Puzzle Finance Blog


How to spot a property spruiker


Property is dominating the headlines, so anybody who can qualify for a loan appears to be trying to jump on the bandwagon. And of course, when any asset class is booming, the predators arrive.

In this case, they are called property spruikers, and judging by the emails I am receiving they are growing more active by the day.

A woman I will call Jane is just one of thousands of victims.  She is 41 years old, single, and lives in Perth.  She had worked hard to pay off her home, and was almost debt-free. Two years ago she accepted a friend's invitation to go to a property seminar. 

The seminar was supposed to be free – it cost Jane more than $200,000.

The seminars always follow the same pattern. The victims are given a long spiel about the growing pressure on government budgets caused by rising life expectancies, and are then shown vivid illustrations of the life of poverty that will be faced by those who don't take steps to provide for themselves.

Then comes the sting – the way to wealth is to negative gear into residential property.  This is followed by complex illustrations showing how quickly you can pay off the mortgage on your home by using the rent from the investment property to speed up the repayments. The cream on the cake is the huge amount of tax that is going to be saved.

That of itself is reasonably harmless – the killer blow is that the spruiker then convinces the victim that the best property for them is one that the spruiker, or its associates, will build on their behalf.

Unfortunately, Jane fell for it and found herself the owner of a property in a lower socio-economic area, near Brisbane, for a total cost of $421,000. 

The spruikers set up a series of loans but it was done in such a convoluted fashion that Jane felt all she was doing was "robbing Peter to pay Paul". After a few months she also noticed her debts were rising, not falling as promised.

By this stage the alarm bells were sounding. And it didn't take much research for Jane to realise she'd been sold a dud.

Eventually the property sold for $299,000.  In just two years, Jane has gone from owning a debt-free home to being saddled with a debt of more than  $200,000.

There is now a growing pile of files in my office showing that Jane's situation is becoming increasingly common.

This area is totally unregulated – this is why you will be on your own if you get taken in. Fortunately the scam is easy to spot once you know what to look for.

First. The approach will always come from the spruiker. This will either be by a "free" seminar showing you how to become a millionaire, or else by a phone call to urge you to come to an interview where you'll be shown how to save tax while paying off your home faster. This is to get you in so they can put you under their spell.

Second.  Even though any seasoned property investor knows the way to wealth is to search out bargains for yourself, the spruiker will take control and try to convince you that they are the only people who can find the right property for you. This is so they can sell you an overpriced property.

Third. There will nearly always be a building contract involved and the rationale is that you'll save stamp duty, get a new home, and therefore bigger tax breaks. The real reason is it gives the spruiker a better chance to load the price.

Four. In most cases, they will be a one-stop shop – once again, to stay in control. You will find they control the lawyer, the mortgage broker, the builder and the managing agent.

Five. The properties will usually be in outlying suburbs and in lower socio-economic areas.  Often, the properties offered will be in a different state to the one you live in.

Six. There will invariably be a mortgage required over your own home. The last thing the spruiker wants is for you to get a valuation on the overpriced property they are trying to force on you.

It's a sad state of affairs, and I urge you to take careful note of what I have written and circulate it is widely as possible. Also, if you have any anecdotes I would love to hear them – just email me (or Money editor Caitlin Fitzsimmons). Right now the only protection we have is to take care of one another.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:  noel@noelwhittaker.com.au

Posted by Noel Whittaker - The Age on 10th March, 2017 | Comments | Trackbacks | Permalink
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Aussies in the dark as big changes loom for credit card, loan and mortgage applications


NEW rules affecting every Australian applying for credit cards, loans or mortgages will soon kick in, but most people don’t even know about them.

That’s the warning from credit rating bureau Experian, which says two thirds of Australians are unaware of looming changes to national credit reporting requirements that will enable lenders to see a lot more information about a customer’s financial history.

At the moment, lenders only share negative data, like defaults and bankruptcies. But under amended privacy laws as part of new comprehensive credit reporting introduced in 2014, positive data such as repayment history will be shared with credit reporting bureaus and lenders.

While the data isn’t yet being shared among lenders, it is being shared with the main credit bureaus, Experian, Veda and Dun & Bradstreet, meaning it will impact applications for credit cards, loans and mortgages.

So what should you do right now? In short, make your repayments on time.

“Credit providers in Australia will soon be looking back at up to 24 months of your credit repayment history, which is why consumers need to start positively impacting their future credit score now by making sure they diligently make repayments on time,” said Experian managing director Suzanne Steele.

“Being aware of what your credit score is and the parts of your finances that impact the score is critical. It enables you to know where you stand and address any issues before applying for a new credit card, loan or mortgage.

“Beyond that, my top tips include paying bills on time, doing due diligence before applying for credit and avoid multiple credit inquires in a short period of time.”

Ms Steele said it might come as a surprise to some people that lenders currently have limited visibility of a borrower’s financial situation.

“All that they can see are the number of applications they’ve made for credit, the type of credit, the amount applied for and if they default on their payment obligations or become bankrupt or have a court judgment against them,” she said.

She described the new regimen as an “overwhelmingly positive change for Australian borrowers”. “For example, positive data may help potential first home buyers who don’t have a long credit history, to be approved for finance, where previously they may have been declined,” she said.

“Positive data sharing will also enable Australians with a strong credit history to access more competitive deals and interest rates ... and assist others avoid entering into unmanageable levels of debt and getting into financial difficulty.”

But Ms Steele said a survey of 1000 Australians conducted by Experian in March found 66 per cent of people were unaware of the coming changes. The survey found 71 per cent of people had never checked their credit score, saying their either didn’t know how, didn’t know what a credit score was or didn’t care.

She said out of the 19 countries where Experian operates, only Australia and Brazil had adopted positive data sharing.

“Positive data gives credit providers a 360-degree view of their customer’s financial situation, creating an environment for better decision making about the right level of debt the borrower can manage,” she said.

“This can reduce the number of people who default on a loan, increase competition among providers and drive down costs for all credit customers.”

Posted by Frank Chung - News Australia on 10th March, 2017 | Comments | Trackbacks | Permalink
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When does it make sense to buy an apartment?


There’s been plenty of talk recently about the dangers of buying an apartment – particularly those in large high-rise developments in the Melbourne, Sydney and Brisbane CBDs.

Recently, a majority of 26 housing experts and economists surveyed by comparison website Finder stated there was an oversupply of apartments in Melbourne and Brisbane, with experts predicting it would lead to a fall in property prices.  

But are there some situations or locations – perhaps outside the CBD – where it still makes financial sense to buy an apartment?

“Don’t hesitate to buy an apartment, but be selective when you’re doing it,” says buyers’ agent Janet Spencer. Photo: Simon Schluter

“Don’t hesitate to buy an apartment, but be selective when you’re doing it,” offers up Janet Spencer, director of buyers’ agency Buyer Solutions.

To begin with, she suggests aiming for as small a block as you can – ideally less than 12 apartments.

“When you’re buying an apartment you’re going to have an owners corporation, which is like a mini democracy,” says Ms Spencer. “When it comes to big decisions if you’re one of 100 it’s very hard to have influence. But if you’re one of four you’ve got a 25 per cent voice.”

Before buying she suggests checking the owners corporations fees, which can vary widely up to about the $10,000 mark in some situations.

Ms Spencer says the size and features of the apartment will depend on the suburb you’re buying in. If you aim to rent it out, find out what renters in that area want – one bedroom, two bedrooms, air-conditioning … an onsite pool? As a rule however, she suggests a one-bedroom apartment should be a minimum of 50 square metres.

A point of difference, for example a view into a lovely tree-lined street, is also a winner. “Some apartments are pretty soulless.”

Ms Spencer doesn’t rule out buying apartments in the CBD entirely. For instance in Melbourne, she says an apartment in Spring Street might do well, as might a character-filled apartment in an older-style block.

Meanwhile, Property Investment Professionals of Australia chairman Ben Kingsley says only a limited number of locations will potentially be impacted by an oversupply of new stock. He pinpoints CBD areas of Melbourne, Brisbane and Perth, which he says may suffer over the next 12 to 18 months.

“The continued strong demand for property means that Sydney’s new unit market is not affected to the same degree, however, prices they are at the peak of the cycle and we do have some concerns about oversupply in some secondary employment hubs,” he says.

“Investors should be wary of purchasing new off-the-plan units in or near the CBDs of Melbourne and Brisbane this year given the potential for oversupply as well as lenders making it more difficult to access finance for this type of product.”

However he says any type of housing oversupply is a temporary situation, and over time will be absorbed by buyers when developers move on to new locations.

Mr Kingsley says established units remain a sound investment strategy because they’re still affordable compared to houses in Australia’s cities – and that usually means a better rental yield.

But if you’re after a quick buck, you might want to adjust your expectations.

“The key to successful property investment of both houses and units is holding for the long term, which enables homeowners and investors to ride out any short-term market issues,” says Mr Kingsley.

Tick! Other desirable factors to look out for
  • A large floor plan.
  • Any unique features – an art deco apartment for instance – that may attract renters or other buyers.
  • Proximity to public transport, cafes, shops and parks.
  • Well-maintained communal facilities.

Posted by Larissa Ham - Domain (Fairfax) on 7th March, 2017 | Comments | Trackbacks | Permalink
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How to protect yourself from rising interest rates


With lenders increasingly out of sync with the RBA, it’s no wonder people are feeling jittery about interest rates.

Since their failure to pass on the central bank’s 25 basis point cut to the official cash rate in August last year, many have been upping rates, with the result that the gap between the rate set by the RBA and interest rates offered by lenders is growing. The easiest way to protect yourself against the increasing costs is to factor in a rise when you first take out your loan.

A Mozo analysis found the disparity between the two increased over 2016, and by year’s end major bank margins on $300,000 had grown 10 basis points higher than the RBA’s cash rate cuts.

So while we all wait with baited breath every month for the RBA’s cash rate announcement at its monthly board meeting, it’s becoming a pointless exercise. We should be putting our own banks under the microscope instead. 

The cash rate has been on hold since September and should stay steady, but interest rates imposed by lenders are expected to keep rising this year.

The record-low interest rates we’ve been experiencing in recent years have made money cheap, and that’s given many a helping hand in exiting the rental market and jumping into home ownership, especially with prices continuing to shoot up.

But the danger is that some have been borrowing money without factoring in a rate rise. While interest rates might not reach the double-digits seen by previous generations, they can’t stay low forever, and indeed they’re already heading north.

The easiest way to protect yourself against the increasing costs is to factor in a rise when you first take out your loan so you know your budget can be stretched to cover higher repayments.

Your lender will do this for you in assessing your application but you should be conscious of it too. Otherwise you can run into trouble down the track, with even the smallest rise putting pressure on your hip pocket.

Another option is to fix your loan, or at least part of it, so you have the security of knowing exactly what your payments will be every month – and that you can meet them.

Fixing requires some faith, as no matter how hard you look, your crystal ball won’t be able to tell you whether rates will rise or fall in the future.

Whether you go for fixed or variable, shop around for a good deal. There’s still competition among lenders so if your current bank won’t budge vote with your wallet and go elsewhere. The hassle could be worth the savings.

If you wake up tomorrow to find your lender has upped your rate, and you’re in a financial jam, consider selling some items around your home to give you some cash in a hurry or see if you can pick up a few extra hours at work.

But in the long-term you should always aim to have a cash buffer in case of unforeseen events. Get ahead by paying more off your loan than you need to while rates are low. After all, you never know what’s around the corner.

Posted by Vanessa De Groot - Domain (Fairfax) on 5th March, 2017 | Comments | Trackbacks | Permalink
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