Puzzle Finance Blog

The 10 most common strategies at property auctions. . . and whether they work

Death, divorce, public speaking and … bidding for a property at an auction. There’s little more terrifying in life. With online auction bidding set to come in next year – with you watching safely from home on a computer screen and keying in your bids – it might not be so scary in future.

But for now, our four top experts give their verdicts on some of our most common auction strategies.

1. Hide behind a post, or at the back of the room during the auction

Does it Work? No.

“It’s much better to take a position in the middle of the room where everyone can see you,” says Scott Smith, chief auctioneer of Ray White NSW. “Looking determined, with strong body language is then very important; with decisive movements and everything about you saying, ‘I’m not going to be beaten!’ I’ve seen a lot of people missing out at auctions, time and time again, hiding away at the back.”

2. Never make the first bid

Does it Work? Not really.

“A lot of people tend to do this but I think you might as well bid first,” says Graeme Hennessy, chief auctioneer of the independent Premier Property Auctions. “It’s not going to cost you anything, as you’ll rarely buy a property on a first bid. But if you’re there, starting the process, then experience shows us you’ll have a better chance of still being there at the end.” 

3. Come in with a strong bid early, and knock everyone else out of the park

Does it Work? Yes, sometimes.

“A lot of people try this, especially if they know they really want the property and have a good idea of what it’s worth,” says Graeme Hennessy. “This can prove a very effective strategy as it often takes the competition by surprise.”

4. Work off your own instincts on auction day

Does it Work? No.

“It’s important to take notice of your agent’s advice and recommendations throughout the auction campaign, says McGrath chief auctioneer Scott Kennedy-Green. “On auction day, that’s even more important. Give careful consideration to what the agent recommends particularly about the reserve price on the day.”

5. Ask, in the middle of an auction, ‘Is this property on the market yet?’

Does it Work? No.

“I think this is a weak strategy,” says Damien Cooley of Cooley Auctioneers. “The owner tends to remember who asked, and feels it’s a crack at them, and sees that buyer as being difficult. And if the property is passed in, they might not want to negotiate with that buyer. It’s only a courtesy that they meet the highest bidder; not law. 

6. Hold back throughout the bidding

Does it Work? No.

“The earlier you enter the bidding, the more seriously you’re viewed by your competitors,” says Scott Smith. “Psychologically, it’s powerful being seen early and often. At an auction in Freshwater two weeks ago, the second bidder was there the whole time, bidding until the others gave up.”

7. Stay silent, then come in right at the end with a killer bid

Does it Work? Rarely.

“The challenge with that is, if an owners seen lots of competitive bidding, then they’re more likely to put the property on the market, meet the top price and sell,” says Damien Cooley. “If there hasn’t been much bidding, they’ll probably pass it in. And then, an owner is much more inclined to negotiate with someone they’ve seen bidding.”

8. As soon as someone bids against you, bid again immediately

Does it Work? Yes.

“You don’t wait even five or ten seconds, but go straight in with your counter-bid,” Graeme Hennessy says. “It always gives the other bidder the impressions that you’re going to keep going and going and going, and won’t give up. I’ve spoken to the losing bidders afterwards who’ve said the winner who used that ploy made them think they just wouldn’t stop bidding until it was theirs, so they gave up earlier than they might have otherwise.”

9. Getting a professional to bid for you.

Does it Work? Yes, sometimes.

“If you’re in the room, you’re the one who has to bid as it’ll be your name as the registered bidder and your name on the contract,” says Scott Smith. “But you can nominate someone else if you’re going to be away, at the end of the phone line. That can work well and it means you’re out of the emotion of the auction room, and won’t get carried away by the moment.”

10. Make it clear you’d like a longer settlement, to give the vendor plenty of time to get out

Does it Work? No, especially not now.

“Vendors mostly want to settle before Christmas, so they don’t have to pay land tax,” says Damien Cooley. 

Posted by Sue Williams - Domain (Fairfax) on 20th November, 2015 | Comments | Trackbacks | Permalink

Pressure mounts for parents to go guarantor

There is no denying things are tough for first-home buyers, particularly when it comes to saving for a deposit.

So it's not surprising many 20, and even 30-somethings, are asking the bank of mum and dad to lend a hand by going guarantor on their home loan. While these types of arrangements are extremely helpful for first home buyers, they are not without risk to the guarantor.

For parents facing this decision, it's critical to first consider all your options. A monetary gift to cover the deposit could be a better option. In most cases 10 per cent of the purchase price is sufficient to allow the borrower to qualify for a loan on their own. This option is suitable for parents who are in a strong financial position or who are not comfortable providing a guarantee on a property they will not live in.

If you have more than one child, it's important to consider their expectations.  Are you setting a precedent for the future? Your ability to borrow decreases by acting as a guarantor, which could affect your ability to provide the same assistance to other children. 

Your child has really only experienced a world with record low interest rates, so before signing on any dotted line you need to make sure they appreciate, and can accommodate, the impact even a small increase could have on their budget. If the total loan is $400,000 with an interest rate of 4.75 per cent, an interest rate rise of two per cent could mean an additional $500 per month – that's an extra $30,000 in repayments over five years.

If you do decide to go guarantor you need to be clear about the conditions of your agreement and your expectations over the life of the loan. And if you're talking repayments, to help ensure your financial security, it might be a good idea to set up an automatic repayment schedule via bank transfer.

Discuss an exit strategy with your child. It might also be worth seeking advice from your financial adviser. You may only have to act as guarantor for the first few years.  As the value of the property increases and your child pays down their loan, you might be able to take a step back.

Insurance could save both you and your child financial hardship should they suddenly lose their job, have an accident or become ill. Consider requesting your child organise income protection insurance and review other insurances as a condition of you signing the loan.

We all want to help our children but protecting your wealth and assets should be the first priority with any financial decision. 

Dianne Charman is a financial adviser at AMP.

Posted by Money Manager (Fairfax) on 17th November, 2015 | Comments | Trackbacks | Permalink

How to break a lease and minimise the costs

Whether it’s the hefty charges or the unexpected consequences, breaking a lease can be a daunting task.  But help is at at hand. Here are some dos and don’ts, and ways to keep costs to a minimum.  How it works

To break a lease, tenants should advise their property manager of their intention to leave in writing, including the reason for vacating and the date they plan to leave.

Hodges St Kilda director Shane Goldfarb​ says most property managers today prefer email rather than traditional post because it’s more convenient. 

The minimum notice is 28 days if a tenant is on a month-to-month tenancy. 

Although it may seem convenient, a friend or relative can’t take over a lease. However, they’re more than welcome to apply.

Lopez says new tenants have to be assessed and a new condition report has to be completed so they can’t be penalised for damages caused by previous residents.  What are the costs?

Tenants may have to pay rent until the end of their lease or when a new tenant moves in. 

They may also need to pay readvertising costs and re-letting fees calculated on a pro-rata basis. 

For example, if the re-letting fee is $400 and there are six months left on a 12-month fixed-term lease, they may need to pay a pro-rata amount of 50 per cent of that fee. 

Details on charges are usually included in the lease agreement. 

Goldfarb says tenants should continue paying periodically in line with their agreement until a new tenant is found because landlords can’t double charge. 

If the tenant pays rent on the first day of every month and the next tenant moves in on the 15th, the landlord has to refund them the pro rata amount of the rent that has been overpaid, he says. 

Tenants who believe they have been charged too much and can’t resolve the problem with the agent can apply to Victorian Civil and Administrative Tribunal. 

Taking over a lease? What you might not know

Elizabeth Lopez of Biggin and Scott Brighton says the consequences of breaking a lease are sometimes difficult to enforce if the tenant has a fair and reasonable reason. 

“If the tenant takes it to VCAT … if they can no longer afford that rent, they’ve had a loss of job or income, their circumstances have changed, they can argue very strongly to get out of their lease,” she says. 

Lopez says one of their tenants gave them more than 28 days of notice in writing to break the lease, and mentioned “financial hardship” in their letter.

The case ended up at VCAT, she says, and the tenant was able to get out of the lease and only pay rent until the date they said they would be vacating.

“It’s not always definite that you can get people to continue to pay that rent indefinitely until someone else is found,” she says.

“Sometimes they may lease the property in January, when it’s a very buoyant market, and they break their lease in June, when it’s freezing cold and it’s not as buoyant. 

“They may not be able to lease it for another six months, but a tenant has good grounds to have that rental amount reassessed.”

James Leckie, a tenancy lawyer at the Western Community Legal Centre, says tenants can also apply to the tribunal for the fixed term to be reduced for unforeseen circumstances such as being given a work contract to move overseas, or suffering a disability so they can no longer live in the property. 

“It’s a really good idea to contest it as hard as you can,” he says. “We always encourage tenants to go along to hearings because it is really important for them to put their side of the argument forward.” Keeping costs to a minimum

It’s in the tenant’s best interests to present the property immaculately and be flexible with open times so the property has every chance of getting leased. 

“Agents can be very lazy, because in their minds, the property is already leased, so they don’t have to work that hard to find a tenant,” Lopez says. 

“As the tenant who is breaking the lease, you want to make sure it’s advertised and there’s regular inspection times, and … [find out] how many people they’ve had through.”

Some tenants have also invested in ways to fast track the process of re-letting the property.

Goldfarb says tenants have paid for professional photography, while others have offered to offset a cheaper rent for 12 months or provided two weeks’ rent free for the next tenant. 

“In a market with an oversupply of rental accommodation and low demand from prospective tenants, they need to look at all avenues to make the property appealing,” he says.  Avoiding the blacklist

Agents have access to databases of tenants who have been “blacklisted”.

A tenant may find themselves on the database if they owe the landlord more money than the bond, or if the landlord is granted a possession order because the tenant breached the tenancy agreement or damaged the property, says Yaelle Caspi, policy officer at the Tenants Union of Victoria.

Tenants must be informed if they are listed on a database, and if they are found on one by an agent for a prospective property.

The listing lasts for up to three years, Caspi says, and tenants who believe they are unfairly listed can apply to VCAT to have their name removed. 

A tenant can also check whether they are listed under a database by contacting the company directly.

Leckie says there needs be a lot more transparency by property managers in terms of  which company they use, the circumstances in which they’re going to use the database and how you can contest it. 

Caspi says being listed on a database can have “detrimental effects”.

“It essentially locks them out of the private rental market,” she says. “This can be particularly an issue if people have experienced family violence, who have episodic mental health issues, or who may have experienced a crisis.” Future prospects

Goldfarb says breaking a lease doesn’t lower a tenant’s prospects to rent the next property as long as they include a genuine reason. 

He says working together with the landlord and agent can, in fact, lead to a great rental reference. 

Posted by Christina Zhou - Domain on 16th November, 2015 | Comments | Trackbacks | Permalink

The most common home-buying mistakes (and how to avoid them)

When you’re throwing your life savings (and future earnings) into a pile of bricks and mortar, even a simple blunder could end up costing a fortune.

That’s the bad news. The good news is that you can learn from other people’s property mistakes, to avoid making your own.

Here are some of the most common real estate stuff-ups, according to four experts who’ve seen it all before.

The real estate agent

Stop waiting for the perfect home, says Gary Sands, co-owner and director of Di Jones Real Estate in Sydney.

“I see people who keep waiting for the perfect property and they miss out on so many great homes because they keep waiting,” Sands says.

Even if there is no initial urgency, buyers will probably become more motivated eventually.

“They end up buying something that’s not as good as they could have bought many months ago.”

Sands also cautions against relying solely on online searches. Entering specific parameters may mean you miss a property that has everything you need – except a car space, for example.

“There might be a rear lane that you can use but it’s not on the title so we can’t include it.”

The mortgage broker

Mortgage paperwork is as dull as it is important. (Hint: very.)

Jonathan Lee, a Mortgage Choice broker in Melbourne’s inner west, says not knowing the loan-application process can be costly.

“If you have a small deposit, an auction probably isn’t a good idea,” Lee says.

In cases where the lender’s valuation ends up significantly less than the auction price – a high loan-to-value ratio, in banking jargon – the buyer may be forced to rope in family to provide additional security or, in the worst-case scenario, forfeit the deposit.

“Try to buy before auction,” Lee says. “You can put in an offer and still have time to get organised.”

Another common hiccup is having an inconsistent employment or savings history in the six months leading up to the application.

“If you think your circumstances are going to change, try to buy first,” Lee says.

The buyer’s agent

Falling madly in love with a home isn’t always a good thing, according to buyer’s agent Simon Cohen, managing director of Cohen Handler.

“Probably the biggest mistake people can make is getting too emotional,” Cohen says.

“If you get too desperate, you could end up paying too much, buying the wrong place or buying a place with problems.”

He suggests making a criteria checklist. Ensure any home you are looking to buy ticks as many boxes as possible.

“If it ticks none, it’s a sign you’ve become too emotional.”

Cohen says it’s a good idea to independently research the market, because real estate agents tend to mention only comparable properties with high sale prices.

Lastly, don’t be dazzled by stylish furniture. Focus instead on the quality of the building, including any renovations, and unchangeable features such as size and aspect.

The lawyer

Strata reports, pest inspections, building reports, building certificates and council inspections are time-consuming and potentially expensive. They are also really important, says lawyer Dion Vertzayas​, principal of VC Lawyers in Sydney.

“If you don’t discover the issues until after settlement, it’s too late,” Vertzayas says. “You might not have the money to fix them or it might mean the property is not a viable investment.”

For off-the-plan sales, he advises negotiating a schedule of specific fixtures, finishes and inclusions at the point of exchange, not relying on marketing materials or statements by salespeople.

“The biggest thing to be careful of buying off the plan is to negotiate a proper sunset clause so the vendor can’t hold you to ransom for years until the strata plan is registered.”

As well as having any contract reviewed by a lawyer, consider seeking financial advice before buying.

“Lawyers and purchasers tend to gloss over this [but] you need to tailor the purchase to your long-term investment strategy,” Vertzayas says.

Posted by Elicia Murray - Domain on 16th November, 2015 | Comments | Trackbacks | Permalink

Credit cards find new ways to fleece you

You could almost hear bankers breathe a sigh of relief last week as airline officials took their place in the credit card Senate inquiry hot seat.

"We need those surcharges," they bleated. "Won't someone think of our profits?!"

OK, I paraphrase but that was the gist of it. Credit card head honchos had similarly argued rate hikes, though the Reserve Bank has in fact cut, were fair and necessary.                               

The Senate committee is likely to agree with neither claim when it reports its findings on November 24.       

In the meantime, the card cronies have wasted no time repositioning to protect interest and fee revenue of some $7 billion a year. Here are the five new tactics they're hoping will keep us paying through the nose.

1. Extra money 

Card providers are using two cynical strategies to get us further in debt and circumvent a ban on automatic credit limit increases that was enacted in 2012. When someone applies for a new credit card, companies routinely offer limits well beyond those requested; where someone has "opted in" to receive automatic increases, they extend huge amounts. While credit limits are not disclosed by individual institutions, I regularly get reports from readers shocked at how much is put on the table.

Another common ploy is to accompany a new large-limit credit card with an attractive, unsolicited cash advance deal. One reader was offered an interest rate of just 1.9 per cent for the first 12 months, a far cry from the usual cash advance rate of up to 24 per cent.

Naturally the aim is to tempt consumers to spend more than they can afford and so lock them into interest over the long term.

2. 'Free' money

Speaking of temptation, the number of 0 per cent introductory purchase rate deals has increased six-fold over the past four years – to 19 at press, says data house Mozo. The idea here is to lure new customers with these honeymoon deals and then get them paying big interest. What card providers don't disclose is that offers are pretty much only ever made on expensive cards; those with a "revert" rate that will keep customers in debt the longest.    

3. Hidden balance transfer hits

Balance transfer deals are the other main way providers entice new customers, but today they come with a big sting in the tail. Firstly, it has become commonplace for any outstanding debt at the end of the interest-free period to revert to the cash rate (remember, of up to 24 per cent). Previously it was mostly the far-cheaper purchase rate.

Secondly, some particularly "enterprising" card companies have been whacking on a "balance transfer handling fee" on card set up – 14 deals carry the clawback at the moment, Mozo says. At a typical 2 per cent, this often negates the interest saving altogether.

It's also becoming usual for the clock to start ticking on the interest-free period at application date rather than approval date, heightening your risk that you won't clear your debt during that window. It's vital, more than ever, to read the fine print of balance transfer deals.

4. Higher annual fees 

What we pay for the privilege of using a credit card, even if you clear your balance in full every month, has been forging ever higher. Mozo says the average annual fee has risen from $90 five years ago to $111 today. Apparently this is partly due to institutions launching more premium cards that also net them higher merchant transaction fees.

5. Lower minimum monthly repayments

This is not new but a change that's crept in over the past decade. While 10 years ago a standard minimum monthly repayment was 4 per cent, today it's just 2 to 2.5 per cent. And you can bet card companies have not made that change out of any sort of consumer benevolence, but for corporate benefit.

Thankfully the time and cost implications of repaying just the minimum is now outlined on every credit card statement. But according to Mozo, the combination of lower minimums, higher fees and astronomical interest rates now means half the cards in the market will never be repaid – and your debt could, in fact, grow.

Mission accomplished, card providers.  What might change

Possible recommendations from the Senate inquiry on credit card interest rates, due to report on November 24, include:
  • Require a higher minimum monthly repayment. Now an average 2 to 2.5 per cent, a decade ago this was 4 per cent.
  • Impose a lower cap on credit card interchange fees, fees paid between merchants and banks that are set by card schemes and usually passed on to customers through surcharges or simply higher prices. These are an average 0.5 per cent in Australia, says Choice, but in Europe they will shortly be capped at 0.3 per cent.Back the government's plan to limit credit card surcharges to an amount that covers the merchant's costs only.
  • Criticise unconscionable credit card interest rate settings – and do nothing more. The Turnbull government has positioned itself as far too "free market" to mandate any link with the cash rate.

Educator and commentator Nicole Pedersen-McKinnon is founder of  TheMoneyMentorWay.com and developer of The 12-Step Prosperity Plan. Twitter:  @ NicolePedMcK

Posted by Nicole Pedersen-McKinnon - The Age on 15th November, 2015 | Comments | Trackbacks | Permalink

Why now is the perfect time to refinance your mortgage

The big banks may be increasing their mortgage interest rates, but that's no reason for their mortgage customers to meekly accept higher repayments.

Janine Louden was not going to just let inertia rule and do nothing when mortgage interest rates fell below what she was paying on her fixed-rate mortgage.

She is refinancing the loan she has with her husband on their house in Newcastle in NSW, switching lenders after only 12 months.

"For us it is mostly about more money in our pocket to pay off the mortgage," Louden says.                                                                 
The IT contractor and her husband are refinancing halfway through a two-year fixed rate mortgage with one of the big banks.        

Interest rates have fallen in the past year and mortgage broker Geoff Brooke, with aggregator VOW Financial, was able to find the family a better deal with another of the big banks. 

The new home loan is split between 75 per cent variable and 25 per cent fixed. Their new rate is 4.58 per cent on the variable component and 4.29 per cent on the fixed component. They were paying 4.84 per cent with their previous bank.                                                                  
Louden says moving to a mostly variable loan is "a bit of an educated guess" that interest rates will stay low, but she will review it in a year's time.

Louden and her husband had to pay a small break cost to end the fixed-rate mortgage early but she says the savings from a lower interest rate will be worth it.

There won't be any friction with switching bank accounts and credit cards since the couple is actually returning to their original lender and retained their accounts when they switched loans a year ago.

Louden's timing is impeccable. 

The big banks are raising rates but most of their competitors are not. Interest rates are low and cannot credibly fall much further, and the fees for breaking a home loan early are lower than ever, thanks to regulation.

All this means that now is the perfect time for homeowners to refinance, and possibly to fix a portion of their loan at the same time. Do it now, before the Christmas rush sets in and you're watching New Year's Eve fireworks before you know it.

By the end of this month, Commonwealth Bank, Westpac, ANZ and NAB will have all increased their standard variable rates by an average of 0.18 percentage points, to 5.61 per cent.

Figures from RateCity show on a Sydney or Melbourne-sized mortgage of $500,000 the rate hike will add $54 to monthly repayments, from $2820 to $2874 or an extra $648 a year.

But there's no reason to meekly accept higher repayments.

Sally Tindall, the money editor at RateCity, says while attention is on the big banks raising their variable rates, a number of lenders have actually been dropping their rates for owner-occupiers.

There are more than 10 that have rates under 4 per cent for owner-occupiers, including Mortgage House, loans.com.au, Yellow Brick Road and the NAB-owned UBank. There is no reason why owner-occupiers should be paying more than 4.5 per cent, Tindall says. Taking action

There are many owner-occupiers who are in a position to win a lower interest rate with their lender if they try, says Taichi Hoshino, the chief executive of comparator website Monetise.

House prices have grown rapidly in Sydney and Melbourne, leaving homeowners with more leeway. Hoshino says, to be in a strong position to negotiate, homeowners would need to have at least 20 per cent equity in their house, which is where the loan amount is less than 80 per cent of the valuation.

They would also need to have a good credit history. And those with bigger mortgages are also more likely to be able to negotiate a discount.  

Anyone with less than 20 per cent equity would not likely be switching mortgages because they would have pay lenders' mortgage insurance. Threaten to leave

"Australian banks have relied on the apathy and laziness of their customers and know that most who threaten to leave do not follow through," Hoshino says.

He says, if the lender will not budge borrowers should make some inquiries with lenders with lower rates. Banks tend to listen when the threat to leave is real and credible, Hoshino says.

Jonathan Lee, a mortgage broker in Melbourne with Mortgage Choice, says most homeowners should expect to receive a discount on their big bank standard variable rate of at least 1 percentage point.

However, there are costs to switching.

Lee says there is usually an establishment fee for a new mortgage of between $300 and $600, plus legal fees charged by the new lender of between $200 and $300.

There will also be a "discharge" fee (also called a "termination" or "settlement" fee) of about $350 paid to the old lender.

Lenders are not allowed to charge exit fees on loans taken out after June 30, 2011. If you are on a fixed-rate loan, you may need to pay a break fee, but the bank is only allowed to charge the true economic cost of discharging the loan.

Establishment fees waived

Borrowers should negotiate hard to have the establishment fees waived, Lee says.  

Some lenders will offer rebates from time to time of more than a $1000 to for owner-occupiers to switch their mortgages to them, Lee says.

It is not as easy for investors to get a discount from their existing lenders as it is for owner-occupiers. Even so, investors stand to benefit from shopping around as well.

Fixed rates low

With the official cash rate at 2 per cent, interest rates can't fall much further. This means there is little to lose by fixing a portion. If it goes up, you've made the right call; if it goes down, it won't be by much.

Experts say the best time to move to a fixed rate is when there is talk of official interest rates falling, since anticipated rate rises are usually priced into any fixed rate offer. 

Canstar figures show 3-year fixed rates are 4.52 per cent, on average. That is well below the average standard variable rates of the big banks of 5.61 per cent. It even beats the average basic variable rate, across all lenders, of 4.63 per cent.

Fixed-rate mortgages are much more flexible than they used to be. For example, almost all of the three-year mortgages on Canstar's database allow extra repayments, and one in three have offset accounts, where the money sitting in the account is deducted from the mortgage balance.

Good brokers can help

Switching a mortgage can be daunting for many people but mortgage brokers can help with the legwork in finding a mortgage.  

A good broker will have a spread of loans from various lenders, will ask questions about your personal circumstances and recommend more than one mortgage. 

Be aware that brokers are paid commission by lenders and that can create biases to favour particular lenders.

Posted by John Collett - The Age on 13th November, 2015 | Comments | Trackbacks | Permalink

Why Sydney and Melbourne house-price growth should slow

There's a simple reason why many experts reckon the rapid house-price growth of recent years cannot continue in Sydney and Melbourne in 2016: households won't be able to afford it.

There are lots of ways to analyse what is the right level for house prices, none of them perfect. But a key way of valuing property is by comparing the price of houses with the incomes of households. After all, it's households who buy and sell homes.

And guess what?

The ratio of house prices to household incomes in the country's two biggest cities have shot up especially sharply since the Reserve Bank started cutting interest rates four years ago, and are well above their longer-term averages. 

There's a clear reason for this: very cheap debt. But common sense also tells you this trend cannot continue at its recent pace, especially at a time when average pay packets are growing very slowly.

The graphic shows National Australia Bank economists' estimates of household income in each state, compared with the median house price, and how these have changed in recent years.

It shows the house price to income ratios for both Sydney and Melbourne have risen sharply in the last four years, and both are well above their 10-year averages.

So, why have prices grown so much faster than households' pay? And what are the chances of this trend continuing?

A key reason for the rise in price-to-income ratios is that home buyers are borrowing more money from the bank.

Recent numbers from CommSec showed the average new home loan had surged to $379,400 after growing by 15.4 per cent in the year to September – the fastest growth in 12 years.

This is what you'd expect when interest rates are at such lows, because borrowing has rarely been this cheap.

Nonetheless, the growth in lending by banks, and the rise in house prices that this has fuelled, probably won't continue at this pace, because affordability will become more of a constraint.

As home buyers in Sydney or Melbourne can attest, housing affordability is already a challenge.

Barclays economist Kieran Davies estimates that mortgage repayments will rise to 29 per cent of household income nationally next year, up from lows of 25 per cent in 2013.

"Housing activity should weaken later next year in response to the deterioration in housing affordability," Davies says.

The crunch is far greater in the states where prices have risen the most: NSW and Victoria. Davies calculates that the share of household income gobbled up by mortgage repayments is already 37 per cent in NSW and 35 per cent in Victoria.

Figures like that help to explain why a growing number of experts are predicting the recent softness in the housing markets of our two biggest cities has further to run.

Posted by Clancy Yeates - Money Manager (Fairfax) on 13th November, 2015 | Comments | Trackbacks | Permalink

How to choose a real estate agent

Boy, do real estate agents get a bad rap. Consistently compared to used car salesmen, they are frequently criticised for inflating potential sales prices to secure a vendor's business, only putting effort in when the property for sale will attract a good price (and therefore a commission for them) and fudging interest by potential buyers.

So I thought I'd find out how they really operate. It's been a few years since I moved into my place, and given the escalation in property prices I thought it might be time to find out what the market thinks it's worth.

I contacted three local real estate agencies to get them to give me a valuation on the property, all from big name firms. I stressed I wasn't thinking of selling, I just wanted to find out what my place was worth.

The first agent was extremely well prepared: prompt, on time and boy, had she done her research. She was armed with a file full of all the most recent sales figures for every property on my street, as well as a separate report including all the most recent sales in the area and data like the median house price.       

She also took trouble to build rapport – even showing me her cat photos – and let me know she was a local and her property was similar to mine, bought at around the same time.

The second agent was almost as well prepared, but focused more on giving me advice about how to maximise the value of the property over time. I had been debating the merits of adding a second storey or building a granny flat and this agent made a very cogent argument for why a granny flat, with the potential to generate revenue, would be a smarter option than adding a storey.

This is especially the case given the cost to add a second story would be far greater than converting the back garage to a granny flat. And there are no guarantees I would get my money back by going up.

He was super smart and subtle, however, letting me know about a one-bed place nearby that's on the market that I could pickup for an investment commensurate with the one I would need to make to build an additional storey.

Although it's not something I would consider right now, he certainly piqued my interest in buying another property down the track and obviously communicated the fact that he deals with investment properties, just in case that's something I might be interested in in the future.

From a business perspective, he was by far the smartest of the three agents, employing tactics from which every small business could learn.

He gave me an indicative price, but promised to crunch some numbers and get back to me. However, at time of writing he had not provided this information. Lack of follow up was the only black mark against his name.

The third agent, the one who sold me the property, was as professional as the first two. She provided me with information about recent sales and local property prices. She was also able to justify her valuation by pointing to recent sales of very similar properties.

What was interesting was that all three came up with the same valuation.

So on balance, who would I go with? Their fees and charges were comparable, although the second agent was slightly pricier. But I can understand why given the added value he provided.

Choosing between them is hard, given they were all extremely professional, but I would probably go with the second agent given he displayed strong business acumen, which would hopefully translate to the sale of the property. This choice is despite the fact I probably had better rapport with agents number one and three.

Ultimately, selling property is a commercial decision and for me, I'd prefer to go with the agent that displayed the best business sense.

And despite the reputation real estate agents earn, I felt all three were genuine and trustworthy

Posted by Alexandra Cain - The Age on 28th October, 2015 | Comments | Trackbacks | Permalink

How to present your property for inspection

Ned asks:

“I’m looking to sell my home soon. Any tips for presenting a property for inspection?”

Jane says:

The property inspection is the first opportunity for the potential buyers to get a really good look at your home. What you do with this opportunity can really make a difference. Using some of the following tips may increase your chance of a quick and profitable sale.

Make sure it’s all clean and tidy, not just the areas you think might be looked at the most.

If you’ve been renovating, there should be no indication of any repair or construction work. Everything – including the yard – should be spic and span. Remove any sign of pets being inside the house. Make sure windows are washed, cupboards are tidied, gardens are weeded, grass is mown, bins are emptied. This creates a great first visual impression for potential buyers.

In addition, make sure it smells good. You don’t have to go overboard with the deodorisers, but the home should smell fresh and pleasant. Try perfumed candles or plug-ins. As we all know, bad odours are a big turn-off.

The home should be light and airy. Make sure there is plenty of natural light entering each room. Pull curtains, raise blinds, and let the sun shine in! If the weather isn’t agreeable, ensure the inside temperature is comfortable and welcoming. Adding vases of fresh flowers, bowls of sweets, happy family portraits can contribute to the “homey” feeling of the property. The aim is to show that your home is loved and cared for.

Complete any small repairs that are needed, such as chipped tiles, flaking paint, dripping taps, carpet stains.

Remove unnecessary items of clutter from all rooms, and arrange furniture stylishly. Rooms shouldn’t look crowded or unliveable. You may like to consult an interior designer for some tips on this – after all, you want to show your home at its best!

Make sure that your house and yard are safe zones, not full of hazards that visitors can trip over or hurt themselves on. Secure your valuables in a safe location that is out of obvious sight. Keep cash, identification and credit cards on your person. At the same time, make sure the agent has keys to all additional locked areas that may need to be inspected, such as garden sheds, garage, and granny flat.

Be absent during the inspection, but provide the agent with relevant paperwork. This gives the potential buyers a more relaxed opportunity to examine and discuss the property, while the agent has documents to show improvements completed, and other pertinent work such as pest and building inspections. Buyers don’t want to feel inhibited when deciding if they like the property, and you probably don’t want to hear their criticisms either – you can get feedback on this from the agent. Stay away for the duration, taking any family pets with you.

To sell your home, you must treat it like a product, and display the property at its absolute best during an inspection. With a bit of thought and effort, you can improve the chances that potential buyers will want to make a follow-up visit, and perhaps sign that all-important contract of sale!

Jane Eyles-Bennett is an interior designer & renovation consultant. She’s the creator and driving force behind Hotspace Consultants and has consulted on more than 550 property renovations.

Posted by Jane Elyse-Bennett - Domain (Fairfax) on 26th October, 2015 | Comments | Trackbacks | Permalink

Income insurance protects your biggest asset

If you had a machine at home in the corner of your living room and it spat out $100,000 each year, would you insure it?

If you thought about your most significant asset, would you insure it?

Of course you would!

We all know that insurance is something that we have "just in case".  Just in case the unexpected happens and we need to call upon it. Our home insurance is in place just in case we incur major damage to our house or contents. Our car insurance is in place just in case we have a major accident. Our hospital health insurance is in place just in case we need to go to hospital.        

In fact, the best-case scenario is that any insurance we have is a complete waste of money.  If we haven't had to make a claim, then we haven't crossed paths with disaster.

For those who have been unlucky enough to make a major claim on any insurance policy, they would thank their lucky stars that they had a good-quality policy in place that allowed them to get through a tough period and eventually move on with life, albeit with a major disruption.

In my second question above I asked, what is your most significant asset?  Is it your home?  Your car?  Your business?  The answer is probably none of these.

The largest asset that any of us will have over our lifetimes is our ability to earn income.  Looking at it simply, if you earned, say, $50,000 a year (increasing at the rate of inflation) from the age of 25 to the age of 65, you would have earned more than $3.26 million after tax. Similarly, if you earned $100,000 a year from the age of 35 to the age of 65, you would have earned more than $3.65 million after tax.

If we are to protect this vital and significant asset, a quality income-protection policy is a must.  Not all income protection (or salary continuance) policies are alike, so it is important to understand their differences and any deficiencies. For example, the medical definitions of a policy are critical to ensure you receive payment if you are unable to work because of illness or injury.  A poor-quality policy may have strict criteria, meaning you might not receive payments, just when you need it the most.

Another thing to look out for is that many policies (particularly some held within superannuation) have a limited benefit period of as little as two years. Ideally, we want our income protection policies to replace our income until our retirement age (say 65). Two years of income, while helpful, will not replace our lifelong income.

So I ask again … if you had a machine at home in the corner of your living room and it spits out $100,000 each year, would you insure it?  Well let's say it's not a machine, but it's you … of course you would insure it!

Thabojan Rasiah is a leading financial adviser, commentator and blogger. Email: thabojan.rasiah@sfg.com.au Twitter: @t_rasiah

Posted by Thabojan Rasiah - Sydney Morning Herald on 26th October, 2015 | Comments | Trackbacks | Permalink

How to maximise your home’s street appeal

Houses are comprised of interiors and exteriors – yet so often the latter is subordinated. Whether you are simply house-proud, or getting your house ready to sell – it is worth giving some due diligence to your street appeal. As the saying goes, you only get one chance to make a first impression. Here’s what some of Australia’s leading garden designers have to say on the matter. Plant man about town, Richard Unsworth, of Garden Life, says the golden rule is that house frontages need structure. “Formality works at the street level. This means repetition, mass planting, and avoiding messy chaotic planting schemes – but it doesn’t have to be boring.” 

Unsworth suggests keeping planting simple yet bold:
  • Neatness – instead of predictable low perimeter hedges, look at using softly clipped and mounding plant forms that can also flower for you. Indian hawthorn (Rhaphiolepis indica) is a great performer, as is Pittosporum Miss Muffet​ and the hardy shrub, Loropetalum, gives great colour.
  • Small urban front garden – consider using one large feature pot and plant in the middle surrounded by a mass of ground cover.
  • Larger suburban streetscape – keep things formal and elegant. You want to provide privacy from the street but not to the extreme of a huge barrier hedge. Plant small trees and shrubs where you do want privacy but leave some spaces more open where this is not an issue. Use a small deciduous flowering tree if you have the space. Spring blossoms, winter sun and summer shade – crepe myrtle, frangipani, magnolia.
  • Perfume – is gorgeous for passers-by, or wafting into the house when the windows are open on a sunny day. Think jasmine, lavender, osmanthus, and gardenia.

But, if you are after something a little different, Unsworth says that edible gardens up front are gaining huge momentum. “My front garden is a productive herb and veg garden, which I often pick for salads. I use clipped specimens of Japanese box and Podocarpus to give it structure, scale and form. People love its natural aesthetic, and passers-by stop to ogle.  My neighbours know they can pick parsley or rosemary for a roast and I love that,” he says.

Jane Stark, of Stark Design, says it is crucial to consider your colour palette. Current trends in exterior palettes follow crisp, more pure, neutral combinations with a restrained number of colour choices. “Let the architecture and natural building materials and landscape context speak. A successful on-trend colour combination of the moment is charcoal and white,” Stark says. Conversely things to avoid are using too many colour combinations, or colour combinations that are not respectful to the architecture of the house. “And anything with a faux finish!” Stark says.

The colour palette should also extend to your plant choices. “Select plants which have leaf and flower colours and shapes which complement the colour of the house – e.g. silver plants look wonderful with charcoal paint, inky dark green foliage looks perfect next to white walls, as do bright colours – think riotous bougainvillea,” Stark suggests.

Christopher Owen, principal of Sydney’s Christopher Owen Landscape Design, says: “The colour palette trend for house finishes and built landscape elements that require a coat of paint is sitting firmly in the white/grey/black spectrum for the moment, which is far more pleasing than what I call ‘Vaucluse Brown’ – which refers to anything in the beige/brown spectrum that was splashed over the rendered monoliths of said area in the previous decade.”

When designing a planting scheme for street appeal, the style of architecture is boss and is the best place to start, Owen says. “Are you living in a gorgeous cottage in Watsons Bay or Balmain or a super contemporary off-form concrete house in Chippendale. The cottage allows you to create something more ‘gardenesque’ with contrasting textures and form – think clipped teucrium fruticans, Miscanthus sinensis and Senecio serpens for example. Alternatively the contemporary house might look smashing with a drift of Miscanthus sinensis only”.

Penny Starr, of Melbourne’s Penny Starr Design, says: “When I think about street appeal, what springs to mind immediately is that the house and garden should feel welcoming and cared for. Paint can go a long way in making a house looked loved – and at the moment I really like soft grey with white windows, perhaps with the front door painted in French blue or burgundy for weatherboard period homes. I’m also loving contemporary architecture with timeless materials palettes – I love white or recycled bricks with black detailing on windows and doors and concrete, timber and steel never gets old.”

But what of that ubiquitous garden element – the fence? “Fences should be in keeping with the architectural style and hard-scaping materials that reflect the broader surroundings – bluestone, for example is very Melbourne whereas sandstone is so Sydney – providing a sense of place. Recycled materials can also be a great choice for injecting character and warmth.”

When it comes to plant selection, not all plants will grow in all gardens – and Starr makes the all-important point to always bear in mind your climate, soil type and aspect. If you are unsure, see what is thriving in your area. “And don’t forget about trees! Trees are really important elements in gardens and there’s a site-suitable tree available for nearly every garden. One beautiful feature tree in a small garden, or a few in larger spaces can make a big impact as well as providing a range of benefits such as shade, screening, seasonal interest and even food production values,” Starr says.

So, with some careful planning and consideration, your house can turn heads before viewers set foot inside. If you are not a gardener, consider getting a garden consultation from an expert to help you with your plant selections, and perhaps engage someone to maintain the garden every quarter to keep it looking good. It can add immense value to the worth of your home.

Posted by Amber Creswell Bell - Domain (Fairfax) on 23rd October, 2015 | Comments | Trackbacks | Permalink

Melbourne’s perfect storm for buyers is only just beginning as property auctions on increase

The ball isn’t yet back in the buyer’s court, but if this weekend is anything to go by, it’s close to sailing over the net.

On Saturday, almost 1500 homes are expected to go under the hammer – just tiptoeing distance from the all time record of 1558 auctions. This huge number threatens the prospects of sellers. In the past, an imbalance of fewer sellers than buyers ensured competition and strong sales results.

With this equation shifting, buyers will obtain the upper hand.

This auctioning of homes en masse can only mean good things for buyers who have waited on the sidelines, outbid and financially outstripped by others with deeper pockets. 

The median house price has  surpassed $700,000 – but after 2.8 per cent growth over the quarter, compared to 6 per cent in June, the intensity of autumn is fading.

The Sydney market has also taken a hit – slowing to the  lowest levels since March 2014 with the growth run now firmly over.

Domain Group senior economist Andrew Wilson says these figures mean sellers won’t be quite as confident at auction for the rest of 2015.

This selling confidence took a hit last Saturday, with auctions recording the lowest clearance rate for the year, at 73 per cent.

If this continues to drop, as sellers look to finalise a sale before Christmas, buyers will claw back even more power to negotiate, Dr Wilson says.

This year, even Melbourne Cup Day is expected to host a relatively large number of auctions – more than 500, compared with a usual figure of about 150.

It’s unlikely Melburnians have suddenly turned against the biggest horse racing day on the calendar – in fact, Dr Wilson says it could be that “agents are strategising [to sell] on a weekend that isn’t a Super Saturday to avoid the competition”.

Despite this, he said home owners and sellers shouldn’t expect any drops in prices. Melbourne is expected to be the most resilient capital for future price growth, he said.

On Wednesday, Century 21 Australasia chairman Charles Tarbey told Domain that some agents had advised sellers to wait until spring, commonly described as the “selling season”, to list their properties.

He questioned the veracity of that advice, saying the market hadn’t been seasonal for years. Since the boom began, the market has failed to be driven by the usual fluctuations seen through the year, instead changed largely by the snowball effect of a Fear Of Missing Out (FOMO) and falling interest rates.

Yet it has been rate hikes dominating headlines recently, with Westpac and Commonwealth Bank’s interest rate increases being blamed for damaging market confidence and the auction clearance rate. 

Astute buyers, who can see that smaller tier lenders have actually been lowering their rates, are the winners of this negativity – able to purchase when others are scared off by the unpredictability of the lenders.

With more than a month left in spring, it seems we might soon need to be renaming it the “buying season”.

Research house BIS Shrapnel senior manager Angie Zigomanis said buyers would have the chance to approach auctions at their leisure as the high-stress auctions of autumn faded.

“It won’t be the case that [seemingly] every time you miss at auction the next weekend will be more expensive,” he said.

Buyers may also be assisted by increasing levels of supply and, while investors are being bitten by APRA changes, home buyers are predominantly not, AMP Capital chief economist Shane Oliver said.

“Melbourne is in a similar cycle to Sydney but some buyers are better off with prices relatively lower in Melbourne,” Dr Oliver said.

The frantic pace of the market that saw some buyers bidding beyond expectations, and in some cases beyond sense, is clearly wearing off.

Depending on the result this weekend, we’ll clearly see whether the ball is about to be given one final, decisive hit back to the buyer. 

Posted by Jennifer Duke - Domain (Fairfax) on 22nd October, 2015 | Comments | Trackbacks | Permalink

What real estate agents would never (ever) do to their own homes

They spend their days talking up the properties they sell, but what do real estate agents really think of your acid-yellow splashback?

Domain asked agents to nominate the renovations or design features they would never include in their own homes, especially if they planned to put up the “for sale” sign any time soon.

Here are some of the experts’ biggest property no-nos.

Building a walk-in wardrobe

Of course, this doesn’t apply if you have acres of floor space and an unlimited budget, but Maria Magrin, a residential sales consultant at Belle Property Annandale in Sydney, warns walk-ins can be a waste of space.

“The first thing I did when I bought a terrace house five years ago was convert the walk-in wardrobe into an en suite,” Magrin says.

The extra bathroom is not only better for her family; she expects it will be more appealing to buyers when she wants to sell.

“It was a pathetic walk-in anyway. Then I put built-ins in my bedroom, which gave us more storage space than the walk-in wardrobe had.”

Going nuts with bold colours

Stop! Walk away from the feature wall! And think twice about the oh-so-now turquoise kitchen cabinetry.

Magrin is all for adding pops of colour through cushions, rugs and other soft furnishings. But for more enduring interior design features, she cautions against bold colour choices.

“It’s like fashion. Colour does date,” Magrin says. “Not only that, some people might walk into the home and not be able to get over the fact that they hate red or orange, or whatever colour you have used. Some people can’t visualise what a room might look like with a different colour.”

Installing a swimming pool

A backyard swimming pool isn’t part of everyone’s great Australian dream, according to Matthew Waddell, general manager of Robinson Property in Newcastle.

Instead of seeing a pool and envisaging endless hours of fun in the sun, many would-be buyers see nothing but a hassle, and an expensive one at that.

“If it’s for your benefit and it suits your family in the long-term, that’s fine, but there are plenty of people who will look at a house with a pool or spa and think, ‘I’m going to fill that pool in’,” Waddell says.

In his experience, homes with pools appeal mainly to families with school-aged children.

“After that, it becomes a drain on your resources to maintain. People start to think, ‘What do we want a pool for?’ Especially if you live near the beach.”

Creating a man cave

That fantasy about converting the garage into a man-cave? It might be best left as a fantasy, because chances are when you want to sell, buyers will be more impressed by having somewhere to park the car.

Waddell cautions against converting useful spaces (such as bedrooms or garages) into man caves, media rooms or other areas that don’t necessarily have a broad appeal.

“If you want to do something quirky because that’s what you love and you are going to live there for 10 years, go for it, as long as it’s not too costly to convert back,” he says.

“But if you’re trying to maximise your return … keep it as vanilla as possible so you can attract as many buyers as possible.”

Getting creative with painting techniques

There are YouTube videos galore with lessons on how to create faux wood grain looks, marbled finishes, textured crackle surfaces and other amazing wall painting techniques.

Braden Walters has no plans to watch them.

“Whatever you think looks creative may not look that great to buyers,” Walters, a board member of the Real Estate Institute of NSW, says.

“For example, we sold a house where the owners used a zigzag pattern with the paint brushes. The buyers walk in and go, ‘Oh my god, what were you thinking?'”

Like Magrin, he says it’s best to add colour through soft furnishings, “not Pro Hart stuff where you’re splashing paint all over the walls”.

Doing it yourself

Unless you’re a licensed tradesperson, think very carefully about hiring the power tools to build your own deck, extension or other substantial renovation.

“I’ve seen ugly-looking decks that aren’t square, or one corner sags, so it’s more like a sliding deck,” Walters says.

His advice? Know your limits. And leave big jobs to the experts. “I’m more of a brickie’s labourer. If I was going to do something, I’d get one of my friends who’s a licensed tradesman and be their lackey if I wanted to get involved.”

Posted by Elicia Murray - Domain (Fairfax) on 21st October, 2015 | Comments | Trackbacks | Permalink

The house price bubble is deflating, and we should be grateful

The proportion of lending to investors is still ridiculously high but it's slowing. The madness is receding. Each month for a year now more than half of all the dollars lent for buying and building homes went to investors. The insanity is apparent when you consider that until the mid-1990s only 10 to 20 per cent went to investors. People bought houses to live in.

In May this year as prices in Sydney and Melbourne soared to once-unimaginable heights the proportion lent to investors hit an all-time high of 53.5 per cent. And then it slipped, in August sliding below 50 per cent for the first time in a year.

Investors like to believe that they are creating new properties, adding to supply and driving down prices. But few of them are.  

At 48.5 per cent, it's still ridiculously high, but something has changed. The canaries can smell the gas. 
The Reserve Bank has been desperate to contain investors because it believes they are accelerating the boom and might amplify the risk of crash.

As it put it in its Financial Stability Review released on Friday: "Investors are more likely to contribute to the run-up in prices than owner-occupiers because the rationales for their purchases differ: capital gains are likely a greater motivating factor for investors, and rising prices can induce even more investor demand by increasing expectations for future price rises. Investors also tend to face fewer barriers to exit."

Investors were also denying owner-occupiers houses they once would have bought. Before the cut in capital gains tax that sparked the boom in borrowing for investment, fewer than half the households headed by Australians aged 25 to 34 rented. Now it's 60 per cent.

The Bank and the Prudential Regulation Authority have been heavying the retail banks to make things more difficult for investors. Last week they hailed "tentative" signs of success. And then Westpac put up all variable mortgage rates 0.20 per cent.

At Saturday's auctions in Sydney only 65.1 per cent of properties sold. A week before it had been 70 per cent. Back in May it was 90 per cent. Melbourne's clearance rates held up at 73 per cent.

Macquarie Group is predicting a 7.5 per cent decline in house prices over the next two years. If it's gentle, it'll be good. But why did they ever get so punishingly high in the first place?

Tax is an awfully big part of it. When the Howard government halved the headline rate of capital gains tax at the end of the 1990s the price of a typical house jumped from two to three times household disposable income to four times disposable income. At no other time in Australian history have prices jumped so far so quickly. Negative gearing (making losses on rent to offset against other income in order to enjoy a barely-taxed capital gain) became mainstream.

"It is a truism that if an investor is buying a property, an owner-occupier is not," the head of the Bank's financial stability department Lucci Ellis told the parliament's home ownership inquiry in July. "To the extent that person is not then buying their own home, they are therefore creating a market for rental and making it attractive to purchase investor properties."

Investors like to believe that they are creating new properties, adding to supply and driving down prices. But few of them are. Before the explosion in negative gearing, one in every six new investors built a home. It's now one in 16.

Tilt has also ramped up house prices by making them more affordable to start with, at the cost of being less affordable over time. That's the "tilt". It used to be the other way around. When interest rates and inflation were high, the upfront cost of buying was high (because the of the mortgage rate) but the payments became easier over time as wage rises inflated the burden away. These days low interest rates make it much easier to buy a house (so long as you can get a deposit) but low inflation makes it much harder to pay off.

The changed tilt has pushed up prices because borrowers who didn't realise what happened rushed in and bid in order to take advantage of cheap rates without realising that the burden would stay with them for much longer.

Increasing wealth has been the other big driver of house prices. The richer we get after meeting our basic needs the more we are prepared to pay for the place in which we live. (The fact that owner-occupied housing is entirely tax free helps as well.)

The typical home now has 3.1 bedrooms, up from 2.9 two decades ago, as well as other rooms such as studies and extra living rooms that used to be uncommon. Eight out of 10 homes now have at least one bedroom free.

But that's not where the real money is going. For those who can afford it, place is more important than space. And there's a limited number of well-located places. The bigger our cities become the more important it becomes to have a place close in to the centre, or near the sea.

It's the prices in these suburbs that move first, and short of a wealth tax or a land tax or a capital gains tax on the family home, there's nothing that that can be done to stop them rising.

"More supply", the simple fix, isn't going to help.

It's wise to resign ourselves to the reality that some house prices are always going to be beyond most of us. But if the prices of other houses ease off and fall for a bit, we will be able to count ourselves lucky.

Peter Martin is economics editor of The Age.

Read more: http://www.theage.com.au/comment/the-house-price-bubble-is-deflating-and-we-should-be-grateful-20151018-gkc0yy.html#ixzz3p50TptqE
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Posted by Peter Martin - The Age on 20th October, 2015 | Comments | Trackbacks | Permalink

Mortgage holders: What to do when your fortune changes

Rates have been at record lows for some time, but for some borrowers their luck may soon run out.

Westpac increased its rates for all mortgage holders on Wednesday with other major banks expected to follow, and mortgage holders may find themselves with mortgages that cost more than expected.

The Westpac increase of 0.2 percentage points for all variable rate holders, including owner occupier variable rates now headlining at 5.68 per cent, came out of the blue for mortgage holders, while smaller lenders are still cutting rates.

While the market may be increasingly unpredictable and preparation is key, there are some things mortgage holders can do to ready themselves when rates rise.


While easier said than done, mortgage holders would be well placed to go over their budgets and know exactly where they can trim the fat should circumstances require it.

Having a clear budget breakdown means that if you do start struggling, you’ll know exactly where you can cut back and how much you can cut back by. ASIC’s Money Smart has a mortgage calculator that allows you to easily work out your repayments in several “what if” scenarios, which can provide an estimate of how much extra cash you might need.

Those whose rates haven’t been increased can prepare now by reining in spending and saving the extra dollars for any emergencies.


Increasing rates mean that your mortgage will chew up even more than your income – and it might be time to consider income protection and other insurances. Make sure you’re covered in the event of sickness, injury or even redundancy so that you don’t lose your property.

While sometimes this can cost a little extra, it will provide you peace of mind and a safety net for when situations really do get serious. Speak to a financial planner first about what you can do to protect yourself.

Put down a lump sum

If you have savings, inheritance or other funds available, now might be the time to use them to provide a buffer in your mortgage or getting rid of other “bad debts” early. 

The sooner you can make a lump-sum repayment on your loan, the less interest you will pay on your mortgage in the long run – while monthly repayments will reduce for some borrowers, others may not, depending on their specific loan. Speak to your lender about any ramifications of putting down a lump sum and seek advice first.


If your mortgage gets unmanageable it may just be time to look and see whether you could be getting a better deal elsewhere. While Westpac is hiking rates, you may want to consider smaller second-tier lenders who may not be putting up their rates. Some of them may even be dropping what they’re charging, with many announcing significant cuts in recent weeks.

Seek advice from a broker, consider any break or penalty fees from your current loan and consider a cheaper mortgage. While you refinance, you can also consider fixed-rate loans that may make your repayments more predictable and easier to manage. Fixed-rate loans can be more expensive than variable rates, but they do give you the luxury of planning ahead.

Loan features

There are many extra bells and whistles that can be added to your home loan – however, many of these can come with a cost attached.

Firstly, consider whether you use the features that are available to you under your current mortgage arrangement. If you’re not and there isn’t a reason you would, find out whether your loan product is costing you more as a result.

Secondly, look at what features may be useful in helping your situation. An offset account with a redraw is a popular way to use extra money you have to lower your repayments. As interest is calculated daily on some of these features, having your salary deposited into the redraw account by your employer and then withdrawing as you need can help lower the cost. You can also keep your extra savings in the redraw so it is being useful in the long term. 

NAB’s banking tips suggest that the difference between $10,000 in an everyday banking account for the life of a loan could be more than $45,000 – though this varies with interest rates. Their guide indicates that every dollar kept in the redraw for longer makes a difference – so using interest-free days on cards instead of pulling the money out of the redraw can be beneficial. An offset requires discipline, as the funds are relatively easy to access, and straightforward extra repayments may be more prudent for some borrowers. Mortgage holders should obtain advice first.

Plan ahead

The most critical technique is to plan now – particularly if you think rate rises are on the horizon. Create a habit of repaying more than the minimum and know what a rate rise would cost you and how you might afford it. 

Speak to the experts, including your broker, lender, accountant and financial planner, before making any significant decisions.

If facing hardship, arrears and other problems then get in touch with your lender straightaway and attempt to call them ahead of being in this situation – they may be able to advise on your options.

Posted by Jennifer Duke - Domain (Fairfax) on 20th October, 2015 | Comments | Trackbacks | Permalink

How to renovate your home for a quick sale

You don’t have to spend a fortune on renovations to have prospective buyers queuing up to buy your home, but you do need to be smart about where you spend the money. A few years ago when I owned a property renovation business in London, an estate agent called me to take a look at a house she was having trouble selling. It had been on the market for 18 months without an offer.

The owner, Kirstin, had two young children and had recently split up with her husband. She was desperate to sell so that she could move on with her life. The family lived in a large three-storey, four-bedroom period family home in a popular area of south London. But as I toured the house, it soon became clear why the for sale sign still stood outside.

Every room was full of clutter. Mounds of paperwork and empty coffee cups covered every surface in the living room. The kitchen was dirty and there was a large off-putting damp patch on the wall. Upstairs, toys and piles of clothes littered the bedroom floors. The carpets were stained and the beds were unmade. Kirstin’s favourite colour was orange and there were bright orange feature walls in the main rooms. Pictures destined for the walls were still lying on the floor below where they should have been hanging.

However the biggest obstacle was getting Kirstin to understand that any of this chaos was deterring potential buyers. “Nobody wants to see your unmade bed, dirty dishes in the kitchen, shampoo bottles in the bathroom or clothes on the floor,” I explained. “Once someone gets a glimpse of a lifestyle that doesn’t appeal to them they are never going to buy your house.”

Reluctantly Kirstin agreed to a small-budget renovation and to empty the house of clutter, put personal items away and start cleaning in the hope she could secure a sale for the full asking price. Without it she could not start her new life. I arranged for a skip to be delivered outside her home and encouraged her to throw away anything she hadn’t used in the last six months.

The first rule for selling a property quickly without spending large amounts on renovations is decluttering and tidying, agrees Lisa Bradley, a licensed real estate buyers agent from Finders Keepers in Sydney. “I do a lot of property detailing and low-cost, high-impact renovations myself so I know how important first impressions are,” she says.

Bradley says there is a lot the vendor can do to improve their property for sale on a modest budget. “Make it look loved and cared for. Embark on some serious property detailing. Clean bathrooms, especially the tiles and shower recesses, ovens and cook tops. Let the light in and replace dated blinds and or curtains. Clean it, tidy it, gap it, paint it and fix it,” she says.

“Fix anything that comes with the house and is broken, like the front gate or loose paving tiles” says Bradley “If you can paint and do small handy-man jobs yourself then the cost is just your time and materials.”

Kirstin’s entire renovation budget was just over $3000 with the bulk of it allocated on painting, repairs and cosmetic updates in the bathroom. A contractor was engaged to do the painting, repairs and tidy up the garden.

However disagreements soon followed as she protested about painting over her beloved orange walls with neutral paint. “But I love my orange walls,” she said. “We need to turn your home into a blank canvas for someone else to project their lifestyle on to,” I told her. “Paint the walls and always use neutral colours,” agrees Bradley. “Nothing bright that might offend. Nobody ever says ‘Oh I hate that white wall.'”

In Kirstin’s bathroom and kitchen, broken windows and chipped mirrors and tiles were repaired and the walls were freshly painted.

“A kitchen or bathroom update can make a big difference to a sale,” says Bradley. “Think cosmetic not structural. Work to improve what’s there. Ugly bathrooms can be greatly improved by detailing. It’s cheap and easy to paint the tiles (use proper paint, not wall paint) and replace the toilet, basin, vanity and mirrors.”

“Kitchens can be updated with paint too. Paint any dark timber trims with light colours, replace door knobs and handles. Clean and detail it. Take all the kids’ drawings and party photos off the fridge.

“The key is not to spend too much on a clearly dated kitchen. Expect the new owners will want to do that themselves. Just ensure that it is good enough for potential buyers to think ‘I could live with that until we have the money to replace it’.”

In the garden, make sure it is jungle-free, says Bradley. “People look for low maintenance outdoor spaces. Replace dead grass with new grass or pavers. Trim back bushy overgrown trees. If you want to plant new trees or flowers get mature, half-grown ones.”

In less than three weeks all the renovation work was completed in Kirstin’s house and the property was re-marketed. The real estate agent was impressed. The cosmetic changes revealed a beautiful family home, clean, tidy and ready to move in to. Two weeks later the property was under offer and sold for the full asking price. Finally Kirstin and her young family were able to move out and start their new life.

Posted by Sandy Smith - Domain (Fairfax) on 20th October, 2015 | Comments | Trackbacks | Permalink

What is equity?

“Equity is one of those common mortgage terms that everyone is unfamiliar with,” says Robin Lim, head of mortgages product management at National Australia Bank.

Here is a quick guide to equity for those who need a refresher.

“Equity can best be defined as how much your home is worth minus how much you owe to the bank,” Lim says Robin Lim.

He explains that  how you can work out how much equity you have with this simple equation.

Home worth – debt = equity.

“If your home is worth $100, and you have $80 that you owe to your bank, you effectively have $20 built up,” Lim says Robin Lim.

There are two ways you can access equity

1. Minimising how much money you owe the bank

“You might pay down your loan faster. If we go back to that example, if you pay down that $80 down to $60, you’ve actually demonstrated $40 worth of equity in your home,” Lim says.

2. Appreciation of your property

“If your home appreciates in value from $100 to $120, you’ve also increased the level of equity in your home,” Lim says.

What you can use the equity in your home for:

– Home renovations

– Buying shares

– Buying more property

Robin Lim says it’s important to speak to your banker or broker to see if you have the ability to service you loan.

Domain’s senior economist, Andrew Wilson, says there are many benefits in releasing equity in your home loan for other investments.

“That has certainly been a successful model for investors: funding the purchase of another property from the equity that you’ve accumulated in your existing property. It remains a positive way of growing wealth,” he says.

This has been a model smaller investors have relied on in growing wealth.

“It has been a model that small investors have been utilising the equity in a property as it grows, and to use that equity as a deposit on another property,” Wilson says.

“Over time, the equity grows to keep moving forward. That’s been a positive investor model.

“It does reflect the underlying strength and resilience of Australia’s capital city housing market. Generally, it’s been a positive financial model for many Australians,” he says Andrew Wilson.

If you don’t own property, you miss out on a lot of advantages available to home owners.

“There are considerable taxation advantages for property owners,” Wilson says.

“They don’t pay capital gains tax on the sale of their property if they sell the family home.

“If they are investors, they get a discount on the concession rates for capital gains when they sell their investment property; they can negatively gear their investment property so they can claim their interest costs against other income; and they also get to write off the value of their investment property through tax appreciation,” he says Andrew Wilson.

It seems those lucky enough to own property are sitting pretty, while where many first home buyers are priced out of the market.

“It’s geared for those who do have property, and it becomes a self-perpetuating advantage because people can buy more property and take advantage of those taxes to continue to build wealth,” says Andrew Wilson says.

He says continues in saying those who don’t own property don’t have the same options available.

“The other options don’t have the same type of advantage going forward now, in as low yield environment with interest rates and growth rates. The tax-enhanced yields and returns on investment property will become even more attractive and advantageous to those who own property.”

Posted by Cassandra Byrnes - Domain (Fairfax) on 19th October, 2015 | Comments | Trackbacks | Permalink

How to get a discount on your home loan rate

If anything's going to make you end a loveless mortgage with a Big 4 bank, as I regularly entreat, it's last week's shock interest grab.

But, loath though I am to defend such opportunistic actions, it seems that behind closed doors our biggest banks are kind and generous. Never thought I'd type that.  

Today I can reveal that while borrowers are being hit with hikes in public, banks are acquiescing to juicy discounts in private.        

Talk about mixed messages.   

Don't get too excited if you're an investor though.

Three months ago this week the Big 4 banks definitively ended their long-term flirtation with investment loans by imposing an out-of-cycle rate rise, and stricter lending criteria, on just these. They did it because APRA has capped investment loan growth at 10 per cent a year in a bid to protect the banking system from any property wobbles.

Borrowers with the big banks, 86 per cent of investors, are collectively paying $54 million a month more before the recent rises. So their bill is $162 million so far. (Based on the current advertised headline investment variable rate of 5.64 per cent, the latest APRA home loan values and data provider finder.com.au's estimate that 70 per cent of these loans are variable). 

Precisely half of all lenders have now seized the chance to hike investor rates specifically, says comparison website mozo.com.au, by an average of 0.25 per cent.

Last week marked the first time owner occupiers have been slugged alongside investors, by 0.2 per cent from November 20 for all Westpac customers (with the justification of building capital reserves to satisfy APRA rule changes next year). 

But a new mystery shopper study by Mozo reveals the Big 4 are secretly lopping a full 1 per cent on average off advertised owner-occupier rates, up from 0.9 per cent a year ago, and in some circumstances stretching that to 1.25 per cent.

Just taking the average discount, that means there is a potential $403 million a month in total interest savings up for grabs (at today's average discounted variable rate of 4.44 per cent on the nearly $500 billion of big bank loans assumed to be variable).

If you have the ABS-reported (record) average home loan of $371,200 (makes me tear up just thinking about it), that's an individual saving of $215 a month, $2580 a year or more than $60,000 over the life of your loan.

Which would well and truly wipe out the $45 monthly cost of a 0.2 per cent increase to your base rate.

Let me be clear, these discounts are substantially higher than the "professional package" discounts banks disclose (which are sitting at an average 0.77 per cent). You won't find these secret deals published anywhere; you have to call and coerce.

And don't assume that, as an existing customer, you won't qualify.

Yes, Mozo surveyed the average discount offered on two new owner-occupier scenarios – a first home buyer looking for a $300,000 loan and a refinancer seeking $500,000.

But with investor loan growth locked down, banks will be scrambling not just to supplement but to sustain their loan books. And they face fierce competition.

Today our big banks' share of the owner occupier market is far below investor loans, at 82 per cent, as ever-cheaper online lenders muscle in. If your bank knocks you back for a discount, you shouldn't hesitate in remortgaging to one of these low-overhead outfits to save even more.

The best-priced product is regularly changing but is currently iMortgage Fusion with a variable rate of 3.84 per cent. Were every customer to get the hump with big bank treatment and switch to this, the total saving on today's rates would mount to $645 million a month! I suspect iMortgage would also encounter some resourcing issues.

(Note iMortgage doesn't have an offset account so I prefer the cheapest product that does: Click Loan's Online Home Loan at 3.91 per cent.)

What about poor – literally – investors? They usually can't access the bargain-basement online mortgages. But despite the lending crackdown, big banks are even extending some decent discounts here.

Mozo says if you play your negotiating cards right, you could still secure a 0.8 per cent reprieve depending on loan size – down by 10 to 25 basis points on a year ago.

This would take today's average rate to 4.84 per cent and save investors a collective $214 million a month.

The banks were also willing to entertain deeper discounts on a case-by-case basis. A spokesperson said: "Mozo's mystery shopper was able to negotiate a 1.25 per cent discount from CommBank for an investor loan of $1 million with a loan-to-value ratio under 80 per cent, and the other banks stated that deeper discounts could be made available once the borrower had submitted an application."

We might now get an official rate cut on Melbourne Cup Day too, as the Reserve can worry less about stoking a hot property market. Whether or not that's passed on is another matter.

Pick up the phone tomorrow and ask for the tremendous, probably temporary, discounts on offer. And if your bank doesn't share the love, break up with it.   Educator and commentator Nicole Pedersen-McKinnon is founder of TheMoneyMentorWay.com and developer of The 12-Step Prosperity Plan.

Read more: http://www.theage.com.au/money/borrowing/how-to-get-a-discount-on-your-home-loan-rate-20151014-gk8lsx.html#ixzz3p4zbkvKX
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Posted by Nicole Pedersen-McKinnon - The Age on 18th October, 2015 | Comments | Trackbacks | Permalink

Expected house price falls good news for first-time buyers

With the property market likely to fall in 2016, first-time home buyers finally have time on their side. First-time home buyers finally have time on their side.

For years, they've been running hard to stay still, outgunned by cashed-up investors as property prices surged.

But now the market, especially in Sydney and Melbourne, is entering a new cycle. Prices are likely to fall in 2016, while banks are generally offering better deals to owner-occupiers than investors. 

The catch for anyone who decides to wait to save a larger deposit is that rents could rise because less investor activity usually means less rental supply.

Still, the fact that some investment banks are saying the market is near to peaking, with lower prices likely, is the best news for first-timers since the heyday of first home owners' grants.

Local forecasts are not nearly as bearish as American economist Harry Dent jnr who said early last year that Sydney house prices were in a bubble and would fall by at least 27 per cent.

Investment bank Macquarie said this week that prices nationally will peak in March next year and then fall by more than 7 per cent before starting to recover from mid-2017.

And in Sydney and Melbourne, some analysts say the falls could be even higher, particularly for some inner-city apartments in Melbourne bought off the plan.

It's not a problem for people who have already bought property, with Sydney dwelling prices up almost 17 per cent and Melbourne prices up more than 14 per cent over the past year, according to CoreLogic RP Data.

Less competition

Mortgage providers are tightening their lending standards for those applying for investment loans in response to regulators' concerns about the extraordinary growth in investor lending.

It means first-timers may not find themselves as outgunned by investors at auctions.

First-timers should factor in the possibility of higher interest rates. Westpac said last week it would be lifting mortgage interest rates for owner-occupiers as well as investors, and the other big banks could follow.

However, there are plenty of lenders, particularly smaller ones, who have decreased their mortgage interest rates for owner-occupiers. It pays to shop around.

Of all the hurdles faced by first-timers, the biggest has been coming up with the deposit as prices hurtled sky-high in Sydney and Melbourne.

A report by Bankwest says first-time buyers across Australia saving a 20 per cent deposit would need $99,700 to enter the market, $5900 more than in 2014.

A fall in prices will be a hit with first-timers, says Kevin Lee, the principal of Smart Property Adviser and a Smartline broker.

Lee thinks conditions for first-timers are about to become the best they have been for years.

He says power is shifting to buyers. Not only are more properties for sale as upgraders hope to cash in on record prices, but auction clearance rates are easing.

Shane Oliver, the chief economist at AMP Capital Investors, says first-timers have time on their side.

"The heated atmosphere of the last few years has made it very hard for first-home buyers," he says.

Now they can take their time and save a larger deposit, without fear that the market will get away from them, Oliver says.

Apartment market

Robert Mellor, the managing director of property forecaster BIS Shrapnel follows property markets more closely than just about anyone else.

He says prices of entry-level, inner-city apartments in Sydney and Melbourne could peak in the second half of next year then fall by about 5 per cent.

Higher interest rates are unlikely to be a factor in the price declines. BIS Shrapnel expects only a slight lift in rates, and not until 2017.

The major reasons for the falls will be different in each city, Mellor says.

In Sydney, it is likely to be reduced investor activity as investors become pessimistic about the prospects of easy capital gains.

Mellor says the price declines for Sydney inner-city apartments could be delayed until 2017 or 2018, as there is still a shortage of units.

However, the "massive" oversupply of Melbourne inner-city apartments could see bigger price declines there than in Sydney.

Greville Pabst, co-founder of WBP Property Group, a property valuation and advisory firm, advises first-timers that buying an inner-city apartment "second-hand" is likely to be a better bet than buying off the plan, especially in Melbourne.

Many off-the-plan inner-city apartments are being bought by overseas investors.

"I am seeing in my valuation business that valuations are coming in at lower than the original contract price," Pabst says.

"Local buyers are not going to buy them at the prices that offshore buyers are paying.

"I think it is better to buy second-hand, older-style apartments in low-density blocks that are close to transport and shops."

It can be dangerous to set too much store by predictions about the exact peak or trough of the market. A home is a long-term play and plus or minus 7.5 per cent won't matter 10 years from now.

But the tide seems to be turning and this means first-home buyers can banish "fear of missing out" and take their time to find the home that is right for them.

  • Shop around for the best mortgage deal.
  • Keep your savings in cash to shield against sharemarket fluctuations.
  • Save the difference between your rent and expected mortgage repayments.
  • Consider older-style apartments rather than buying off the plan.
  • Look for first-home buyer grants that might apply.

Read more: http://www.theage.com.au/money/expected-house-price-falls-good-news-for-first-time-buyers-20151014-gk9guo.html#ixzz3p4ycvrRq
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Posted by John Collett - The Age on 18th October, 2015 | Comments | Trackbacks | Permalink

Plan on interest rates staying low for longer

Interest rates will hang around where they are for a long time yet even though the market has booked a cut for March next year.

I say this because most economists, at least those asked by finder.com.au, expect that's about when they might start rising. Split the difference and the most likely course is that rates will do nothing for at least another year.

Mind you, they've been moving of their own accord without divine – oops, I mean – Reserve Bank intervention. And that's down, except for investment loans which are a special case. Outside the big banks, lenders such as ME have given almost two rate cuts since the last official one in May on owner-occupied loans.

If you're a borrower and haven't noticed a cut of late, I'm afraid there's a good reason. You weren't given it. Lenders are trying to quarantine their generosity to new borrowers only.

So to share in the spoils you'll have to threaten to move your debt elsewhere. Hint: the cheapest loan is 3.79 per cent from Mortgage House. Other lenders are offering a $2000 cashback to re-finance and NAB will give new customers 250,000 frequent flyer points.

Fixed rates should be on the way down too due to an odd kink in bond yields which reduces lenders' longer-term funding costs, so go half each.

Weird as it sounds banks can raise three-year money at 2 per cent, but it will cost them 2.25 per cent if they only want it for three months.

A rate flip like that can spell trouble. It suggests weaker economic growth because there's less interest in borrowing.

Unfortunately, there are plenty of forecasts for this too, the latest from the IMF. Even then its forecast of 3.6 per cent global growth next year, most of it featuring our biggest trading partners, would be the best in five years according to CommSec's chief economist Craig James.

It should be said that, in those five years, its economic forecasts kept over-promising and under-delivering, but the point is officialdom is less worried about China than the markets.

For its part, the Reserve Bank doesn't seem overly concerned either. It says the US is strengthening as China softens, though I doubt it's suggesting a link.

And by governor Glenn Stevens' account, confidence here is improving. The Aussie dollar is competitive and there are signs of life for non-mining business investment, even if housing is finally slowing.

Needless to say, deposit rates have been on the skids too. A one-year term deposit is a full rate cut below where it was after the Reserve last cut.

One hope for savers is that the US Federal Reserve fortifies itself and raises rates, as it has said it wants to, sometime soon.

Because that would ricochet through global money markets, forcing banks to turn to local savers by offering a bit more on deposits.

In which case it's best to stay short, or at least have a cocktail of different term deposit maturity dates to keep ahead of the game.

Even at these depressed levels term deposits are about 0.65 percentage points higher than the Reserve's official cash rate which is highly unusual. So there's no room for progress there I'm afraid.

Posted by David Potts - Money Manager (Fairfax) on 13th October, 2015 | Comments | Trackbacks | Permalink

The illusion of higher housing wealth

Lifting your spending because your home went up in value may not sound sensible, but the statistics suggest it is exactly what many households have been doing in the past couple of years.

Recent analysis from ANZ Bank illustrates a clear pattern when comparing how much households are saving and their wealth.

As shown in the graph, the percentage of income that is saved tends to go down when there is an increase in household wealth, which is closely linked to house prices.

In economics, it's known as the "wealth effect" – the idea that people will change their behaviour because they feel richer thanks to higher asset prices.

It is an outcome the Reserve Bank hopes for when it cuts interest rates, because it tends to stimulate the economy.

However, the wealth effect is also largely an illusion for many home owners. If it's an investment property and you sell it, then that is tangible wealth you now have at your disposal.

But if the property is the home you live in, which is more common, then tapping into this wealth is likely to involve trade-offs.

If you sell the house, you'll probably find other houses in the same area have gone up by a similar amount. So to truly be better off, you'd need to downsize or move to a different area.

Another way of tapping into rising housing wealth is to take out a loan against the house, but that involves paying interest.

As many home owners with children struggling to afford their own place are also finding out, rising house prices also serve to transfer wealth between generations. As more parents try to counter this, they often end up dipping into their own savings to help their children get a leg-up into the property market.

So, in many cases, the increase in wealth is largely illusory, rather than tangible. That doesn't, however, seem to stop households from changing their behaviour when property prices rise.

Economists reckon increased spending due to the wealth effect is one reason why retailers' turnover has been growing more strongly lately, at about 4.5 per cent a year.

Sean Keane of Triple T consulting points out it is 0.7 per cent higher than average since the global financial crisis, thanks in part to the housing boom.

A key question, however, is whether the boost to spending is only temporary, and things die down when the property market cools off.

Many experts are now predicting the property markets of Sydney and Melbourne could slow down, and if they are right, this could also restrain the increase in consumption by households.

Posted by Clancy Yeates - Money Manager (Fairfax) on 13th October, 2015 | Comments | Trackbacks | Permalink

How to use redraw

Redraw has been growing in popularity for Australians since the 1990s, according to the ABS. An Australian Social Trends 2014 report prepared by the ABS has found the increased use of home equity loans, redraw and offset accounts have allowed households to build mortgage buffers, “enhancing their ability to cope with income shocks”.

Robin Lim, head of mortgages product management at National Australia Bank says “redraw is effectively how much you can draw on your loan … it is calculated based on the difference of your schedule, or how much you are required to pay over the life of your loan, and how much you may be ahead of your repayments.” 

Redraw has been growing in popularity for Australians since the 1990s, according to the ABS. An Australian Social Trends 2014 report prepared by the ABS has found the increased use of home equity loans, redraw and offset accounts have allowed households to build mortgage buffers, “enhancing their ability to cope with income shocks”.

Robin Lim, head of mortgages product management at National Australia Bank says “redraw is effectively how much you can draw on your loan … it is calculated based on the difference of your schedule, or how much you are required to pay over the life of your loan, and how much you may be ahead of your repayments.”

Domain’s senior economist Dr Andrew Wilson says: “Redraw means using the existing equity in your property as a redraw, as a financial resource. That’s a good thing for everyone. You’re on a mortgage, your repaying your property, your equity is increasing, so it’s a good thing to have that capacity to have access to that capital you are your accumulating in your home.”

Wilson explains that strong prices growth in property markets such as Sydney and to a lesser extent Melbourne has meant more Australian’s can access their equity. “It gives home owners the capacity to access those funds without taking out a second mortgage.”

Robin Lim says it is important to understand the ways you can access redraw facilities. Perhaps the ease with in which Australian’s can now tap into their capital through internet banking, ATMs or even directly at the bank branch has been why this has become a trend.

Whilst your bank might have these options available, it’s also good to know if you’re entitled to this service with your current home loan product. “[It’s] good to remember,” Lim says “some products do allow redraw and others don’t.”

“Fixed-rate home loans, you might not have the ability to make additional repayments, which means you don’t have the ability to redraw on that loan. On a variable loan, you do have the ability to pay ahead of the curve which means you can redraw on your home,” he says.

“It is important to realise that when you redraw your home loan, you are actually drawing on more debt,” says Robin Lim says.

Household debt came in at $79,000 per capita in 2013, according to the ABS Social Trends 2014 report, that’s $1.84 trillion nationally. It’s important to talk to your financial provider regarding redrawing loans from your current home loan.

Posted by Cassandra Byrnes - Domain (Fairfax) on 12th October, 2015 | Comments | Trackbacks | Permalink

How to make a winning pre-auction offer

Sneaking in an offer to beat your competition before hammer time isn’t just about having the deepest pockets – preparation and tactics are also important. If you intend to make a pre-auction offer, those in the know share some advice:

Be the early bird

David Wood, director at Hocking Stuart Albert Park, says buyers should “go hard and early” and always do their homework on comparable sales. 

He says sellers will be more reluctant to take their property off the market if an auction date is just around the corner. 

“When [they’ve] had big numbers through [their] open for inspections, vendors would be encouraged by that,” he says.

“They get close to a date where they can say ‘we can see the finish line in sight now’, we’ll let it run through to auction.”

Mr Wood says a vendor may be more likely to consider the offer if it is made during the early stages of the campaign because they will still have four weeks of inspections left and need to keep the house ready. 

That buyer may also not be in the same position to purchase in a month’s time, he adds. 

Don’t make a low-ball offer

Buyers who believe they’re always going to pay less before the auction date should think again.

Some owners who need an urgent sale might consider a pre-auction offer if it is in their range, Mr Wood says. But generally, buyers are more likely to pay market price or a touch higher. 

Gary Peer director Philip Kingston says there is no point making an offer if it isn’t aggressive, especially in a strong market.

“Go with … a price you would contemplate paying under the pressure of an auction because you’ll only get the vendor’s attention with an offer that they think is at the top end of their expectations,” he says. 

Offer a larger deposit

If the offer is made on a long settlement, sometimes a larger deposit can be appealing to a vendor, Mr Kingston says. 

A deposit (usually 10 per cent) would be put into a trust account, but after 30 days it is usually released to the vendor.

“Often, a vendor sells on a longer settlement so they’ve got time to go and buy something, and they use that deposit being released to them,” he says. 

“So sometimes a sweetener can be a larger deposit than 10 per cent, depending on the vendor’s circumstances.”

Don’t include a string of conditions to your offer

Valuer and buyers’ advocate Greville Pabst, of WBP Property Group, says purchasers should consider what conditions of sale would make their offer more appealing. 

Other than a larger deposit, he says, it could be an unconditional offer, or a shorter or longer settlement period, depending on the seller’s requirements. 

“If your purchase is for investment purposes you could also rent the property back to the current owner in need to sweeten the deal,” he says. 

Offer the vendor/agent a time ultimatum on the offer

Some buyers use this tactic to make sure their offer doesn’t get leveraged against them with other purchasers. 

Mr Wood says the timeframe needs to be fair, like 48 hours, so the agent can sit down with both parties. 

Mr Kingston believes deadlines can work against the buyer because vendors often don’t take the pressure well. 

Consider going to the auction

Even though auctions can be daunting, Mr Pabst says it is more transparent because buyers can see how much interest there is and avoid overpaying. 

Putting in a pre-auction offer also means showing your hand to the agent should the auction proceed anyway, he adds. 

Posted by Christina Zhou - Domain (Fairfax) on 12th October, 2015 | Comments | Trackbacks | Permalink

Borrowing to invest — what are your options

BORROWING to invest has fallen from favour, despite the numbers surrounding it now stacking up better than ever.

Horror stories from the global financial crisis — where retirees lost their houses after dodgy advisers told them to use aggressive home equity loan strategies to buy shares — have haunted the psyche of many Australians.

Reserve Bank data shows that margin lending — once popular among investors — is still at less than one third of the levels achieved during the sharemarket’s peak in 2007.

Indeed borrowing to invest is not for the faint-hearted and you will need to do your research or talk to a financial adviser. However, today’s low interest rates and high share dividends present a compelling argument for borrowing.

When you can borrow money at less than 5 per cent to buy a blue-chip share that is effectively paying 8 or 9 per cent a year in income, some investors see it as a no-brainer.

“I can’t see why you wouldn’t do it, as long as you are not going to be a forced seller,” says Middletons Securities adviser David Middleton.

“Borrowing improves your cash flow — it doesn’t make it worse,” he says. You can’t claim for negative gearing, but it’s better to pay tax on a profit rather than get a tax deduction for a loss.

Borrowing magnifies investment losses and investment gains, so it must be a long-term investment. For investors who borrowed before the GFC, that “long-term” is stretching towards a decade because the overall market’s value is still well below its 2007 peak. If you can stomach the volatility and look long term, here are some options:


Borrowing against your home gives you the lowest interest rate and the most secure loan. As long as you pay the interest it’s all good.

People who lost their homes in the GFC typically borrowed against their home and then borrowed again through a margin loan, coming unstuck by this double-gearing strategy when share prices halved.


You’ll pay higher interest than a mortgage and your shares are used as security, so if they fall too low you get a margin call — where you have to stump up extra cash or your shares get sold from under you.

Margin lenders generally allow borrowings up to 70 per cent of a share’s value, but Middleton says it’s best to limit your debt to no more than 30 per cent of the value so you can withstand a significant downturn without suffering a margin call.


Geared share funds take your money and typically borrow against that so you own twice the shares you could otherwise buy. This means you can win big and lose big.

“You can get very volatile valuations from these because they amplify returns,” Middleton says.

Posted by Anthony Keane - News Corp Australia Network on 9th October, 2015 | Comments | Trackbacks | Permalink

Basic Training: How to pay your mortgage off at speed

Thinking creatively helped Peter Horsfield and wife Roz pay off the mortgage on their Sydney home in just seven years. The young couple was keen to get the mortgage monkey off their backs as soon as possible.

"Being under 30 and having a $600,000 mortgage and being newly married was a fairly freaky kind of experience," says Horsfield, a financial planner.

So after a year, they rented out their furnished three-bedroom apartment to executive clients for $1200 a week. Meanwhile they moved into a one-bedroom apartment in the same block, paying about $450 a week in rent.

They also set strict savings goals, invested in study to improve their salaries and ploughed any bonuses or extra money into the mortgage until it disappeared.

Horsfield said the strategy worked so well that they did it again with a second property.

"It's a wonderful feeling – it just opens the door to other opportunities," says Horsfield.

Sharon Walker, a financial planner with NAB, says there are plenty of easy strategies you can use to pay off your mortgage quick-sticks.

First, complete a budget so you know where your money is being spent, says Walker.

Next, change any monthly payments to fortnightly, a simple move that could potentially save you tens of thousands of dollars.

"The other thing I suggest is to round up the repayment. For example, if you're paying $564 a fortnight, increase that to $570 or $600 depending on your affordability," says Walker.

"Over time, even a little bit extra every fortnight makes a huge difference." Walker suggests using a money calculator to work out how much you'll be paying in interest over the life of your loan.

"That can give you a little bit of a shock and motivate action," she says.

Posted by Larissa Ham - The Age on 6th October, 2015 | Comments | Trackbacks | Permalink

Landlord tricks for managing tenants in a tough rental property market

Landlords need to become more professional and commercially savvy to attract and retain tenants in an increasingly competitive market, rental professionals warn.

A spike in the number of disputes over end-of-lease bond repayments highlights the need for better communication of landlords’ expectations and tenants’ responsibilities, they say.

Stand-offs between owners and their tenants about bond repayments are now more common than rows over used cars, disputes about household appliances or even disagreements between merchants and consumers about clothing purchases, according to NSW Fair Trading. It’s a similar story in other states and territories.

A bond is a security deposit paid by a tenant at the start of a tenancy. It is paid back at the end of the tenancy provided no money is owed to the property manager/owner for rent, damages or other costs.

“It is a much bigger problem with private landlords who manage their own properties,” says Gerri Keays, a rental specialist and director of Ray White Real Estate.

Keays says private landlords often have an emotional attachment to their properties and their own ideas on what constitutes reasonable wear and tear and cleanliness, the two most common causes of dispute at the end of a tenancy.

Of course, Keays has a commercial interest in lauding the merits of using an agent. But it also makes sense for the commercially minded landlord because all property agents’ fees and commissions they pay are fully tax deductible. The website of the Australian Tax Office has a section on property rentals that includes a list of more than 20 deductions.

Cleanliness tricky as it’s subjective

But making deductions against income assumes the property is earning rent and not unoccupied due to a costly and protracted dispute before a tribunal or court over its condition at the end of a tenancy.

“Deciding on whether [a property] is clean is one of the most difficult issues to assess because it is subjective and often hard to quantify,” Keays says.

For example, the Victorian Civil and Administrative Tribunal recently dismissed a $1500 claim against a landlord by a tenant who claimed the rental property was infested with pigeons.

It ruled the condition of the property was “substantially” the same as at the start of the tenancy and that because the landlord had not been informed of the infestation there was no breach of duty.

Booming property markets in some Australian capitals, negative gearing and incentives offered by property developers have contributed to a huge increase in the number of investment properties being built and purchased.

Investment property sales have increased threefold in recent years and borrowing through DIY super to buy property has grown by more than 50 per cent a year over the past three years, according to government analysis.

‘Doomsday trifecta’

Many younger buyers fearful of being priced out of the market are deferring the purchase of their first home and instead investing in property in cheaper and less desirable areas in the hope that rising prices will help them bridge the deposit gap.

Rents for houses and apartments in former mining boom cities such as Perth and Darwin are tumbling and are flat in most other capitals except Sydney. There are some niche markets, such as providing student accommodation near campuses outside the major cities, where demand is strong during the academic year.

Keays says the rental market is “soft and getting softer” and recommends landlords do what is necessary to attract and retain good tenants.

Property managers typically charge about 5 to 8 per cent of gross rent.

Property owners considering using an agent need to do some homework because the sector is not covered by a nationwide set of regulations, a code of practice or restrictions on entry.

Worth checking:
  • The percentage of an agent’s properties in arrears. If it’s more than 5 per cent, ask why;
  • How often an agent’s tenants go to tribunals and why;
  • How much of rental payments are kept for maintenance;
  • How often the rent goes into the landlord’s account;
  • How easy it is to access information held by the agent. For example, are records of the tenants’ rental payments up to date; and
  • How often rents are reviewed.

Buyers’ agent Richard Wakelin, director of Wakelin Property Advisory, believes a good agent needs to be commercially savvy and strategic. That includes being up to date on market conditions and tenant expectations.

Keays adds that a good agent will provide a thorough inspection of the property before the tenants move in, and then meet them before they vacate the property at the end of the lease to inform them on what they need to do to have their bond refunded.

“The best strategy is for the tenants to get a professional cleaner and ask for a receipt they can show the landlord,” she says.

Landlords also need to review their insurance cover to make sure they are covered for all contingencies. For example, most general house and contents policies do not cover loss of rent and malicious damage, which are the top claims from landlords renting to students.

Finally, anyone considering becoming a landlord needs to be aware of the myriad rules, regulations and authorities. There are also thousands of rules and regulations issued by state governments, councils and professional bodies.

In addition to NSW Fair Trading and other state tribunals, aggrieved tenants can petition consumer affairs bodies, local councils, equal opportunity and human rights commissions and the courts. 

Case study

Tenants were ordered to pay $5000 in damages and rent arrears after leaving a house in the west Melbourne suburb of Point Cook with chipped tiles, littered with cigarette butts and reeking of pet smells.

Tenants Daniel and Alayne Burns agreed they should pay the landlord for internal and carpet steam cleaning but disputed the $850 bill, the Victorian Civil and Administrative Tribunal heard. They also disputed having to replace security lights and the chipped tiles.

A representative of the tribunal, which resolves disputes between landlords and tenants, inspected the property and agreed with the landlords, Michael Bray and Jessica Van Meersbergen, that the property needed cleaning.

The tribunal ordered compensation plus rent arrears of $2700.

The dispute is typical of the thousands that are negotiated between the parties or end up before tribunals and courts every year.

They are regularly caused by misunderstandings about the rights and responsibilities of the owner and the occupier.

More than 4000 disputes between landlords and tenants about bonds and tenancy agreements were reported to NSW Fair Trading over the past 12 months, nearly 25 per cent more than the number of complaints about household appliances, the next highest category of dispute.

Disputes about house construction and purchases and sales also featured prominently in NSW Fair Trading’s top 10 list of complaints.

Posted by Duncan Hughes - Domain (Fairfax) on 5th October, 2015 | Comments | Trackbacks | Permalink

Sneaky property investors are lying to the banks to get lower interest rates


SNEAKY property investors are getting around strict new lending rules imposed by the banks by masquerading as owner-occupiers to get lower interest rates.

Insiders have revealed a clampdown on loans to investors ordered by Australia’s banking regulator is being subverted by wealthy investors who falsely claim they plan to live in properties when they are actually buying to rent out.

The big banks are offering lower interest rates to borrowers who want to own the roof over their heads after being ordered by the Australian Prudential Regulation Authority (APRA) to reduce the proportion of loans going to investors.

This gives owner-occupiers a better chance at breaking into the highly competitive and expensive property market.

It is unknown how many investors are falsely claiming to be buying for themselves, but the practice could impact the stability of Australia’s property market by sabotaging the new rules, which aim to averting a dramatic fall property prices that could spark a GFC-style meltdown.

But the temptation to rort the system has proven too great for some, according to several high profile insiders who spoke to news.com.au on condition of anonymity.

Mortgage Choice spokeswoman Jessica Darnbrough agreed to speak on the record about the practice, which she confirmed had become a talking point in the industry.

Ms Darnbrough said accessing the loophole — which the company does not endorse — could be as easy as having mail redirected from the loan property’s address, a tactic employed in the past to access the first homebuyer grant.

“It’s not something our brokers would engage in, but I have heard that it is happening,” Ms Darnbrough said.

“There are a lot of grey areas in lending ... And with interest rates as much as 40 basis points higher for investors, I can see the reason behind it.”

The likeliest offenders are understood to be wealthy investors buying rental properties in their own state, making it easy to fudge their living circumstances.

Investors must have strong enough cashflow to convince the bank they can pay off the loan without renting the property out — even if this is what they plan to do.


Investment mortgages are considered to carry a higher risk of default, so APRA has required banks to cap the growth of lending to investors at 10 per cent by the end of this year.

The measure was announced amid concerns of a speculative property bubble in Sydney and Melbourne, where investors have piled into the market.

It aims to prevent the housing market from becoming dangerously overheated, as high investor activity can have the effect of inflating prices.

Regulators want to stop problems in the housing market affecting the rest of the financial system, as happened during the global financial crisis.

When assessing a loan application, lenders require borrowers to provide proof of residence such as a drivers licence, pay slip or utility bill.

But news.com.au has been told that there are several ways of getting around this, such as redirecting mail, or striking an agreement with tenants for mail to be collected at the property.

Ms Darnbrough said that while interest only loans were once a red flag, this was no longer the case.“These days, a lot of borrowers opt for interest only loans, especially when they have just bought their first home and are giving themselves some time to get used to making mortgage repayments.”


Oasis Property chief executive Gavin McPherson said it was inevitable that some investors would claim to be owner occupiers, as the new regime was not “an incremental or mild change” for many borrowers.

“For some investors, it is the difference between investing or not investing,” Mr McPherson said.

“With stock markets volatile and bank deposits paying so little, I see it as inevitable that some investors will look to call themselves owner occupiers to realise these investments.”

He said banks and brokers would be alert to inconsistencies, such as when properties were purchased interstate — but “they will always be reliant on the applicant making truthful statements in the application”.

Ultimately, he advised against the approach, warning that anyone who needed to lie on a loan application was “probably not ready to invest”.

“If an investor doesn’t have a full deposit in cash or equity, then maybe they should sit this cycle out,” he said.

“Their time will come, and my money is on more price downside than upside in NSW and Victoria in the near to medium term.”


Westpac chief economist Bill Evans this week spoke out against APRA’s clampdown, arguing that it could jeopardise the settlement of new off-the-plan apartment sales.

Mr Evans warned the tightened lending rules could create a “distortion” by artificially cooling the market, in comments made at a construction industry breakfast and reported by the Australian Financial Review.

Whether this is a good or bad thing largely depends on which side of the property ownership fence you are on; for would-be first home buyers, arresting the growth of house prices could be a godsend.

Pair that with lower interest rates and perks like free airfares, and you’re onto a winner.

The prospect of investors crashing this little party, by effectively stealing a spot among the banks’ new target customer base, does not sit well.

On the other side of the equation are the investors who have bought off the plan and find themselves unable to settle.


The banks have chosen different approaches to dealing with the crackdown, with NAB opting to hike interest rates on interest-only loans, which are often — but not exclusively — used by investors.

The Commonwealth Bank, ANZ, Westpac and Suncorp raised interest rates for investors, while HSBC banned loans to investors who are not existing customers.

Non-bank lenders such as credit unions do not have to comply with the regulation.

In August, NAB revised its loan books for the 2014-15 financial year by almost $30 billion, informing APRA that there were 40 per cent more investor loans than previously reported — meaning they had been incorrectly classified.

Misclassification includes the scenario of a first homebuyer who does not declare the fact that they are planning to put tenants in the property, or where they initially live in the property but move out after a period of time and rent it out.

Equally, borrowers who have moved into homes they initially bought an investment — but had not bothered to tell their lender — have been contacting banks to change their status after being hit with higher interest rates.

Reserve Bank governor Glenn Stevens has noted that APRA’s new rules appear to have slowed the growth in lending to investors; it grew by 10.7 per cent in the year to August, down from 10.8 per cent in July.

Only time will tell whether the banks manage to get this down to 10 per cent — on paper and to the best of their knowledge — or face potential fines.


When contacted by news.com.au, all four of the big banks declined to reveal whether they had knocked back any loan applications by investors posing as owner occupiers, nor would they detail their verification processes.

Westpac spokeswoman Fiona Macrae said in a statement that the bank had “appropriate checks and balances in place to ensure customers’ loan profiles are accurate”, but would not give further detail.

“We are seeing an increase in the number of customers re-categorising their loans — this increase is industry wide,” the statement said.

“Westpac is proactively seeking out customers in order for them to update their records, as you would expected after such a change in policy.”

A spokeswoman for NAB said the bank had not seen evidence of” a change in the proportion of loans that have switched loan purpose between investor and owner occupier”.

“We operate in a highly regulated market and take our lending obligations very seriously,” the spokeswoman said.

“Under national consumer protection legislation, we are required to thoroughly assess a customer’s financial situation and needs to ensure that we are providing suitable products and solutions.”

ANZ, the Commonwealth Bank and HSBC declined to comment.

Posted by Dana McCauley - News Limited Australia on 2nd October, 2015 | Comments | Trackbacks | Permalink

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