Set a goal for your deposit amount and save in a high-interest savings account that's separated from household expenses. Set a weekly deposit goal, use direct crediting and if you're a couple have one person's income going directly into savings.
  • Reduce debt: Eliminate or reduce the limits on your credit cards and store cards. Lenders look at the limit on your cards, not your balance.
  • Grants: The First Home Owners Grant can help with your purchase. But it must be for a new home construction; you can't use it to buy the land and lenders will not treat the FHOG as part of genuine savings. Do your homework because the grant differs slightly between states.
  • Income: Lenders like to see stability and want to see evidence that you will repay the mortgage. So you should demonstrate at least six months (but preferably one year) of PAYG employment, or two years of financials and tax returns if you're self-employed.
  • Shop around: You can find variable rate mortgages in the range of 4.6 per cent to 6 per cent. The 1.4 per cent difference, on a 350,000 loan over 30 years, is worth over $300 per month.
  • Marketing: Watch for "discount" mortgages and special low offers. The low rates last for a year or two and then revert to a much higher rate. Always look at the "comparison rate".
  • Fixed: Many first-home buyers like to balance their budget for a few years, and a fixed loan creates certainty. However, once in a fixed loan, your flexibility is restricted and you may encounter break costs if you want to sell or refinance.
  • Vary it: Variable rates fluctuate with the market but they are flexible, allowing you to repay higher amounts and deposit lump sums from bonuses and tax refunds, speeding your repayment. You can refinance a variable rate loan without penalty.
  • Offset: When you put all your income into a mortgage offset account, the balance pays down the mortgage by the amount you have in there each day. It stops interest capitalising against you as fast as monthly repayments. Offset accounts suit good budgeters.
  • Price: Don't be disheartened if you can't buy what you want – buy the next-best and build a strategy for your next property.
  • Advice: Mortgage brokers are excellent for insights, strategies and getting you a good result. They're worth talking to.


Always remember: When borrowing money and buying property, the same basic rules apply to everyone. So do your homework, be prepared, take some advice and go for it.

Read more: http://www.smh.com.au/money/borrowing/plan-ahead-when-buying-first-home-20140827-1090m0.html#ixzz3C1Em5hcW

Posted by Mark Bouris - The Age on 31st August, 2014 | Comments | Trackbacks | Permalink
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Don't get burnt by the property market


How seriously should property investors take recent warnings that Australian property prices are 20 per cent to 30 per cent higher than they should be and that there is an impending apartment glut in 2017? Whatever the fundamental basis for these and similar warnings, existing and new property investors need to be aware of the potential downside.

The basic issue is to understand the risks involved with  investments already owned or being purchased. While less popular for purchases of listed assets including shares and property trusts as well as managed funds, large levels of borrowing are widely used to help acquire direct property holdings.

This high level of gearing helps to drive up property prices in good times such as the present and down when markets turn down, for example due to increased levels of vacancies and/or falling rents. Currently, strong foreign buying interest, low interest rates and a shortage of available stock is forcing and encouraging new investors to bid up prices.

While it may be some time off, a similar downward ratchet in prices will start when interest rates rise again and when new housing developments result in an oversupply in the major locations. Compared with share market falls which can be brutal and swift, downward property price movements are generally protracted as sellers holding out for higher prices ultimately are forced to lower their expectations.

A special feature of the apartment market can, however, result in distressed forced sales. This is when a large number of off-the-plan sales negotiated before or during construction fall through. A recent example of this occurring is the setback in the Canberra apartment market due to over-supply and reduced public sector employment opportunities.

In this situation, a significant percentage of off-the-plan  buyers were either unable or unwilling to complete their purchases. The resulting forced sales depressed asset valuations and made it more difficult for heavily geared purchasers to obtain credit to meet their commitments.

The key message for individual investors is to be aware of these and other risks before entering into off-the-plan contracts. While one benefit of off-the-plan purchases is what can often be a lengthy time lag before money is required to complete the purchase, this can be a negative if personal circumstances change or property valuations fall before the settlement date..

The chances of both of these changes increase with the amount of time before completion. The risks are also greater in situations such as the present time when contracts are entered into in a buoyant market. So even if the warnings of problems ahead don't prove accurate, they are a timely reminder to avoid becoming over-committed to a future large heavily geared property purchase.

Read more: http://www.watoday.com.au/money/borrowing/dont-get-burnt-by-the-property-market-20140828-109ful.html#ixzz3C1Fjoga2

Posted by Daryl Dixon - The Age on 30th August, 2014 | Comments | Trackbacks | Permalink
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Not much value in rewards credit cards


A study by researcher Mozo shows for most people, credit card loyalty schemes are hardy ever worthwhile.

Marketers' prey on the fact that we all like to think that we are getting something for nothing. However, among the 119 rewards cards covered, a third of them are hardly worth having, delivering less than $20 in rewards value each year, says Mozo director Kirsty Lamont.

Mozo ranked the reward credit cards assuming that $17,000 a year was spent on the card, which is the typical spend. 

And one in four rewards credit cards lose you money each year because the rewards, which can include flight, gift cards and cashbacks, were worth less than the annual fees. "What's more, some rewards cards have such high annual fees that you need to spend more than $40,000 a year on the card just to break even," Lamont says.

However, the researcher has identified 34 cards from among the 119 that return more than $100 in rewards, after accounting for fees, each year.

The best card for the typical user delivering an annual net value of almost $300 and no annual fee is the American Express Velocity Escape Card. For big spenders, those spending $60,000 a year, the best card is the NAB Velocity Rewards Premium Card with a net annual rewards value of $1415.

With annual fees as high as $749 and the most generous points schemes reserved for the cards with the highest annual fees, consumers need to choose a rewards card carefully to ensure they get bang for their buck, Lamont says. Rewards cards are a massive industry and many people become obsessed with earning points.

"These points can be wildly overvalued and quickly eaten away by sky-high fees unless you are spending big on your card," Lamont says. There are other potential traps with rewards card. If the card holder does not pay off the debt, in full, within the interest-free period, the interest rates charged on the outstanding amount is usually much higher than non-rewards cards.

Kirsty Lamont says that the average interest rate on rewards cards is almost 20 per cent compared to an average rate on non-rewards cards of about 14.5 per cent. And the average annual fee is about four times higher at about $160 compared to just over $40 for non-rewards cards.

Those who are not disciplined in their use of credit cards should not be using rewards cards, Lamont says. "If you are paying interest on your card it makes no sense at all to have a rewards card because the cost of the interest will far outweigh any rewards you earn," she says.

Posted by John Collett - Money Manager (Fairfax) on 27th August, 2014 | Comments | Trackbacks | Permalink
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Concerns growing towards buying real estate in a self-managed superannuation funds


 IT seems that everyone wants to worry about the growing practice of buying real estate in a self-managed superannuation fund. From the government to financial planners to the Reserve Bank, the warnings have been getting louder in saying that this is an area that can severely damage your life savings.

Some of the concern is justified, and is necessary to combat the rise of property spruikers who use slick sales tactics to coerce people to borrow heavily in super to buy overpriced real estate.

But property investment in superannuation should not be avoided just because of warnings about some dodgy players in the self-managed superannuation advice industry.

The tax breaks offered by our super system are huge for property investors, particularly the tax-free nature of super after aged 60.

If someone aged in their 40s or 50s buys a $500,000 property inside their super fund and it doubles in value before they retire at 60 or later and sell it, they pay no capital gains tax on the sale.

GIVE YOUR MORTGAGE A HEALTH CHECK

If the same property is held outside super, $250,000 of the gain gets added to their taxable income – which would result in a tax bill of tens of thousands of dollars.

The same tax breaks are available for other investments such as shares and managed funds, but they can be sold in smaller parcels than property so the tax burden can be spread more evenly.

However, groovy tax benefits should never be the main reason for an investment. The numbers should stack up without the tax benefits, and if you would not buy an off-the-plan apartment in Queensland from a property spruiker outside of super, you certainly should not be considering it inside a super fund.

There are other risks, including:

· - Putting all your eggs in one basket: If you already own a home and an investment property, is it really a good idea to invest your super nest egg in the same class of asset? Shares have historically been just as good a long-term investment as property – just don't mention the GFC, where they more than halved in value and are still not back to their 2007 highs.

· - Government tinkering is frustrating. The tax benefits of super were set to be severely watered down last year, but it didn't go ahead. However, you can bet your nest egg that there will be more changes in the future.

· - Super is supposed to pay a retirement income, and if an investment property is unable to provide that to a retiree because tenants stop paying rent, their fund can be in breach of the rules and suffer big penalties.

If you can manage the risks, avoid marketing schemes and don't borrow too much, property investment in super should not be ignored completely just because the voices against it have grown louder.

Posted by Anthony Keane - News Limited Network on 26th August, 2014 | Comments | Trackbacks | Permalink
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How almost 300,000 SMSFs avoid paying income tax


Only a fraction of Australia's ­half-a-million self-managed super­annuation funds pay any income tax, experts say, because of generous super concessions and franking credits that are undermining the federal budget.

Tax Office statistics show almost 300,000 self-managed superannuation funds eliminated or reduced their tax bills through exemptions on super and $2.5 billion in franking credits in 2011-12. These are the most recent records available, although experts say the surge in dividend payments since then has further reduced the small amounts of tax paid by these funds, which are often the primary income of wealthy retirees.

At the time, 424,360 funds generated gross taxable income of $32.9 billion. About $15 billion of that was entirely exempt from income tax because the funds were in the pension phase, which doesn't incur income tax.

Self-managed funds contribute little to the tax system – because about half of the funds' assets are already in the ­pension phase, Tria Investment Partners principal Andrew Baker said. Also, most self-managed funds receive franked dividends, which cuts the tax bill of many other funds to zero.

"It's a problem isn't it?" Mr Baker said. "It's unlikely SMSFs are ever going to pay a substantial amount of tax as a segment."

The loss of revenue will rise because of an ageing population shifting assets into pension phase and the greater payment of dividends, he said.

Pressure is growing to focus on superannuation tax breaks in the Coalition's planned review of the taxation system. The government is desperate to find ways to reduce the budget deficit.

There have been frequent calls for the government to stop the concessions. The head of the Financial System Inquiry, David Murray, recently suggested Australia's dividend imputation system, which SMSFs are also capitalising on, needed to be looked at.

The roughly 1 million Australians with investments in self-managed super funds argue that having spent their careers paying income tax and following the rules they shouldn't be penalised for saving for retirement.

"Super funds, including SMSFs, are taxpayers, and franking credits should be available to all taxpayers," SMSF ­Professionals' Association of Australia's technical and professional standards director Graeme Colley said.

Experts say it would be better to tax the earnings of superannuation funds in pension phase at 15 per cent, rather than try to get rid of franking credits, which could see share prices plummet.

A fundamental change 

Australia and New Zealand are now the only two developed countries that have full imputation of dividends.

Mr Baker said scrapping Australia's dividend imputation system, would involve "a fundamental change to the taxation system" that would be hard to implement. He said a better way to address the problem was a 15 per cent earnings tax for those in the pension stage. Another option was to copy the United States' minimum taxation rate, "that in short says everybody pays an amount of tax".

Ending franking credits could ­trigger a political backlash from ­investors and "would be reintroducing double taxation, so there are enormous problems with it", Mr Baker said.

"The UK did a similar thing 15 years ago, denying pension funds franking credits, and they got away with it . . . despite the protest." He said a tax rate on the pension phase would also stop gearing by SMSFs.

Tax Office data shows SMSFs have an interest expense bill of about $375 million a year, but Mr Baker said that's just the tip of the iceberg.

The data comes from SMSF tax returns, but it is common for SMSFs to achieve gearing outcomes by in­vesting in private property trusts. He estimated the overall interest expense for the sector would be about $500 million annually.

Grattan Institute chief executive John Daley said any change to dividend imputation would have to be part of a package that also reduced the company tax rate and personal tax rates.

He said the difficulty with scrapping imputation was that it would "create incentives for companies to hoard ­capital rather than returning it to shareholders, which may reduce the efficiency of investment decisions".

Instead, the government should wind back superannuation tax breaks for the old and wealthy. "The easiest way to do this would be to tax the income and capital earnings of super funds in pension phase at 15 per cent," Mr Daley said. "These funds would then pay tax on earnings at the same rate as the super funds of those aged under 60."

He said there was no reason to grandfather this change.

"Anyone who is in pension phase can withdraw the entirety of their super fund tomorrow, and if they think they can find an in­vestment on which they will pay less than 15 per cent tax, good luck to them," Mr Daley said.

"I'm guessing that there will be very few withdrawals."

'It ain't going to happen'

At the end of 2012, the average SMSF had $920,000 (typically funds are made up of more than one person: couples).

According to a 2012 ASX study, about 52 per cent of SMSFs directly hold ­Australian shares. Tax Office data shows of the $550 billion invested in SMSFs, $180 billion is directly invested in Australian-listed shares, which is already higher than the average of APRA-regulated funds.

Leading economist Saul Eslake said he was "undecided" about whether dividend imputation should be scrapped, although he had previously mentioned it is a costly tax break that the wealthy use to lower their marginal tax rates.

He said that like negative gearing, there are now so many who benefit from franking credits – SMSFs, investors and members of larger public or industry super funds – that "no matter what the intellectual merits of getting rid of it, it ain't going to happen for political reasons".

"Almost certainly, the benefits of franking credits are capitalised into the share prices of companies that have high franked dividend yields, so it seems almost inevitable that abolishing dividend imputation would cause share prices to fall, unless there were an equivalent reduction in the company tax rate," Mr Eslake said.

David Murray said in his review of the financial sector the imputation ­system – first introduced in 1987 and estimated to cost about $20 billion a year – had created a bias where in­dividuals and super funds preferred shares and this had hindered the growth of the domestic corporate bond market.

PwC's submission to the Murray inquiry said "careful consideration should be given to whether there would be benefits to be obtained from modifications to the imputation system".

Read more: http://www.smh.com.au/business/the-economy/how-almost-300000-smsfs-avoid-paying-income-tax-20140826-108dpu.html#ixzz3BUcBtjWW

Posted by Nassim Khadem - The Age on 26th August, 2014 | Comments | Trackbacks | Permalink
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