Puzzle Finance Blog

Sell first or buy first: what’s best?

There is a lot to consider when moving house, particularly when it comes to juggling the selling of your existing home and buying a new one.

Selling your old home and buying a new one is no mean feat. Both processes require a major commitment of your time, emotions and money! Most people choose to sell their old home first and then with the available equity purchase a new home. But there are times where buying first may better suit your circumstances.

We look at the pros and cons of each and talk to a buyer who recently juggled the selling and buying conundrum.

Selling your home first and buying later

Commonly, people sell their existing home first. This helps to free up their equity and establishes a realistic budget when it comes to finding a new house. Ideally you will time the selling of your old home and purchase of your new house as closely together as possible. This will help avoid the expense and trouble of having to organise interim accommodation and moving house twice.

There are a number of road blocks to this ‘ideal’ scenario:
  • You will need to manage both the selling and buying real estate processes at once.
  • It may take much longer than you anticipated to find and settle on your new dream home.
  • Real estate values may rise after selling, pricing you out of your desired market.
If there is an interim period between your real estate sale and purchase there are a number of options you can look at:
  • negotiate a longer settlement period on the sale of your home
  • organise to lease back your sold home from the new owner to give you more time to find a property
  • move into a rental property
  • stay with family or move into a hotel and place your goods in storage.

These options will generally save you money in comparison to buying before selling and incurring the costs of two homes and two mortgages.

It is important to take into account your accommodation arrangements when finalising the settlement dates on your home’s sale and new purchase. Laura*, who recently bought a three-bedroom house in Sydney’s inner-west suburb of Annandale for $1.217 million, had been renting in the interim. To be safe, Laura organised a few extra days in the rental property past the settlement date in case something went wrong.

“The actual [settlement] process was quite time consuming and there were a lot of administrative errors,” explains Laura. “You just have to expect that there’s going to be issues, our settlement was delayed twice through no fault of our own.”

Not only did Laura require the additional days she had factored in, it was also necessary to negotiate more time in the rental property with the leasing agent to cover the settlement delays.

“I was lucky that they hadn’t found a tenant yet. If they had, obviously it would have been a bit more problematic,” says Laura.

Buying your new home first and selling later

Buying before you sell can be financially tricky but you cannot control when your dream home may come on the market. For some, the convenience of a single relocation is worth the potential costs.

Without the equity from the sale of your existing home you are likely to require bridging finance to cover the purchase of your new home. Bridging finance can cost more than a standard home loan. Additionally, buying first can mean extra pressure to sell your existing property, leaving you with less control over the sale process.

There are some steps you can take to reduce the burden of juggling two properties:
  • Make the sale of your existing home a contingency on the purchase of your new home; but be warned, this may put sellers off.
  • Negotiate a longer settlement on the purchase of your new property, giving you more time to sell.
  • Rent out your old home until it is sold – but tenancy can make the sale process more complicated.
  • Rent out your new home while working on the sale of your existing home, but this requires timing the end of the tenancy with the sale of your existing home.
If you are in a situation where you are maintaining more than one property and require two mortgages it is important to shop around.

For example, Laura managed to obtain significant savings on her mortgage arrangements when purchasing her Annandale property by using the same lender who financed an investment property she bought several years earlier in Coogee.

After undertaking her own online research Laura tried two mortgage brokers before settling on her new loan arrangements. The first mortgage broker was recommended to Laura but she returned to the broker who had negotiated her first loan.

“I thought they structured the loans a lot better and it actually ended up being with the same bank which has my Coogee loan,” says Laura. “Because I have the two properties there was a lot more flexibility.

“I got a discount off the rate. For the three year [fixed] I received 4.99% and for the variable 4.79%. The investment property was fixed a year or so ago so that’s 5.39% at the moment.”

Laura also has the convenience of an offset account attached to the variable portion of her Annandale property’s mortgage.

Posted by Jacqui Thompson -Domain Blog on 2nd July, 2015 | Comments | Trackbacks | Permalink

The rise of the first-home buyer landlord

After being out-bid by property investors, many first-home buyers are adopting an "if you can't beat them, join them" strategy.

Buying a first home as a landlord is growing in popularity, banks say, and that's supported by survey data from consultancy Digital Finance Analytics, used in this week's graph.  

Buying as an investor, rather than someone planning to live in the home, can certainly make property ownership more achievable.

It means you collect rent to help cover the mortgage, while also being able to claim a tax deduction on your interest costs, something owner-occupiers can't do.

But despite these advantages - which mortgage brokers and others with a vested interest can be quick to highlight - it's important to also be aware of the risks.

Banks argue that lending money to property investors is no riskier than lending to owner-occupiers, and their experience in recent decades supports this. However, financial regulators aren't so sure.

Across the Tasman, the Reserve Bank of New Zealand is grappling with an even bigger property bonanza than Australia's, and it is looking closely at how different types of borrowers fare in a severe housing bust.

A recent Reserve Bank RBNZ  paper said evidence from Australia was limited because we had not suffered a severe downturn in such a long time - so it looked at Ireland, where a monster housing bubble burst during the global financial crisis.

It concluded that investor borrowers were no more likely to default when the economy was travelling well, but they were much more vulnerable in a property crash. Irish investors were about twice as likely to fall behind on their home loans than owner-occupiers during the GFC.

One reason investors are at greater risk is because they are not only betting on keeping their own job, they are also punting on the rental market, by assuming they will be able to rent the home at a certain price, and factoring this into their calculations. In central bank speak, investor borrowers face "additional income volatility".

That's not a problem when rental markets are tight, but it can be if the market cools down, as it is likely to.

The other risk is that investor buying is more likely to be speculative - driven by bets on future capital gains.

While it is their job to worry about these things, central bankers caution that speculative price rises are more likely to end in sharper falls, and this was the experience overseas.

The message for first-home buyers thinking about becoming investors is to be aware of these risks, as well as the benefits, of buying as a landlord. That means you should think about how you'd fare if the rental market slowed down; be prepared for interest rates rising; and don't assume prices can only go up.

Posted by Clancey Yeates - The Age on 1st July, 2015 | Comments | Trackbacks | Permalink

Seven ways to thrive in the new financial year

I'm not a big fan of New Year resolutions. That's because they're often made while under the influence of more than a few champagnes and generally evaporate with the onset of the next day's hangover.

I am, however, a fan of New Financial Year resolutions. Perhaps it's because we're not only sober by July, we're often a lot more serious. We know we're halfway into the year and we figure if we don't do something now then we're going to arrive at the end of the year either in the same position or, God forbid, a worse position than the one we started. 

That's why I think New Financial Year resolutions are the #getsh!tdone of resolutions because, usually, we mean business. We've put on our business socks and we've decided it's time to stop talking about getting busy and actually do something about it.  

The question is, what should you be making New Year financial resolutions about? 

Below are seven common money problems. I recommend you pick the one that most applies to you and create a plan around what you're going to achieve this year - to think, talk, plan and then of course, do.

1. If you're in a relationship

If you haven't had "the money talk" with your partner yet then decide this is the week you're going to do it. It doesn't matter if you're six months or six years in, if money is something you're not great at talking about then make this the year you're going to move on to the same page.

Start with what you both have, what you both owe and what you both want to achieve. If something is a surprise, talk through how you're going to deal with it together. Once you've chosen your money goals, decide how you're going to make those things happen. Together.

2. If you were hopeless with your taxes last year 

Start the financial year on the right foot by deciding to be super organised with this year's taxes. Before July is over, find a great accountant and organise your taxes early so you're already ahead of the game.

Then while you're there, ask your accountant for tips on how to handle your affairs better this year. It might include paying for all your expenses on the one credit card so it's easy to locate your deductions or simply being more aware of what you can claim.

3. If you have no idea where your money is going 

Set up a free cloud solution like those on the Money Smart website or, for a small monthly fee, look at Xero and start allocating your expenses so you know where your money is going.

Until you know what you have to work with and where you are overspending you can't do anything about it so decide to spend your first couple of months on this. Then set some goals, add a budget and decide to become a conscious consumer.

4. If you haven't set goals

Then set some today! Without knowing what you want to achieve with your money it's difficult to stick to any sort of budget or saving plan. Work out what your 12-month and three-year goals are, work out how much you need to make them happen, calculate it back to a weekly amount and then set up an automatic savings plan. Stick pictures of your goals up where you can see them or as the screen saver on your phone so you don't go off track.

5. If you want to retire

Then it's time to get serious. Make sure you talk to an expert in July who can help you define when you want to retire, how much you need to retire on, what you have and what the gap is. By having this conversation you can then set up a plan early in the year to do all or some of the following: work towards the gap, drop your spending, adjust your retirement timeframe and create a superannuation plan. 

6. If you're worried about asset protection

There are so many options available to you when it comes to asset protection. If you're not sure where to start and you've suspected that your assets might be at risk then decide to speak to an expert in July about how best to protect what you have. This can be a complicated process and there may be capital gains tax and stamp duty involved if you're moving assets but it's important to understand what's involved so you can make an informed decision.

7. If you have credit card debt

Whether you have one card or multiple cards, if you have long-standing debt then decide to do something about it. Perhaps it's looking at transferring the balance to a zero rate credit card or maybe it's consolidating your debt into a loan and then cutting up the cards. With credit-card interest rates potentially as high as 20 per cent-plus this is one type of debt that you should be doing something about.

A new financial year is a good opportunity to start to become financially organised. Choose today to make this financial year a great one. So pull out your business socks, embrace the #getsh!tdone hashtag and choose what you're going to work on this financial year. 

Melissa Browne is an accountant, adviser, author and shoe addict.

Posted by Melissa Browne - Money Manager (Fairfax) on 1st July, 2015 | Comments | Trackbacks | Permalink

How to change your life in a month

Procrastination: if it came with a salary I'd be a millionaire. Like anyone else, I can have a long list of things I should do with my money that I never seem to get around to.

So I set myself a challenge: make one small change to my money every day for a month. Here are the things I tried. 

Day 1 Work out annual income and expenditure 

Income from various sources, mortgage repayments, strata levies, council rates, mobile bills. Some areas it's easy to see where the money comes from and where it goes. But when it comes to spending on clothes, food and going out it's guesswork. Advertisement 
Day 2 Track spending for a week

This mirror to my money shows just how much I'm spending on coffee, picking up pre-prepared Woolies dinners, and catch-ups with friends that involve eating out.

Day 3 Set a spending plan 

It's clear: my spending needs better boundaries. I set a weekly allowance for spending on food, coffee, going out, and regular expenses such as mobile, internet, petrol and public transport. Now to test drive it for the rest of the month. Can I stick to it?

Day 4 Revert to a cash economy

I've fallen into the habit of withdrawing money whenever my purse was empty or just paying by a card. Now each Friday I pull out my cash allowance for the week. When it's gone, it's gone.

Day 5 Rein in spontaneous spending

Having a finite amount of cash in my purse each week really reduces unplanned spending. When I'm tempted to "just have a little look" in a few favourite shops I channel my inner financial coach and tell myself to stay away unless I've got money to spend.

Day 6 Declutter financial paperwork

Piles of paperwork kept for tax purposes clog my office. Time for a cull: anything more than five financial years old gets turfed.

Next, I download the Expensify app so I can scan my receipts in future.

Day 7 Set a mini financial challenge

It's easy to spend a lot on going out. I decide to see how much enjoyment I can squeeze out of $50 in one weekend. Plenty apparently. Friday night dinner and drinks with friends at a local cheapie ($20); Saturday brunch with a friend - I go for a cappuccino and a jaffle instead of a big breakfast ($12); Saturday evening is dinner at home with a friend; Sunday morning my local cinema offers bargain tickets for a documentary I'd been wanting to see ($6) plus coffee ($4). Afterwards we head to a packed Star City to watch a boxing match (free; parking $8).

Day 8 Cut one redundant monthly expense

A few years ago spending $23 a month on a Quickflix DVD subscription seemed like a good idea. Not any more.

Day 9 Save for a short-term goal

A ticket to a dance performance is in my sights. Under my new spending regime it would suck up 1½ weeks' worth of my weekly going out allowance. I put money aside for three weeks to spread the cost.

Day 10 Simplify one financial arrangement

My technology arrangements have become shambolic: two old phones, two different phone plans plus mobile broadband. Ditching my phones, one phone plan and the mobile broadband saves me $100 per month.

Day 11 Seek advice

As someone who has been self-employed for about 14 years, my retirement savings could be in better shape. My super fund offers a free one-hour consultation with a financial planner. It's a handy sounding board and helps me set a longer-term savings strategy. First step: change my investment choice.

Day 12 Make one change to the way you talk or think about money

I spot a book The One-Minute Millionaire lying on a footpath, pick it up and start reading. Straight away, it makes me aware of how often "I can't afford it" creeps into my conversations about money. I make a pact to keep my lips zipped on that front in future.

Day 13 Move towards a medium-term financial goal

Buying a piece of art has been on the wish list for a while.

I apply for a no-interest loan for buying art. Now for some gallery-hopping.

Day 14 Plug a leak

I'm a frequent visitor at my local library but the books, DVDs and magazines I borrow don't always go back when they should. Still, I'm horrified to discover I've paid 26 overdue fines totalling $186.10 this financial year. That would have covered my quarterly water bill. Library staff print out a copy of my shame file and I stick it on my fridge as a reminder to renew or return items on time.

Day 15 Sell some stuff

There's a drinking fountain my cat has never used and a few books on my overflowing shelves that I'm happy to live without. I pop them all on Gumtree. No takers so far.

Day 16 Make an asset work harder

I check out the Car Next Door website to see if I can make some extra dollars renting out my car. I'm happy to use a car occasionally and cycle, walk or take public transport the rest of the time. The idea goes on the back-burner for now when I find I don't meet all the scheme's criteria.

Day 17 Check your credit file

My application for the no-interest art loan scheme prompts an alert that there's been some activity on my credit file. To make sure all is well I get a free copy of my file.

Day 18 Spend nothing for 24 hours

What's it like to spend nothing for a day? I decide to find out. From 6am to 6am the following day I will not spend a cent. How hard can it be? Actually, it's an avenue to delight. I get a fresh perspective on my neighbourhood because I don't head straight to my favourite cafe on my morning walk. I get caught out, though, when an art exhibition opening charges $2 for a cider. Serendipitously, I find $2 on the way home.

Day 19 Find a way to buy or do something that seems beyond your means

A holiday would be lovely but it's not part of my spending plan at the moment. So I'm thrilled when I receive two offers of low-cost getaways. A friend invites me to her cousin's farm on the South Coast and another asks me to house-sit in the Southern Highlands while she's overseas. They are the perfect little pick-me-ups.

Day 20 Make a donation or give something away

A local cafe has a book swap so I pop some of my literary overflow on their shelves. I sign up to do a walk led by some people entering an Oxfam Trailwalker challenge. The price of walking the 12 kilometres on a sunny Saturday morning is a small donation. It's a double-shot of feel-good factor.

Day 21 Cut a quarterly or annual expense

With plenty of choice in the utilities market, I wonder if I can reduce my electricity bill. I key the details from my latest bill into the iSelect website and discover I can save about $100 a year if I switch providers. Surprisingly, my usage is below average for a similar household in my area.

Day 22 Have a tiny treat

A couple of weeks into my new spending regime I get the itch to spend beyond my boundaries. So I set aside some of my allowance for a tiny treat. One week it's a beautiful rose-scented facial moisturiser; another some scented candles. It makes me feel pampered and helps me stick to my spending plan.

Day 23 Prepare for the unexpected

I turn my intention to be better prepared for the unexpected into action and organise income protection and life insurance cover via my super fund.

Day 24 Increase your savings

Interest rates will inevitably rise again. I turn back the clock on my mortgage repayments and set a goal of paying what it was four years ago when rates were higher.

Day 25 Find an income boost

It's been a few years since I raised the prices charged by my small business. From today I'll be asking clients to pay a little more.

Day 26 Shop around for one item

An upgrade of my phone is overdue. I research potential contenders for about three weeks then pounce.

Day 27 Learn a new skill

A refresher course on how to build a website for nothing would be handy. I find a free afternoon workshop and sign up.

Day 28 Make, repair, recycle or repurpose something

My kitchen curtains need a revamp. By switching around some other curtains I avoid forking out for a new pair. While I'm at it I make a cushion, a project that's been on the drawing board for a while.

Day 29 Unhook from the credit card

Unexpected expenses - including the death of my hot water system - have left emergency funds depleted and my low-limit credit card overloaded.

When my credit card expires I use it as an opportunity to shift some of my direct credit arrangements to my debit card. It's another step towards operating from a cash economy.

Day 30 Put time or money into maintenance

In this case I choose my health. My gym membership expired in March and as a result I was feeling less fit. Poor health could cost me in the long run so I re-join the gym and resume my regular round of classes.

The Verdict:

Some of the things I tried worked. Some didn't. But taking a month to make a series of changes really helped me focus on how I wanted to be using my money. Things change and the way we spend can stay the same.

It made me conscious of bad habits that had been creeping in (those library fines were a shocker!) and helped me look beyond day-to-day bills to my medium- and long-term financial plans.

It's worth cooking at home more if it means having some original art on my walls or paying off my mortgage sooner.

I'll definitely continue with my weekly spending plan. Rather than making me feel deprived it makes me more resourceful and less impulsive in the way I spend.

I'd love to repeat this challenge in six months' time and see what a difference it has made. 

Posted by Money Manager - Fairfax Digital on 1st July, 2015 | Comments | Trackbacks | Permalink

Find strategies to cut loan risks

As the banking regulator APRA's recent attempts to slow the growth of investment property borrowing show, historically low interest rates and the easy availability of credit have increased the risks for both borrowers and lenders.

APRA wants to ensure that collectively and individually our financial institutions don't experience financial stress which could lead to a crisis and insolvencies similar to those in the GFC.

No equivalent institution exists to caution individual borrowers about the risks they are taking by borrowing especially large amounts for home ownership or investment purposes. Indeed if anything, the central bank and government are encouraging people to borrow by their low interest rate policy and ruling out changes to the negative gearing tax subsidisation of investment losses.       

This is why borrowers need to be aware of the risks they are taking on and develop strategies to reduce their possible impact. The first and most important point to understand is that just because an institution is prepared to lend money doesn't mean that they've evaluated the merits of the item being purchased.

Lenders are naturally more interested in the borrower's creditworthiness and ability to service the loan. In this process, they rarely delve into or consider the risks of future unemployment and relationship breakdown, nor do they consider the risks of a large unexpected rise in interest rates.

Unlike in the United States, where fixed interest rate loans for up to 30 years are the norm, the Australian system places the risk of interest rate increases fully and squarely on the borrower. This means that while borrowers can be certain that interest rates will remain low while the world economy struggles, the situation could change quickly in the future.

Consequently, many existing borrowers have been taking the opportunity to reduce their outstanding mortgages using the additional cashflow provided by falling variable interest rate loans. The clear message for new borrowers is that a faster repayment than required by the lender will also reduce their future risks.

In the case of investment borrowings, tax arrangements encourage a different approach, particularly when the borrower is subject to a high marginal tax rate. In this situation, paying off an investment loan will increase tax liabilities, negating part of the benefit.

Many investors therefore opt for interest-only loans and use all their savings to reduce any personal debts such as any mortgage remaining on the family home. Indeed, the smartest investment strategy to reduce borrowing risks is to own the family home outright and borrow on a tax-deductible basis for investments.

Among other benefits, this strategy ensures the tax deduction for interest payments on investment loans provides an excellent buffer protecting against the costs of future interest rate rises.


Daryl Dixon is the executive chairman of Dixon Advisory

Posted by Daryl Dixon - The Age on 30th June, 2015 | Comments | Trackbacks | Permalink

The secret to securing funding

There's one way to buy a business that's almost guaranteed to get the banks across the line.

Banks usually want property as security before they'll lend money for the purchase of a small business, but many aspiring small business owners don't want to put their house on the line.

It seems like an intractable problem but Campbell Flower of Odyssey Financial Management says one solution is to buy a business that has a property attached.

Banks will often accept this as security instead of the family home.

"Most people going into a new business or venture don't like to use their personal house as security," he says.       

"If they've got no experience, they'll need to put their house up. However, if they're a business with a property attached . . . that means their house is freed up, so they don't have to worry about it."

Businesses with property attached often include motels and caravan parks, and small industrial businesses such as panel beaters or mechanics.

"I've sold quite a few coastal caravan parks and the like. It doesn't matter which type of business it is, if there's a property attached, the risk then becomes less because the bank can always draw down on the sale of the property to recover their funds if the business goes bad," Flower says.

He says a tax-effective way to do this type of loan is for the SME's self-managed super fund to buy the property with money borrowed from the bank.

The business earnings would then be used to pay rent to the super fund, which, in turn, would repay the bank.

It's also a clever way of putting more money into the owner's super fund.

Whether the borrower can put property up as security is just one of the factors that banks consider when they decide whether to lend money to buy a business.

David Bannatyne, general manager, small business at National Australia Bank, the country's biggest business lender, says when deciding whether to lend to a potential small business owner, the bank consider "the three Cs": their character, their capacity to repay the loan and their collateral.

"We do secure our larger loans against collateral, and, generally, that's property," Bannatyne says, referring to loans over $20,000.

Experience and expertise in the business sector that the borrower plans to enter is also important.

One of his clients has 20 years' experience in the printing business. Based on that experience, NAB has lent the client more than $500,000.

"I'm lending to him because he knows the business and he has secured good contracts, but if someone just walked in off the street and said they wanted to borrow $600,000 to get into printing, we would be very reluctant to do that," Bannantyne says.

"If a person understands the business and has been very successful at it, then we'll fund them," he says.

When banks assess the capacity to repay, they look at whether the numbers add up in terms of the business cash flow.

"That's important, because I've had customers say to me in the past that the best thing we did was explaining to them that it wouldn't work," Bannantyne says. "When people are passionate about the business, sometimes the passions obscures their objectivity."

Neil Slonim, whose business the BankDoctor advises small businesses on how to secure finance, says while banks tightened credit in the wake of the global financial crisis, they are keen to lend again but are more cautious.

"If small business owners can't get money, it's because they can't demonstrate a plausible case to the bank for that money and it's not the bank's fault if they say they're not going to give the money because the proposal doesn't stack up," Slonim says.

Using a business property as security for a loan means the borrower does not have to put their house on the line, but there are drawbacks.

Buying a business with a property attached increases the overall size of the loan, and, of course, that loan still needs to be serviced, Slonim says.

Borrowing against a house can mean a smaller loan that it is easier to repay.

"Most small businesses have a limited capacity to borrow and if you use that limited borrowing capacity to pay for property, then you've got less to use to pay for the business," he says.

"The problem that a lot of people face when they buy a business is that they over-gear in the acquisition of the business and leave themselves short when funding the working capital of the business."

Posted by Christopher Niesche - The Age on 29th June, 2015 | Comments | Trackbacks | Permalink

Australians can get themselves out of spiralling credit card debt: all it takes is discipline

 AUSTRALIAN credit-card users have confessed they can’t get themselves off the “credit card roundabout.”

Sky-high interest rates on cards — many above 20 per cent — make it hard for almost half of the population to pay back, with many conceding they can’t wipe their growing card debts.

Some also admit they are struggling to set a household budget, results from financial institution ME’s Savings Intentions and Behaviours Survey found.

Reserve Bank of Australia figures show in April the nation owed a whopping $51.07 billion on plastic compared to $49.9 billion at the same time last year.

About $34.4 billion is accruing interest. 

ME’s head of deposits and transactional bank, Nic Emery, said a lack of money discipline was holding Australians back from getting financial back on track.

“It’s stopping them from paying back bills on time and paying back other debts that they have,’’ he said.

“The hardest thing is to start budgeting and looking what it is you spend and setting a budget.”

The findings showed about 57 per cent of households do set a budget, but almost half of them (40 per cent) fail to stick to it.

Soaring credit card interest rates will come under intense scrutiny following the announcement last week that there would be a Senate Economics References Committee inquiry to examine how and when interest is applied to credit cards, and also how min­imum payment levels are set.

Navacue financial adviser Ian Fox said credit cards remained far “too easy to get” and urged users to set new goals at the beginning of the new financial year which starts on Wednesday.

“The cards have too bigger credit limits and we are spending more than what we are making, we know that when we have to use a credit card,’’ he said.

“The other danger with credit cards is because of the bonuses like reward points, that’s well and good to get them, but what about in the month that you can’t pay your credit card off in full.”

The results also found 20 per cent of Australians consistently failed to pay their household bills on time.

Posted by Sophie Elsworth - Sunday Herald Sun on 28th June, 2015 | Comments | Trackbacks | Permalink

Melbourne off-market home sales surge as buyers pay a premium to avoid missing out

 OFF-MARKET property sales are booming throughout Melbourne as the hot real estate market drives buyers and sellers to seek new ways of securing their dream deal.

Properties ranging from Toorak mansions worth more than $20 million to $300,000 units in outer suburbs are changing hands behind closed doors and without advertising – often for premium prices.

Other homes are being sold within days of being listed as frustrated buyers make offers too good to refuse to avoid missing out again.

Estate agents said buyers who repeatedly missed out on properties at auction or in private sales were approaching them to find other similar properties before they were advertised .

Ray White Manningham director Frank Perri said off-market dealing was more prevalent than ever. 

“Buyers are not mucking around now,” Mr Perri said.

“They are upfront about what they can spend and they will declare their maximum price.”

Off-market sales were being finalised quickly and in all price brackets, he said.

Mr Perri’s agency sold a home in Yarra Valley Blvd, Bulleen, to a buyer who missed out on a nearby property.

The home with a market value between $1.25 million and $1.3 million sold off-market for $1.35 million.

Biggin & Scott Glen Waverley director Ming Xu said the agency was using its database to match vendors and buyers for off-market deals and doing so in quick time.

“We are finding more vendors are selling without officially putting their homes on the market.”

But Mr Xu said vendors who wanted to have full exposure for their properties should opt for a combination of print media and digital marketing.

Marshall White director Marcus Chiminello said there were more such off-market deals at the top end of the market.

His agency had handled up to 50 off-market sales in the past year for homes priced at more than $3 million, including 30 Sargood St, Toorak, that sold for more than $5 million.

“There’s more happening behind closed doors, and off-market and we probably have half a dozen opportunities in the $15 million to $30 million range,” he said.

Mr Chiminello said agents would usually recommend vendors go to the open market to get the

best price, but a well-managed off-market strategy using an agent’s buyer network could also result in strong competition and high prices.

In the outer-eastern suburb of Berwick, O’Brien Real Estate agent Paul Rogers knocked on the door of a grand, six-bedroom home at 7 Panoramic Tce and asked the owners if they would sell the property because he had buyers seeking premium homes. After weeks of negotiations, a $2.95 million sale was sealed.

In the hot Glen Waverley market where a new home site can sell for more than $2 million, some vendors knew they could get a high price off-market, Ray White Glen Waverley agent Travis Brown said.

“Buyers benefit from this as there is less competition,” he said.

“It means they might be better able to stick to their budget, rather than being tempted to offer more at auction,” Mr Brown said.

But he advised vendors to go to auction to take advantage of demand in the strong market.

In Geelong, Vanders Real Estate director Rod van der Chys said he did not get a chance to take a Newtown house to market because it sold soon after a couple of investors inspected it.

The 700sq m property at 41 Craigie Rd sold for a price approaching the mid-$400,000s.

Some vendors preferred off-market sales to maintain privacy, to save marketing costs and to reduce stress, agents said.

“Some owners don’t like to pay for advertising,” said Jayde Salter of Century 21 Wilson Pride in Noble Park.

Many investors also preferred this method because it was faster and first-home buyers intimidated by auctions also favoured off-market sales. 

“Investors want a quick deal and a lot of the time, the deal is sealed via email,” Ms Salter said.

Developers also preferred less competition that was often part of off-market deals.

“Any properties with development potential tend to sell off-market,” Claudio Cuomo, of Stockdale & Leggo, Glenroy said.

“Developers don’t like to compete so won’t always bid at auctions.”

Barry Plant Bundoora director David Moxon said many off-market buyers had been unsuccessful bidders at auctions.

In Mentone, Hocking Stuart agent Garry Donovan sold an Aspendale house off-market for $3.05 million to an underbidder of a neighbouring property.

Ray White Ferntree Gully director Patrick McConnachie said an off-market sale could appeal to owners to avoid the stress of selling, but it was not the best way to gain the highest price.

“It limits the competition between buyers which is the number one factor in achieving above average sale prices,” he said.

Posted by Ming Haw Lim & Tony Rindfleisch - Sunday Herald Sun on 28th June, 2015 | Comments | Trackbacks | Permalink

Get in before the back pedalling

 Capital city property prices have soared in recent years, as have the tax deductions claimed on "negatively geared" investment properties. As a result, housing affordability and negative gearing are back on the political agenda.

Property can be an emotive topic, as many Australians – both individuals and businesses – have a vested interest in seeing property prices continue to march onwards and upwards. Calls to end or severely curtail negative gearing are met with fierce resistance.

If you're not familiar with negative gearing (at least in the property sphere), it's the practice of borrowing to buy an investment property, where the interest and other property expenses exceed the rental income received. The net annual loss is claimed as a tax deduction against other income including, in many cases, the investor's salary.

Negative gearing discussions often getting bogged down in arguments over its impact on property prices and rents, or the tax rules that apply to other investments. Let's put away the crystal balls and tax books and take a look at what makes negative gearing tick.

Consider a simple example. Hugh is looking to buy an established Sydney property that will cost him $1 million (including stamp duty and other transaction costs). After deducting property related expenses, he'll earn $30,000 in net annual rent.

His mortgage broker has told him that, by using the equity in his home, he can borrow the full $1 million at an interest rate of 5 per cent. If he subtracts his interest expense from his rental income, the deal will net Hugh an annual loss of $20,000. Hugh is a lawyer, so he's got a good job that pays good money; in fact he's on the top marginal tax rate of 47 per cent (including Medicare levy, but excluding the "debt levy"). This means that each year the negative gearing tax deduction will save him $9400 in tax. Extrapolated over five years, Hugh will lose $100,000 (before tax). At first blush that doesn't sound great, but Hugh decides to proceed because (a) the ATO is effectively wearing half the cost and (b) he expects the property to be worth a lot more five years from now than it is today, netting him a capital gain.

The beauty (from Hugh's perspective) is that capital gains are discounted (by 50 per cent) before being taxed. So if he makes a $200,000 capital gain, his tax bill will be $47,000. That's just enough to offset the tax his negative gearing deductions saved him during the previous five years.

Overall, Hugh nets $100,000 cash profit and pays zero tax. Even if he makes a $500,000 capital gain, his effective overall tax rate will end up being less than 20 per cent. In fact, it's almost impossible to imagine a scenario where Hugh will end up paying more than 20 per cent of his profits to the ATO – happy days for Hugh.

What if things don't go so well for Hugh's investment? One of the main risks to property investors is rising interest rates. Let's look at what happens if interest rates increase to 8 per cent and the property value remains flat.

In this scenario, as you might expect, Hugh makes a large (tax deductible) loss. Assuming the interest rate increase was immediate, he'd lose $250,000 over the five-year period. Unfortunately for the ATO, while it doesn't see much of any potential capital gain, it wears 47 per cent of his losses – $117,500.

What the negative gearing rules – the combination of upfront interest deductions and discounted capital gains – create is a financial bet that's skewed heavily in Hugh's favour. If things go swimmingly, the bulk of the profit goes to Hugh and if things go badly, he splits the losses roughly 50/50 with the ATO. With a tax bet skewed in their favour, property prices rising and interest rates at record lows, it's no wonder investors are borrowing large sums to jump aboard the property train.

Negative gearing remains one of the last great Australian tax holidays but, even at today's low interest rates, it's costing the federal budget $4 billion a year. It's unlikely to be sustainable forever.

The talk has been of changing the rules for future investors only, so existing property owners shouldn't be affected. But let the discussion serve as a reminder to keep your mortgage payments where you can afford them, with or without the taxman's help.

Richard Livingston is a founder of Eviser ( www.eviser.com.au).

This article contains general investment advice only (under AFSL 469838).

Posted by Richard Livingston - Money (The Age) on 27th June, 2015 | Comments | Trackbacks | Permalink

Create your home renovation budget

What upgrades is your home crying out for? The scope of your renovation will determine your financial, emotional and time commitments.

So, is it a lick of paint throughout the house, or a bathroom overhaul? Does the backyard need revamping with garden beds and hedging or is paving a patio more in order?

Renovating for sale requires a different approach to renovating for lifestyle reasons. When renovating for sale you need to carefully evaluate your level of capitalisation (how much you invest). It can be helpful to have a real estate agent assess your home to suggest key renovations that will attract buyers and provide an estimate of a renovation’s return on investment. This will help determine the scope of the project and your expenditure.

If you are renovating your home to enhance its livability, consider how your family uses the home and evaluate renovations based on impact. Would adding a bathroom save needless arguments? Could the family room do with an overhaul to make it better for entertaining and relaxation?

Once you have decided on the scale of the upgrade, you need to work through the following steps.

Check with council

This step is numero uno on your renovation checklist. If you are undertaking major works in or around your home – including knocking down walls, building an extension or doing anything that will affect your neighbours – you will require a development application (DA). A DA is normally followed by a construction or building application (BA), which outlines the build details. You cannot begin work without these approvals as they ensure your renovation plans are safe for one and all.

Building legislation differs between local councils, so check with your local planner if a DA or BA is required. This step can save major headaches down the track as unapproved works may be halted or even unceremoniously removed!

Superficial renovations, and most small structures like decks, sheds and fences, are generally deemed ‘exempt developments’ and do not require a DA or BA. At times, exempt developments may still require some level of approval or a licence (think heritage and water-efficiency restrictions). If you are uncertain, contact your council.

Units, apartments or townhouses may be subject to estate, strata or body corporate guidelines that could affect your renovations.

Set your renovation budget

It is important to plan out your renovation costs and create a basic timeline for the project. Most DIY renovations will fall into the exempt developments category and will not require a costly DA or building application (BA). But even exempt developments can require council approval, so check first to make sure your budget is accurate.

If you are undertaking part of the renovation yourself and using a trade professional for the jobs that require qualified help, (for example, a plumber to fix your bathroom pipes while you lay the tiles), divide up your budget estimates.

For the DIY component, estimate the materials and tools required for the job. Ask friends or family for tools you can borrow and enquire about equipment rentals. Second-hand building materials are also worth considering, so compare quotes between different suppliers and between new and used supplies. Reuse where possible for an environmentally friendly reno. It is also important to factor in any reduction in income due to time you may need to take off work.

To find the right tradie, ask friends and family for recommendations and make sure you obtain at least three quotes. Don’t be caught out by hidden costs; ask questions if anything is not clear or if a quote seems surprisingly low.

It is a good idea to incorporate a buffer into your renovation budget for unexpected costs. Ten per cent is usually sufficient.

How to renovate and add value

Some renovations deliver much greater rewards visually, functionally and in value. You cannot go past a coat of paint in terms of return on your investment. This is a relatively cheap renovation that most of us are capable of tackling. It produces big visual results and adds value to your home.

Landscaping, or revamping your backyard, is a close second when it comes to getting a good return for your investment. Materials and equipment are generally cheap, and by adding an outdoor entertainment area you can create real lifestyle value around your home. And don’t forget curb appeal if you are selling your property, potential buyers will assess your home from the street before they buy.

Of all the renovations, remodeling the kitchen or bathroom will add the most equity to your home. Wet areas in the home generally require the largest investment but they also have a significant impact on the property’s salability and price. Domain research shows approximately 35 per cent of all home sellers plan to renovate their kitchen or bathroom in preparation for sale.

Continue reading the DIY Home Renovation Guide with: DIY renovation project management.

Posted by Jacqui Thompson - Domain Blog on 27th June, 2015 | Comments | Trackbacks | Permalink

Experts urge buyers to adopt a tactical response to buying at auction

Buyers are being urged to deploy bidding plans and smarter tactics at auctions amid signs that house prices in some Melbourne areas are starting to pull back.

Few property watchers believe much heat has gone out of the market.

However, there's an expectation that buying by property investors won't be as strong in the second half of the year as it was in the first half. 

Investors have dominated sales below $1.5 million in Melbourne's inner-east as well as sub-$800,000 sales in many other areas this year.

If investors reduce activity, the advantage could swing to owner-occupiers.

Despite the buoyant sales conditions in the eastern suburbs, it's still hard to forecast sales results for some properties.

There is a patchy quality to the market, with some auction properties producing exceptional results, while others just make their price target.

Melbourne property prices grew by 0.6 per cent over the March quarter, according to Australian Bureau of Statistics' price index figures released last week. The modest growth rate, down from 1.3 per cent over the previous quarter, reflects the pressure banks now face from the Australian Prudential Regulation Authority to slow lending to property investors.

Buyer Solutions managing director Janet Spencer said with the variation and the randomness in the market, buyers needed to undertake more research.

"They need to set the limit and be prepared to walk away if the price moves into the emotional side," she said.

Ms Spencer said the market experienced a "weird April" with school holidays and the centenary of Anzac Day disrupting sales. The strong market in May had been bolstered by the difficulties buyers had in finding properties to purchase in April, she added.

Other buyer advocates say "wounded underbidders," who miss out at auctions and then increase their budgets, have spurred this year's higher clearance rates and strong prices in the inner suburbs.

Melbourne-based auctioneer trainer Phil de Fégely said few auction buyers implemented a bidding plan that detailed a starting price and the bid increments a buyer intended to use.

"When you have a plan you know what you are going to do when the property gets to this price and how you will react when it gets to that price," he said. 

He said buyers should gather intelligence about whether a lot or a little bidding was expected. Three price points also needed to be considered before an auction. 

"One is a price you would love to pay," Mr de Fégely said. "Then there is a price you are happy to pay and a price that will hurt."

Price variations at auctions are being seen by many agents.

Collins Simms' Nicholas Corby said some inner-city properties were selling for $200,000 or more above reserve simply because a late, unexpected bidder had bid.

"You can't tell which auctions are going to run or whether the property will stay within the price range," he said.

Saturday's auction market was again strong, with the city-wide agents Hocking Stuart reporting an 81 per cent clearance rate for the third week in a row. Barry Plant, another geographically-spread group, sold 63 from 71 auction properties to notch up an 89 per cent clearance.

The Domain Group posted a clearance rate of 80 per cent from 683 metropolitan auctions. 

A considerable number of off-market deals also took place last week.

Marshall White's John Bongiorno said his company last week sold a property in the Boroondara council precinct for more than $13 million. 

"That's what has been happening with a lot of properties that are scheduled to go to auction," he said. "With the demand out there, we are creeping people through properties that are yet to come on to the market and placing them before auction."

Mr Bongiorno said there were signs the market was reaching a peak.

He said most of the prices his company achieved on Saturday were "around the reserve" 

"Nothing has run away and people haven't got silly," he said.

Mr de Fégely said it was usually a mistake to wait until the end to bid at auctions because in most cases the first or second bidder bought the property. 

"A lot of the time you are able to influence other bidders by showing your strength," he said. 

"You eliminate some of the opportunist buyers and you flush out your competition."

Posted by Chris Tolhurst - The Age on 27th June, 2015 | Comments | Trackbacks | Permalink

First home buyers with no deposit are taking out two loans to buy property

 DESPERATE and deposit-less first home borrowers are among those taking out two loans in order to get their foot onto the property ladder.

As the housing affordability crisis continues to worsen in Australia, aspiring entry-level buyers with little or no savings behind them are relying on their parents to stump up their deposit which they are formally agreeing to pay back — with interest — while also paying off a mortgage.

Parents are forgoing handouts and instead signing their kids up to even more debt by making them sign legal documents to repay back the money they stumped up to help them enter the real estate market.

Non-bank lender BlueBay rolled out “parent assist” loans last year, allowing entry-level buyers to borrow up to a 20 per cent deposit from their parents and take out a mortgage for the remaining balance.

Director Don Crellin said these types of loans were increasing in popularity and it was a way that would work out well for both the parents and the child.

“While we are trying to do is help the kids and we are also trying to help mum and dad in a way that wasn’t exposing them to risks,’’ he said.

“We are bringing both the parent and child together to be able to do it (to buy a first home).’’

He said having a high loan-to-value ratio — the amount of money borrowed compared to the value of the property — does not always means bad risk.

The parent assist loans means the parents are not guarantors and are not gifting the money to the child as it must be repaid.

An interest rate that is half the rate of the home loan rate applies to the loan.

Soaring house prices have continued to squeeze entry-level buyers out — residential property prices nationwide rose by 6.9 per cent in the year to March.

In Sydney they climbed by 13.1 per cent and Melbourne 4.7 per cent.

But consumer finance expert Lisa Montgomery said intertwining a first-home buyers’ purchase with their parents put extra pressure on them because they could be left with massive property debts of up to 100 per cent of the home’s value.

“Borrowing 100 per cent of the home value’s means that if we do have a levelling of the property market you could really not be creating any equity for yourself,’’ she said.

“You could even end up with negative equity depending on what prices do and where you buy.”

RAMS offers a loan that allows first-time buyers to borrow the full purchase price by using a parent or sibling as a guarantor — they use their own home as security so first-home buyers default the guarantor is held responsible.

But RAMS head of product Nathan McMullen said customers who do take on these loans need to fit “strict criteria.”

“Arrears rates are significantly lower on these loans than for comparable loans without a family guarantee,’’ he said.

St George Bank also provides a family pledge loan which allows parents to use their own home’s equity to provide additional security for a portion of the child’s loan amount.

Posted by Sophie Elsworth - News Limited Network on 26th June, 2015 | Comments | Trackbacks | Permalink

Born to spend? Here's how to save

We've all heard the saying, "It takes money to make money". For those looking to build wealth, unless a windfall or inheritance is on the way, the only real way to accumulate money is through savings. There are two types of people in this world: savers and spenders.

Savers naturally seem to live a lean lifestyle. Regardless of income level, they spend less than they earn, and build up savings.

Spenders, on the other hand, struggle to avoid debt, let alone build regular savings. 

There is hope for natural-born spenders to whip their cashflow into shape. The first step is to identify the two types of saving: "saving to spend" and "saving for wealth". Saving to spend involves putting money aside for short or medium-term spending goals, taking a holiday or buying a car. These are not everyday expenses, but unless you save for them, they will either not happen or, more likely, be bought on credit.

To compare saving versus debt, consider this: at 8 per cent a year and with payments of $200 a month, say into a managed share fund, a saver can build up a $20,000 investment in six and a half years. A $20,000 debt however would take more than 13 years to repay. That's the difference when interest works for you, instead of against you.

Saving for wealth is the regular accumulation of money that builds long-term financial health. This is the "money making money". Whether it's saving for a home deposit, regular investment into some shares or a managed fund, or salary sacrifice to superannuation, these are amounts that ultimately add to your personal wealth. The recipe for building wealth is a combination of time and disciplined saving into productive investments.

The trick for spenders is to create a simple system to automatically enforce a set spending limit. First, work out an achievable amount for both savings types  - saving to spend and saving for wealth, even if you start small. Next, set up a regular transfer to an account every pay cycle. This account is off-limits. It's your only means of affording those larger expenses or future investments. Cancel your credit cards, and feel free to use your main bank account as you normally would. By saving first, and spending what's left, you will find you don't really miss the saved amount, yet over time the savings build up.

Once the system is in place, take a closer look at where your spending goes. Do you need to take drastic action? Keep a record of all your expenses for a month and list those that are essentials - rent, mortgage and utilities, those that are likes, and others that are frivolous or luxury. For each item, are you getting value and do you really want to continue spending on these items, compared to achieving your other goals?

There are a number of high-tech tools to help you track expenditure, stick to a budget and send a reminder if you get off track.

Spenders do have options, and being realistic about spending behaviour and taking some positive action can make a world of difference to future financial health.

Alex Berlee is a financial adviser with AMP

Posted by Alex Berlee - Money Manager (Fairfax Digital) on 23rd June, 2015 | Comments | Trackbacks | Permalink

How to give your bankk the flick

 SWITCHING from one bank to another often seems like a painful task and many people simply can't be bothered doing it. But the banks have tried to make jumping financial institutions easier and three years ago introduced a scheme dubbed the “tick n flick”program.

This means the new financial institution chosen by the customer does all the legwork to move their new customer over.

However, since its inception only a few hundred people a week have used the service to jump banks.

Under the scheme, a person wanting to switch banks simply needs to visit their new financial institution, give details of their previous bank and the new provider takes care of shifting all their direct debits and credits from the past 13 months.

Jessica Forbes, 24, who works in the insurance industry, recently switched banks but was unaware of the program and instead individually updated her new banking details with each institution that held her direct debits and credits.

“Setting up the account was a breeze, I was able to do it all from home, I just needed my identification,'' she said.

“I went through my bank statements and worked out what I needed to transfer across and then as it happened, one by one I would phone each company and tell them I have switched banks and could they please change my banking details.

“Surprisingly it's all gone through pretty seamlessly.”

But she admitted it would have been much easier if she knew her new bank could do it for her.

ME's head of deposits and transactional banking, Nic Emery, says there's a “perceived complexity” around switching banks.

He says it's an important product for financial institutions because often customers use an everyday account as a base before signing up to other products.

“When people actually do move they find it a lot easier than what they were expecting it to be,'' Emery says.

“People who have their transaction account with a company are much more comfortable buying (more of their) products.”

The Commonwealth Bank said of their new customers, about 25 per cent switch across from a previous bank.

The Australian Bankers' Association's chief executive Steven Munchenberg says 80 per cent of customers are satisfied with their bank and aren't looking to switch but he says a lot of people are unaware of how easy it is to do.

“There is a low level of awareness of it,'' he says.

“But it would significantly understate the number of people who are switching, they might switch because they are doing it as a broader process such as signing up to a mortgage.

“They may have also been those who have chosen to switch themselves (and not use the tick and flick program).”


— Look for an account that has cheaper fees or a better product.

— Before you open a new account read all the terms and conditions.

— Ask your new bank to help you to switch. They will contact your old bank to get a list of all your direct debits and credits from the past 13 months.

— Your bank will give you this list and you can select which debits and credits you wish to move to your new bank.

— You can authorise your new bank to give all of the relevant payees your new account details.

— Once all these debits and credits have been moved over you can close your old account.

Source: MoneySmart. 

Posted by Sophie Elsworth - Herald Sun on 23rd June, 2015 | Comments | Trackbacks | Permalink

How first home buyers are getting their foot through the property door

As the dream of owning a home fades for young buyers, more first-timers are adapting to new ways of breaking into the market. 

Some are buying off the plan for an extended settlement, and others are investing in an affordable suburb while renting where they want to live. 

LJ Hooker's Youth White Paper highlights six non-traditional ways first home buyers under the age of 30 are getting their foot through the door:

Teaming up 

With price growth increasingly outstripping savings, it is almost necessary to have a dual income to buy a house in Melbourne. 

Teaming up with another person also means being able to share all the costs of buying a property; including stamp duty, solicitor fees, valuation fees, loan application fees and moving costs.  

LJ Hooker research manager Mathew Tiller said a rising number of young buyers were teaming with a family member or a friend. 

"The rising cost of property over the past few years has become a bit of an inhibitor for a single person to purchase a property they they're going to live in, especially in Sydney and Melbourne," he said.

"Teaming up is one of ways of getting around that affordability issue."

Nigel O'Neil, chief executive at Hocking Stuart, has seen more unmarried couples now teaming up at an earlier stage of their relationship to buy a home in order to get a foot on the property ladder.

"As long as there is a clear exit strategy for both parties if the relationship doesn't work out, then that can work out fine," he said.

An individual on an average full-ti me weekly earning of $1455  would be priced out of most popular  suburbs. An average couple with a dual income would open up  dozens of suburbs to choose from. 

Buy now, pay later

Buying off the plan means a young buyer can put down a deposit and not have to worry about mortgage repayments until construction is completed in a few years. 

It allows buyers in an earlier stage of their career to lock in today's price and keep saving over the construction period, where the property may also appreciate in value.

First home buyers should make sure they would be able to make the mortgage repayments when the property settles and hire a professional conveyancer to comb the contract. 

Rise of the first-time investor

A growing number of buyers are now renting where they want to live and buying in another suburb that is more affordable. 

Young investors may be able to take advantage of negative gearing tax breaks and borrow more by generating a rental income. 

Looking for renovation potential

Young families could buy in their preferred suburb by buying an older smaller home and then add rooms and levels as their family grows, or when they are financially able to down the track. 

Beware of buying a renovator's delight that would cost more to do up than buying a ready-to-move-in home. 

Buying new and further out

Young families and first home buyers are increasingly looking at house and land packages in new housing estates as an affordable way to get into the market.

They can also also buy vacant land in their preferred area – if there is any left – and build their dream home on it. 

Leaning on mum and dad

Parents who have built up equity in their homes or own their homes outright may be able to be a guarantor on their children's mortgage or help with the deposit.  

Research by the National Australian Bank found that 6.7 per cent of first home buyers now use the NAB Family Guarantee, up from 4.8 per cent in 2010. 

Posted by Christina Zhou - The Age on 22nd June, 2015 | Comments | Trackbacks | Permalink

Why wait to get a better home loan?

I'm more than a little surprised by the results of a survey we recently completed. We reviewed the situation of 1000 home owners who'd obtained a mortgage more than two years ago.

This is what we learned: 40 per cent of those surveyed said they had never refinanced. Another 19 per cent hadn't refinanced in more than  five years, 6 per cent had refinanced four to five years ago, 8 per cent had done so three to four years ago and 10 per cent had between two to three years ago.

This is the situation: interest rates are at their lowest in more 50 years, yet 83 per cent of Australians with a home loan have not refinanced in the past two years.       

I find it hard to believe that so many people are avoiding action. The newspapers are full of stories about the historically low interest rates and the potential savings available to people with home loans.

It's outrageous that people are still paying high interest when the opportunity to pay less is right under their noses. People take the time to drive to the cheaper grocery store just so they don't pay an extra dollar for milk, yet when it comes to home loans they stick their head in the sand.

In effect, a failure to refinance to the best interest rate means you're just handing the banks extra money. Reserve Bank of Australia data shows the benchmark 2 per cent interest rate is significantly lower than the average of 5.13 per cent that Australians experienced between 1990 and 2015. The all-time peak was at 17.50 per cent in January of 1990.

Because of certain business practices, most bank mortgage rates have not reduced in line with official interest rate reductions. A typical 2010 loan may today be on a current variable rate of around 5.3 per cent, whereas rates are now available at about 4.8 per cent, or better.

Even allowing for fees and transfer costs, it is likely that those on a home loan secured a number of years ago could make monthly savings by switching lender. For those who took out a home loan five years ago, the average rate after reductions would be 5.3 per cent. The potential savings on an average $350,000 loan with 25 years remaining could be thousands. For example, if you refinanced to a rate of 4.8 per cent, you would save $30,660 in interest over the remaining life of your loan.

There are lenders offering rates as low as 4.1 to 4.2 per cent, so your savings could be greater.

According to our survey, people avoided refinancing because they didn't believe they'd save enough money, they thought the fees and charges would outweigh the benefits and they perceived the process to be too much of a hassle.

I just don't buy this. With interest rates dropping to a low that no one in my generation would have thought possible, it's crazy to not find out if you can save. If you don't have the time or the expertise, speak to a mortgage broker and let them investigate a refinancing deal for you.

It's also worth remembering that when interest rates do finally start edging up, those who already have the best home loan deals will have a natural buffer against interest rate rises.

At least our survey found that the younger generation are on the ball: 28 per cent of 25-34 year olds refinanced in the past two years compared with 13 per cent of 45-54 year olds.

Is this because young people are more internet-savvy and accustomed to comparison-shopping for the best price? Perhaps, and good on them.

If you're in the majority and haven't refinanced for years, let me leave you with this: a home loan is the largest monthly outgoing for most households, and if you're paying too much – when interest rates are historically so low – you're burying your head in the sand.

Posted by Mark Bouris - The Age on 19th June, 2015 | Comments | Trackbacks | Permalink

3 common mistakes first-time renovators make

  You might have found the ideal property and confirmed the design blueprints, but rarely does any renovation go perfectly to plan the first time around.

First-time renovators often take missteps before any of the actual renovations begin. Walking into a project without knowing exact costs, the projected value added to the home after modifications or renovation timelines can leave you in the lurch later on.

Before you turn your dream home into a construction zone, here are the common mistakes you should avoid as a first-time renovator.

Letting your emotions make the decisions

Whether this is your dream home or an  investment property, no renovation plan should be so set in stone that you cannot make any necessary changes as the build progresses. Unplanned problems in the home, such as with plumbing or structural issues, could affect your budget, project timeline or encourage you to overcapitalise in areas that will not add value to your home. Remember, being married to your initial design plan is not worth blowing your budget.

Not understanding market pricing

Every suburb has an average housing sale price, which should help shape your design budget. Consider the homes in your street – are you the best house on the worst street or the worst house on the best street? The types of homes in the area, recent sale prices and the types of people who buy in the area will impact on where in your home you should renovate and for how much. Family-dominated areas might appreciate a large backyard and open-plan kitchen, while other features will rank higher in areas populated by professionals or singles.

Not researching your builder

Assuming you don’t take the  DIY approach, the builder you employ for the project will become your  right-hand man. For this reason, it’s important you are entering into a partnership with someone who has a proven track record for timely and on-budget renovations. Builders often ask owners to sign a building contract prior to the renovations beginning. Check that these contracts don’t include huge fees for any changes made during the renovation project, as these will quickly mount up.

By having a clear idea of your budget, researching before the build and keeping a  level head, you’ll be on your way to becoming a seasoned renovator.

Posted by Abbey Ford - Domain Blog on 18th June, 2015 | Comments | Trackbacks | Permalink

Melbourne real estate commissions: what's your suburb worth?

Victorian home vendors pay the lowest real estate agents' commissions in the country, but new research reveals the rates vary dramatically depending on where you live.

LocalAgentFinder data shows the average commission ranges from 1.35 per cent to 1.89 per cent of sale value, with your suburb determining what you pay.

Independent body Australian Real Estate Consulting ( AREC) statistics found both Melbourne's and regional Victoria's fees were the lowest in the country , at 1.6 to 2.5 per cent and 2.5 to 3 per cent, respectively.

In Sydney, commissions range from 2 to 2.5 per cent, edging up to 2.5 per cent to 3.5 per cent in regional NSW.

AREC director Robert Williams said commissions could be affected by the location, value and style of the property, the salesperson's ability to sell themselves and how easy the real estate agent thinks the seller is going to be to work with.

Marshall White director John Bongiorno said commissions were higher in areas where properties were harder to sell.

Most suburbs in the inner east and south-east see agents charge 1.35 per cent to 1.89 per cent.

Docklands was the inner-city exception at 2.81 per cent, while agents in the Hoddle Grid charged 2.31 per cent. Templestowe agents charged an average 2.83 per cent.

Mr Bongiorno said Docklands' high result may be due to off-the-plan sales, which are harder to sell than established property.

An oversupply of properties may also push commissions higher, with agents feeling little need to compete for listings.

"In off-the-plan sales there is a lot of pressure on the agent to deliver, as the developer needs pre-sales to get their financing approved and it requires more detailed selling than the physical home in front of you," he said.

For home sellers looking at agent commissions, one option is to structure the fee in a way that incentivises the agent, said Century 21 Australasia chairman Charles Tarbey .

"There might be a transaction of 1.5 per cent up to $500,000 and 10 per cent on what is achieved over that price," Mr Tarbey said.

This would see the agent achieve $7500 for $500,000, and an extra $10,000 for $600,000 – $17,500 in total.

He warned away from trying to negotiate commissions down too much. Cutting a 2 per cent commission to 1.5 per cent on a million-dollar sale is a $5000 difference but could disincentivise the agent.

The majority of regional agents charged commissions in the highest category – 2.60 per cent to 3.90 per cent.

LocalAgentFinder chief executive Michael Banks said slower markets see agents charge more.

"As a vendor, you're looking for the best net result. If a specific agent will cost you $10,000 more but they consistently achieve $20,000 more for the property, then you are making a net gain of $10,000. The problem is finding a reliable way to identify agents that do a better job to justify the fees," Mr Banks said.

Posted by Jennifer Duke - The Age on 14th June, 2015 | Comments | Trackbacks | Permalink

Victorian first home buyers are borrowing more than ever to get a foot on the property ladder

Victorian first home buyers are borrowing more than ever before to break into the city's  property market.

First home buyers took out an average loan of $335,000 in April, up by $15,900 from March, and now make up 11.3 per cent of the market, according to the Australian Bureau of Statistics. 

Interest rates may be at a record low, but experts say the real hurdle for first-timers remains finding the deposit. 

With prices rising faster than savings, they are staying longer in the queue while others are forced to revise their criteria and look further afield.

Earlier this week, Treasurer Joe Hockey sparked outrage by advising first home buyers to get well-paying jobs in order to get a foot on the property ladder.

But according to Domain Group senior economist Andrew Wilson, this could be difficult as unemployment in Victoria is tracking at around a 12-year high.   Dr Wilson believes this could have a greater impact on job seekers at an earlier stage of their career, such as first home buyers. 

"It's all right to say yeah, get an income, that's all you need, but work's short and there are problems with higher unemployment," he said.  "[Many first home buyers] have to pay HECS and they've got to pay rent."

Based on the average loan size of a 20 per cent deposit and industry experts' observations, it appears that first-timers are typically shopping for properties in the $400,000 to $500,000 bracket. 

Armed with this budget, Domain found a three-bedroom house in  Beevers Street in Footscray that is going to auction for more than $470,000.

Other options include a top-floor, two-bedroom unit in  Hotham Street, St Kilda East, priced between $440,000 and $490,000 and a  three-bedroom house and land package in Point Cook's Parliament Street for $472,306. 

Mortgage Choice spokeswoman Jessica Darnbrough said it was important to remember that there were other costs associated with buying a home. 

"Borrowers need to take into consideration other costs including stamp duty, solicitors fees, valuation fees, loan application fees, moving costs et cetera," she said.

"As a general rule of thumb, most lenders require customers to provide their actual living expenses for all home loan applications. This is known as a Customer Stated Living Expense (CSLE), and this figure should be the amount of money needed to maintain a reasonable standard of living and could include, for example, expenses such as food, utilities, transport, clothing, education and healthcare.

"From there, a lot of lenders will compare the Annual Living Expense Allowance with the CSLE figure provided and use the higher amount to calculate serviceability."

Daniella Viljevac, 22, and her boyfriend Toby Smithers, 26, are looking to buy their first home in the bayside area. 

Miss Viljevac, who is studying a bachelor of arts at Deakin University, and working three jobs in accounting and retail, said their parents would also assist them with the deposit. 

The couple have a budget of about $550,000 and ideally want a renovator's delight between Cheltenham and Mordialloc. But the couple are increasingly being pushed further south. 

"We just want something that's in a good location so we don't have to move later on," said Miss Viljevac, "we can just stay there and build another house when we have the money."

"We want something that we can live in for now."

It's a familiar story for many who are being pushed out to suburbs such as Ferntree Gully, Sunshine and Croydon, according to LJ Hooker's Victoria state manager, George Sattout.

"We're seeing a lot of first home buyers are now unable to afford anything – certainly not houses – within the inner and surrounding areas of the city," he said. 

"They've been pushed out to either consider [house and land packages] in more development-type areas or maybe smaller inner-city apartment-type dwellings."

Despite the incentive for first-timers to buy new, Greville Pabst​ of WBP Property Group said in many cases, established properties would perform better in the short-to-medium term as a new property  depreciated over the first few years of its life. 

Posted by Christine Zhou - The Age on 13th June, 2015 | Comments | Trackbacks | Permalink

We need the right tools to build our financial futures

Is the traditional model of financial planning broken?

There are consistently low levels of people using financial advisers – in 2011 the government estimated 21 per cent of adults had used a financial planner in the previous year. But there are also high levels of wanting a different model of advice.

So if the customer wants something different, why does the model remain the same?       

It's a serious question. Our retirement savings system puts the burden on the individual to make good decisions. Quality of advice has a large bearing on how successful the retirement planning will be, especially when it comes to the tax system.

Yet Australians are wary of a planning industry that cannot provide them with simple, affordable financial advice, regardless of income and assets.

Time and again the financial services industry is told the same story: the financial planning model is too expensive, is skewed to the wealthy and gives control to the adviser. Traditional financial planning means handing over control to someone else – usually at a high price.

Control over decisions and assets is an issue. But cost is factor too. Recent research from Investment Trends found cost remained the biggest barrier to retaining a financial planner. When cost is taken into account, only a small proportion of us would still like to receive the traditional model of comprehensive advice delivered face-to-face.

Knowledge is power and the knowledge is currently held hostage by the adviser until money is exchanged. But considering the availability of financial data and online planning tools, this is an unsustainable position for advisers. I propose a different model: give customers the knowledge they need upfront so they can take action themselves without obligation. And then "coach" them into making good decisions, should they want it.

The platforms already exist where people can use transaction tools for super, insurance, mortgages and shares. It's just that these wrap accounts are controlled by planners.

Once people have the visibility of their own assets, they can use advisers who coach, allowing the customer to run their own finances without hefty adviser costs.

This is likely to appeal to young adults, who are bailing out of the traditional financial planning format.

The KPMG Banking on the Future Report showed 65 per cent of young adults said they would like a financial coach to help them with investment decisions, yet 95 per cent did not have an adviser.

We know young people generally reject financial advice the way the industry tends to serve it up. They prefer coaching to help them make decisions they can implement. They don't want advice with someone who does it all for them. They want to be taught how.

If people must be responsible for their own retirements, we can at least help them help themselves.

Posted by Mark Bouris - The Age on 12th June, 2015 | Comments | Trackbacks | Permalink

Six steps to a rosier future

When uncovering the truth behind the financial gender gap, we need to remind ourselves why it is important to focus on this issue.

Today, women will typically retire on only a third of the superannuation of their male counterparts. Now, we could just say this is a legacy of a generation when education and career opportunities were not as readily available to women. However, the stark reality is that whether at age 19, 24 or 35, women's superannuation balances remain below that of men.

It is not just superannuation where the financial gender gap presents itself. Women are also far less likely than men to take the step to buy an investment property or start a share portfolio. In recent years there has been an increasing number of women taking steps towards financial independence.

Unfortunately, with the pay gap between men and women now sitting at more than 18 per cent, the question is not only why, but what women can do to close this very real gap? Financial independence should be everyone's right. After all, money should never be on your love checklist when choosing a partner.

When we do see financial success by women, often surrounding their success are phrases such as "braving it on their own" and "taking a risk". While it is encouraging to hear their stories told, phrases such as these can make the fear greater to those who have not yet started.

With the stark reality that 90 per cent of women will become wholly responsible for their financial future at some point in their lives, closing this financial gender gap is critical.

What active choices can be taken to close the gap?
  • Get intimate with money matters Knowledge creates confidence. If you are not sure, research, ask questions and seek advice.
  • Set clear goals Your starting goals should be small and attainable. They need to be measurable, and ideally you have someone to keep you accountable.
  • Don't delay Life can easily get in the way, but remember you cannot move ahead until you get started.   
  • Know what makes you tick We all have good and bad financial habits. Learn what makes you succeed and fail. What makes you hold back?
  • Be smart Whether in a relationship or single, protect your financial future and ensure you have adequate insurance. Should you lose your income capacity, insurance can still protect your assets and security.
  • Get the simple things right Whether it be consolidating your super, renegotiating your mortgage, creating a good budget you can stick to, or understanding how you are tracking to retirement, getting the basics right can put thousands of dollars back in your pocket with little effort.

Posted by Dominique Bergel-Grant - The Age on 12th June, 2015 | Comments | Trackbacks | Permalink

Blood, sweat and tears: What it takes to buy your first home

First home buyers are not just willing to sacrifice a few luxuries, but make huge lifestyle shifts to save for a deposit, according to new research.

In fact, 30 per cent choose to move in with their parents or in-laws to save and 33 per cent worked multiple jobs to get a foot in the door, Homeloans Ltd's survey of 500 first home buyers revealed.

National marketing manager Will Keall said first home buyers need to have a plan to build their deposit. Big lifestyle shifts could be part of it.

"It is pretty tough these days with rising cost of living to save a decent-sized deposit, so it makes sense," Keall said.

Four out of five respondents took more than a year to save, while 39 per cent took two or more years.

"A number said it took five years to have enough money for the deposit," Keall said. "This highlights how Australia's high cost of living makes it challenging to save, and that property prices are stretching homebuyers to the limit."

More than 50 per cent of respondents were saving a deposit of less than 15 per cent and the average age of the first home buyers surveyed was 28.

Working 150 hours a fortnight                

David Gunter, 35, and his wife, 37, worked five jobs between them to save up a $60,000 home deposit. 

Purchasing at the beginning of 2014 in Victoria's Mount Dandenong,  David Gunter worked full-time as a social worker, part-time in drug and alcohol social work and a third job as a prison officer.

The couple married in 2010 after living in Queensland, and bought their home eight months after having their first child, Olivia, who is now two years old.

"We wanted to buy in a nice area, we wanted the kids in a nice area," he said.

He also had firm ideas of what they wanted in a house – four bedrooms, a fireplace and other unique features that made them motivated to work for their dream home.

With his wife on maternity leave when they had their first child, he had to compensate by having the extra jobs and was working 150 hours a fortnight.

 He still works two of those jobs.

"As a result, our home is worth $90,000 more than what we paid for it and we're about to buy an investment property," he said.

"There were sacrifices," he said, but letting his social life take a back seat was worthwhile for the home they have today, with their new 15-week-old son settling in.

Putting huge portions of income aside for a deposit

Sydney resident Hannah Espinoza, 32, put aside 65 per cent of her salary each pay day to make a deposit for an off-the-plan apartment.

Her career has since been shaped by her decision to sign on and purchase the $675,000 one-bedroom Newtown apartment in 2013, with a settlement period of two years to take advantage of the growing Sydney market.

Working at a marketing company, she had a three-month trial period after which her salary was increased an expected 10 per cent. After working there for some time, graduating from a masters degree, she expected a pay rise that didn't eventuate.

"I had based this home on my salary increasing," she said. "I thought it was worth taking control by starting my own business."

She did so and moved back in with her father, rent free, to save the funds.

"We then moved in with my dad rent free, then that rent went into the savings. My salary is slightly higher than average and I don't do anything extravagant," Espinoza said, "It is important to sacrifice."

Moving in with in-laws

Bridget Andersen, 21, moved into her boyfriend's parents house in Newcastle to save money on rent.

She moved out of home at 19 into a share house in Sydney with two other girls, then rented an apartment for a year while finishing university.

Realising she'd never be able to save while renting, she moved into her boyfriend's room, sharing the house with his parents and three other siblings.

"The lease to that apartment finished in January this year and as I was in an unstable financial position and hadn't found a job after finishing my degree, my boyfriend's parents offered to let me move in with him," she said.

At $100 per week, she said that it offers them the chance to save for a home while she works as an entry-level public relations consultant. The trade-off is less privacy and space, yet she is grateful.

"It definitely has its ups and downs to share a bedroom when I've never had to in the past and always have had plenty of my own space and privacy which I don't have as much of now," she said.

"However, in terms of saving money, it's definitely a leg-up in what is a really competitive and expensive rental market."

Posted by Jennifer Duke - The Age on 10th June, 2015 | Comments | Trackbacks | Permalink

Buying off the plan: five things you need to know

If you're buying off the plan, there are a number of legal requirements you should be aware of.

Beware of display suites

Spacious, beautifully furnished and well-lit display units are not a representation of your finished off-the-plan apartment. The fine print of the contract will state that you cannot rely on what you see in a display suite. Rather, carefully check the plans for your chosen apartment as specified in the contract. Use a tape measure to measure it out. How does it compare to your current home? What is the orientation of the apartment? Will it have enough natural light? North-facing properties are always preferable. 

Do not rely on rental guarantees Advertisement

These can be provided by companies that are financially worthless or are wound up and closed by the time any purchaser may want to enforce a guarantee. Don't rely on a rent guarantee. Instead, do your homework about the rental market in the area. What rent could you achieve if all or most of the apartments in the building were released onto the rental market at the same time? Always budget for conservative rent receipts.

Be wary of buying with an unconditional contract

Buy "subject to finance". Sign a contract "subject to finance" being approved. Even if you have pre-approval to borrow up to a certain amount, the bank will still need to value the property before financing the purchase. Some small off-the-plan apartments can be very difficult to obtain finance for - generally anything under 40 square metres - and some greenfield estates can be valued very conservatively. Never assume finance will be approved for a property before the bank has conducted its valuation.

Keep a close eye on the sunset period

Even if the selling agent tells you it will be finished in one year, the contract's "sunset clause" could be five years. Yes, the developer will want to finish as soon as possible, but could you wait the entire sunset period if you had to? Especially if the contract will prohibit you from reselling the property before settlement? 

Know your rights

Know your rights regarding fixtures, changes and defects. The developer is entitled to substitute fixtures and fittings for items of similar quality. That's why it's important to specify brands for appliances and airconditioning units. This way, you start with a benchmark and a clear expectation of quality. The developer is also permitted to change the size and design of the apartment to a minor extent. You must be notified of any changes and you can terminate the contract if anything significant occurs, such as the deletion of a car park or balcony, or major changes in a strata or owners corporation liability entitlement. When the property has been completed and settlement occurs, carefully inspect your apartment and notify the developer of any defects during the contractual period (commonly within three months of settlement).

Posted by Kate Ashmor - The Age on 9th June, 2015 | Comments | Trackbacks | Permalink

Too many know too little about loans

Low levels of financial literacy are leaving consumers without the knowledge to get the best deals on home loans.

A survey of 1000 people carried out on behalf of industry super fund-owned bank ME, found almost 40 per cent did not know how the cash rate affects mortgage repayments.

The cash rate is important because it is a big driver in variable mortgage interest rates.

It is set by the Reserve Bank of Australia and is at a record low of 2 per cent. Generally, the lower the cash rate the lower interest rate on variable rate mortgages.

However, there are other factors at play, such as the lenders' cost of funding of the mortgages and competition between lenders. 

More than 40 per cent of survey respondents did not know the right cash rate. Seventy per cent of 18 to 29-year-olds said they did know the cash rate.

"Financial literacy is a valuable asset and one of the biggest money savers over time," says Patrick Nolan, ME's head of home loans.

He says the results show many people do not have a thorough understanding of home loans and how they operate.

"We were particularly surprised that older generations – those who typically have more exposure to home loans – have low levels of home loan literacy."

Only 43 per cent of those aged 30 to 49 years and 51 per cent of those aged 50 and over were confident with their home loan choices.

Survey respondents did not understand how the various features of home loans work.

For example, 55 per cent have no understanding of an offset facility. And 38 per cent have no understanding of interest-only payments.

"Take offset accounts, which are a savings or transactions account linked to your home loan," Nolan says.

"The value of the offset account is deducted from your home loan when interest is calculated, which can save you many thousands over the life of the loan," he says.

Most people are bamboozled by the different types of mortgages.

For example, 45 per cent have no understanding of an interest-only loan and 28 per cent have no understanding of fixed home loans.

"The fact that a large proportion of people don't understand the value of fixing a portion of their home loans is a concern," Nolan says.

"It's a great time to lock in record-low home rates; so people could be really missing out," he says.

As for help, there are plenty of independent sites like moneysmart.gov.au that give basics and can help explain the jargon.

Also, many lenders have online calculators to assist in crunching the numbers.

ME has a "building financial confidence" program at www.mebank.com.au/bfc.

Posted by John Collett - Money Manager (Fairfax) on 9th June, 2015 | Comments | Trackbacks | Permalink

Property investors benefit in quiet times of the market

IN THE cooler months, many people question whether they should be buying property or waiting for later in the year because spring is seen as the prime time for real estate.

I am a huge fan of doing the opposite rather than following the herd.

Spring is the peak season for people to sell property, so there will always be more choice in what you can buy.

It is also a time where many buyers make emotional decisions.

Auctions are held on lovely spring days when buyers can easily let their emotions take over, pushing up prices.

Just as there are more properties on the market, there are more buyers at this time, which means more competition.



Throughout spring, the media often highlights stories of properties selling for large amounts over their reserve price, which isn’t good for you as a buyer.

When it comes to the quieter months of autumn, it is likely that there will be fewer properties on the market to choose from, however there will also be less competition from other buyers.

With less demand in the market, property prices are less likely to be pushed over emotional levels at auction.

This ultimately leads to sellers losing confidence, which is good for you as a buyer.

Not only am I happy to buy in the quieter times of the year, I’m also happy to buy during the quieter periods of the economy, because I know there will be less demand and more chance to buy a better property at a cheaper price.

This was certainly the case in the middle of the global financial crisis when I bought half of my property portfolio.

It was difficult on an emotional level as my friends were saying it was a mistake.

But prices still crept upwards and when the market really started to recover I benefited each day, while others took months to react.

Even the experts never time the market. I am fortunate to have interviewed some of the best real estate experts, including economists who analyse what has happened in the past and try to predict the future.

They don’t profess to know everything perfectly. They buy when they’re ready to buy.

One of my best tips is to buy when you can afford to buy and when you can afford to hold on.

Real estate is always a long-term game and you should at least have a five to 10 year horizon in sight.

Buying at the right price is important, but often when you look back it doesn’t have that much significance.

The profit comes from time in the market rather than timing the market.

There’s always a deal to be made in any market. So whether you’re buying when there are thousands of properties available or just a few, if you know what to look for and are prepared to walk away until you find it, you’ll profit in the future.

- Chris Gray is host of Your Property Empire on Sky News Business channel and CEO of buyer's agency Empire.

Posted by Chris Gray -- NewsCorp Australia Network on 8th June, 2015 | Comments | Trackbacks | Permalink

Investing from afar, is it a good idea?

Buying a property investment in another town or city can help you tap into lucrative markets, but what are the downsides ?

The old saying of ‘don’t put all of your eggs in one basket’ is just one of the reasons why it’s worth considering investing in an area you don’t live in – whether that be another town or city, or – as is often the case – interstate.

Managing director of Property Buyer Rich Harvey often advises clients to look in other states. Harvey, who is based in Sydney, currently favours Queensland as an over-the-border option.

“The reason you buy intestate is you want diversification, you want to have a portfolio in different states, so you’re catching the property cycle,” Harvey says.

“Another reason is to minimise land tax because you’re going to hit the land tax threshold pretty quickly, especially in NSW. You know, $417,000 in land [value], you’re certainly going to exceed that pretty quickly.”

Harvey says concerns about being an ‘absent landlord’ who lives too far away from their property are usually unfounded. “Even when you’ve got a property on the other side of Sydney, it can take you an hour to get there, so it’s [almost] no different to having a property in Brisbane,” he says.

The key to making a property investment interstate work is choosing the right location to start with.

“You don’t just buy interstate because it’s the thing to do,” Harvey says.

“You buy interstate because (there’s opportunity).”

Factors Harvey’s team look for include population growth, jobs, good infrastructure, favourable vacancy rates and a diverse economy. “They’re the things that drive the decision to invest in a particular area,” he says.

If you don’t live close to your investment, it’s more important than ever to choose a good managing agent.

“Make sure they do regular inspections, make sure the rent is accurate and up to date, because when you’re interstate you may not know the local rental market and it can fluctuate up or down, depending on what is happening in the market,” says Harvey.

“If in doubt, just get another appraisal from a different manager in the area, even [if you’ve] got it leased.”

Posted by Carolyn Boyd - Domain Blog on 5th June, 2015 | Comments | Trackbacks | Permalink

New breed of first home buyers make their first home an investment property

 FALLING first homebuyer numbers are not as bad as they appear, thanks to a new breed of young Australians becoming property investors while still living at home with mum and dad.

Many twenty-somethings are cashing in on the tax and other financial benefits of investing, with an eye to moving into the home later or upgrading once its value rises.

The latest housing finance figures from the Australian Bureau of Statistics showed that in March investor loans grew four times faster than owner-occupier mortgages, with the proportion of first homebuyer loans at an 11-year low of just 14.7 per cent.

“I think the official homebuyer numbers are not really giving the true story,” said CoreLogic RP Data senior research analyst Cameron Kusher.

He said cuts to state government first homebuyer grants had reduced the incentives given to owner-occupiers, while negative gearing tax savings and low interest rates benefited investors.

As such, it often makes more financial sense to reject the grant, which in some states requires the buyer to live in the property, and go it alone.

Recent research by Mortgage Choice found that one-quarter of first home buyers said their first property was an investment property. In 2011 the number was below 10 per cent.

Mr Kusher said young investors were either living at home with their parents or renting in an area where they couldn’t afford to buy while investing in a more affordable area.

“It’s definitely becoming harder to get their own home as an owner-occupier, but it’s good to see people looking outside the square and buying investment properties,” he said.

Oracle Lending Solutions director Angelo Benedetti said a lot of young people were paying zero or cheap rent by remaining in the family home while dipping their toes in the property market.

“They realise interest rates will never be as low as this again,” he said.

Investing often made financial sense for young property buyers, Mr Benedetti said. “Someone is paying their rent, the interest is tax deductible and if it’s a new home you get depreciation benefits.”

Claire Madden, a director at social research group McCrindle, said the rising cost of housing, bills, study and digital technology prevented most generation Ys from getting into property as early as previous generations.

“It’s unaffordable for many Gen Ys even though they’re at a life stage where they want to plan and build for the future. They can’t afford to buy where they want to live but it doesn’t mean they can’t afford property,” she said.

“Buying property has shifted from a heart decision to a head decision.”

CommSec chief economist Craig James said young people were renting or living at home while buying cheaper property further away from CBDs.

“Gen Y haven’t given up on property. It’s just that where they would like to be living — near the city, close to their workplace and close to restaurants, the cost of that is too high,” he said.

“Back in my day people were quite content to have the quarter-acre block and live an hour’s commute from the workplace. A lot of Generation Ys don’t drive these days.”

Posted by Anthony Keane - NewsCorp Australia on 5th June, 2015 | Comments | Trackbacks | Permalink

The OECD has warned Australia’s housing market could collapse

 A LEADING authority on the world economy has warned that Australia’s inflated housing market is at risk of a “sharp correction”.

While the Organisation for Economic Cooperation and Development, was forecasting a three per cent growth in our economy next year, thanks to a rise in investment in the non-mining sector and exports, it feared the strength of the country’s property market could result in a “sharp correction” in house prices.

In a report released in Paris on Wednesday, the OECD said if commodity prices continued to fall, it would affect overall revenue and the cutbacks in production could become “substantial”.

Because of this it was advising the Reserve Bank of Australia to not cut interest rates further, given the uncertainties of the outlook.

It also pointed out the May budget did not address the larger-than-expect deficit results and advised fiscal policy should continue to provide support.

“This approach is appropriate given weakening revenues and macroeconomic outcomes in the wake of the commodity price falls,” the Paris-based institution said.

However Treasurer Joe Hockey insisted increasing residential construction was the best way to respond to concerns about a housing bubble.

“You’ve go to get the stock up,” he told ABC radio on Thursday, citing figures showing an 18 per cent increase in the number of construction starts in 2014.

Mr Hockey also dismissed talk about a housing bubble in Sydney and Melbourne, saying the global experience was that only happened when supply exceeded demand and that was not the case in Australia.

“It’s not inflated demand, we’ve got very low vacancy rates in places like Sydney,” Mr Hockey is reported as saying in Fairfax. “We have put in a much stricter regime in real estate for foreign investment.”

“If you look at what happens around the world, bubbles burst in real estate where there is too much supply. We are a very long way from that in Australia.”

The treasurer said high prices existed “mostly in Sydney, and parts of Melbourne” while in Western Australia, houses prices were coming off.

The OECD calls for further tax reform, cuts to red tape and competition-boosting measures.

It said there should be less reliance on personal and corporate income taxes and increased use of the GST and the introduction of a land tax.

Posted by News Limited Network on 4th June, 2015 | Comments | Trackbacks | Permalink

New mothers unexpected victims of property boom

New mother Nina Young received a shock when she applied for a mortgage.

Confident in the 20 per cent deposit she and her partner David had saved for a two-bedroom apartment in Parramatta, they approached their bank but were rejected because Ms Young was on maternity leave.

"They told us to try again, closer to when I was going back to work," Ms Young said.

With lending policies often understating the future income of mothers on maternity leave, new mothers may face a tough decision: spend time with their child or buy a home before the hot market prices them out.

For Ms Young even a freelance income, 18 weeks of government parental pay and a letter from her employer stating her intention to return to work, didn't help.

Their borrowing capacity was assessed at a substantially lower amount than had her salary been included, and they found that suddenly, they were unable to buy.

The couple went back to renting – paying $100 more than their estimated mortgage repayments would have been.

Over the past year, prices have soared.

"Six months ago, we could have afforded to buy and now we're looking in concentric circles away from the city to see where we can afford." Full maternity-leave income not always considered

For those with a steady flow of maternity-leave income, not every lender accepts the full amount when calculating what applicants can borrow, said Michelle Coleman, principal of mortgage brokerage W Financial.

"I believe there is still an underlying perception that once [a woman] has children, mothers generally won't want to return to work straight away, if ever," Ms Coleman said.

Without a 20 per cent deposit, it can be even trickier, with borrowers needing to fulfil requirements for Lender's Mortgage Insurance (LMI).

LMI provider Genworth considers 50 per cent of paid income on maternity leave and allows no income allowance where the maternity-leave pay period has ceased or no maternity-leave payment is received.

Some mothers may have to wait until they go back to work to buy a house, said Ms Coleman.

Others will want to try and base the loan on just their partner's wages as l enders look to the net income available to make repayments, according to John Kolenda managing director of 1300HomeLoan.

For families where the mother is the highest earner or where both salaries are needed, lengthy maternity-leave periods pose a problem.

"When lenders assess applications, it is a snapshot of what is happening at that time. Things like upcoming pay rises and bonuses cannot be considered [for mothers on maternity leave] and your borrowing capacity will be determined by what you can prove as income," Mr Kolenda said. Deferred payments sometimes an option

Some lenders have parental leave options that allow payments to be deferred.

"It is important to note that maternity leave scenarios are not black and white, and most lenders will take the application on its merits," Mr Kolenda said.

Mortgage Choice head of corporate affairs Jessica Darnbrough said it is possible to obtain a home loan on maternity leave.

"While the most ideal time to apply for a home loan is before falling pregnant, often things don't work out as planned. To obtain a loan when on maternity leave, the potential borrowers will not only have to show what the woman's current income is, but they will also have to provide a note from her employer which details when she will return to work, what role she will have and the income she will earn," she said.

Smartline mortgage brokers Katarina Matovina and Kevin Lee said it is a case-by-case situation requiring applicants to provide the lender with Centrelink documents, a letter confirming their intention to return to their previous role at the end of the period and evidence of their return to work income.

Those who are applying when on maternity leave should:
  • Try not to have a strong reliance on the maternity leave income in the application.
  • Have maternity-leave dates confirmed.
  • Look to have consistent maternity-leave income paid across the entire leave period, without any stretches of no income. While some opt for a certain period of half pay and some time with no pay, it's more favourable to lenders to stagger the leave (for instance, a quarter pay over 12 months).
  • Build up as big a buffer as possible to assist when income is lower.
  • Use a mortgage broker who knows financial strategies around maternity leave and workshop your options.
  • Consider opting for 'interest only' during the leave time to provide flexibility.
  • Enquire with different lenders as to their policies.

Posted by Jennifer Duke - Domain (The Age) on 3rd June, 2015 | Comments | Trackbacks | Permalink

How to stop living week to week

Why has lurching from one payday to the next become such a prevalent lifestyle ?

Mention living pay cheque to pay cheque and most people associate the habit with people on low incomes or students. But you don't have to live on Struggle Street to find yourself hanging out for your next payday.

Spending big when we first get paid and then living tight until the next influx is a problem that can affect anyone, including the well off. 

Dominique Bergel-Grant, founder and financial planner at Leapfrog Financial, says it's "incredibly, incredibly common", adding that the situation even crops up in households where both people are on six-figure incomes.

Academic research reveals the extent of it. In 2010 Princeton University's Greg Kaplan and Justin Weidner, and New York University's Giovanni Violante studied the spending patterns of US households. They found about 30 per cent of them were living hand to mouth. Two-thirds of them were "wealthy" hand to mouth: those households that had little or no liquid wealth but substantial holdings of illiquid assets such as housing or retirement accounts.                         

While the "poor" hand-to-mouth households were mostly young with low incomes, the wealthy hand-to-mouth were older (peaking at about age 40), had high incomes and substantial illiquid assets.

The same study looked at seven other countries including Australia. In Australia the proportion of households living hand to mouth was about half that of the US, the UK and Canada. But 90 per cent of them fell into the wealthy category.

In part, the results reflected Australia's compulsory super system, but even when super accounts were excluded, the proportion of Australia's poor hand-to-mouth households only rose from 3 to 9 per cent.

So why has lurching from one pay to the next become such a prevalent lifestyle?

Jeff Oughton, consulting economist at industry super-fund-owned bank ME, puts it in an economic context.

"The labour market has been deteriorating; the unemployment rate has been going up over time; and of course, income gains are at a historical low while costs keep rising," he says. 

"About 60 per cent of Australians didn't get a pay rise last year and their biggest worry is maintaining their standard of living," he says, adding that incomes went down for 20 per cent of people. 

ME's latest Financial Comfort report, published in February, shows about 5 per cent of people cannot afford to pay for essentials, says Oughton.

"That's roughly in line with the unemployment rate. Then there's about another 24 per cent that can only afford the essentials." 

But there's more to it than inadequate income. ME's inaugural Savings Intention report, published in January, shows many of us don't know what we're spending. 

"Almost 60 per cent of people don't budget, so they're not sure where they're heading with their finances," says Oughton.

Bergel-Grant thinks the habit of living week to week has a lot to do with the values we're taught as children. "I think we're not actually learning the value of money and the value of saving – learning that you can spend some of your money today but you actually need to put some aside for future investment and some aside for future fun," she says.

Rik Schnabel, founder of Living Beyond Limits, puts another spin on it. He says people are often operating from a "move away from" mentality where they are driven by the fear of not having enough.

So if living pay cheque to pay cheque has become a habit, how do you break the cycle? 

Extra income isn't necessarily the way out, although it can help. 

"What you earn doesn't necessarily determine your savings capacity," says Bergel-Grant. "It's how you manage your money and how you treat your money when it comes in; it's how you treat every pay rise that you get." 

Reacquaint yourself with cash

Bergel-Grant says people on a monthly pay cycle often find it harder to stick to a spending plan than those paid weekly. One way to restore a sense of balance to your financial world is to set yourself a weekly cash allowance. Get your salary paid into a savings account and then withdraw your allowance each week and only spend cash. 

"If you treat it on a weekly basis it's much, much easier to manage and you don't find yourself crying poor for two weeks at the end of a monthly pay cycle." 

The exercise offers a powerful reminder that money is tangible, she says. "It stops spontaneous spending for clients. If they are looking at buying a new pair of shoes or a new shirt or a new piece of computer equipment, actually physically having to hand over $50 notes is a lot harder than presenting a credit card to make that payment."

Of course, setting a realistic cash allowance relies on you having a firm grip on where your money goes. If you have no idea, the Moneysmart budget tracker tool can help. Plus, Bergel-Grant suggests: "Look back at your bank account for the last three months and see what it is that you're spending on. Is it realistic? Are there areas where you know you could pull back?"

It might highlight that you're overcommitted and need to look for ways to increase your income. 

Plan your spending

Curbing spontaneous, or binge, spending is key to breaking the pay cheque to pay cheque cycle, particularly if it means you're living on plastic by the end of the month.

Michelle Hutchison, head of PR at Creditcardfinder.com.au, says: "A lot of people don't keep track of their spending so they just thoughtlessly make purchases, particularly impulse purchases, where they don't necessarily need it or they haven't planned for it.

"It becomes a rut that you can't get out of because you're constantly chasing your tail, living pay cheque to pay cheque, because you keep spending more than you earn," she says.

A creditcardfinder.com.au survey of 1200 credit card-holders recently found more than one in four (22 per cent) didn't pay off their balance in full each month. Of those, 79 per cent admitted to using their card for unplanned purchases. Almost half (49 per cent) made one to three unplanned purchases each month, while one in 10 made more than 10 unplanned purchases each month.

Unplanned purchases ranged from shopping sprees (23 per cent) to going out or entertainment (27 per cent). Unexpected bills (21 per cent) and emergency expenses (19 per cent) also had people reaching for their cards. To many (58 per cent), sales were like cat-nip, but they can be a false economy.

"If they couldn't afford it to begin with, or they don't need it, they are not actually saving anything if they end up paying interest on it," says Hutchison.

"But if they were going to buy a pair of shoes in the next few months and there was a sale on them then that would be a saving. So you've got to be more thoughtful and more conscious of how you're spending your money."

Expect the unexpected

Oughton says ME's studies show a lot of people would struggle in an emergency. 

About 30 per cent of people don't have $1000 in savings and 18 per cent say they couldn't raise $3000 in a week to cover an emergency.

Reduce the likelihood of an unexpected bill creating financial havoc by saving an emergency buffer, ideally at least three months of expenses. Bergel-Grant suggests keeping those savings in account that can't be accessed straight away via an ATM. 

Set a goal beyond survival

Think about what you will gain by breaking the week to week spending habit. One immediate benefit is money doesn't disappear on interest charges, credit card surcharges and late fees.

Longer term, it might mean a house deposit or retirement savings. 

When we look beyond survival to a larger goal, we start shifting to the more expansive "move towards" mentality, says Schnabel. He points to the shift that happens when a couple decide to have a baby or buy their first home. "What they'll do is they will look at their finances; look at what they need to do; and they will have a good reason to get out of that pay cheque to pay cheque mould and they will start investing."

The goal may also be emotional stability. Aim for feeling in control of your money, steady and balanced throughout the month, rather than free and easy at the beginning of the month and then panicky, stressed or deprived at the end. 

Reward yourself

"If you do meet your targets and your savings goals it is OK to give yourself a little bit of a reward to enjoy," says Bergel-Grant. If you love sales you could set aside an allowance for indulging in some bargain-hunting.

"So you can have a splurge but you can afford that splurge," says Hutchison.          

  • Know where your money is going
  • Set a weekly cash allowance
  • Plan your spending 
  • Save a buffer
  • Set a goal beyond day-to-day bills


The wait between paydays can be long for performing artist and freelance caterer Edwina Joesler (pictured above). "Frequently, I will be waiting not just weeks, but months, for clients to pay up," she says. The Sydneysider's annual income is less than $20,000 and she lives without a credit card. 

So how does she do it? "Budgeting is simply: how cheaply can I do this in every single aspect of my life." 

That means restaurants are out and entertaining at home is in. So is swapping and sourcing things on Gumtree and Freecycle. Transport is an e-bike ("it's saved me massive amounts of money on public transport and petrol") and she's turned her Tarago into a money-spinner by renting it out to others via Car Next Door. 

Cheapest prices aren't always best. "It's made me very, very aware of how well a product is made and whether it can be repaired", and she recently switched to Powershop so she could monitor her power usage.

The 50-year-old makes extra dollars from her skills - painting, decorating, window-glazing, upholstery - and lecturing on how to avoid food waste. 

She knows her lifestyle isn't for everyone, but she's happy to own it.

"My work has often taken me overseas living in places that are really poor and even when I'm doing it the toughest I feel really wealthy in this country," she says. "I know how much of a luxury it is to turn your tap on and get hot water."

Posted by Christine Long - The Age on 2nd June, 2015 | Comments | Trackbacks | Permalink

Blaming The Block for the housing bubble is nonsense

There may be some worthwhile arguments that suggest Sydney and up-market Melbourne areas are in a housing bubble, but the popularity of home improvement television shows is not one of them.

At an estimates hearing on Monday, Treasury Secretary John Fraser told senators Australia's two largest cities are showing "unequivocal" signs of a housing bubble.

"It does worry me that the historically low level of interest rates are encouraging people to perhaps over-invest in housing," he said.

"I'm not talking just about buying housing, I'm talking about investing in housing. You've just gotta see a plethora of these renovation shows to realise something's amiss," he said. 

The high rate of investment activity is a worthwhile conversation to be having, but Mr Fraser is looking in the wrong place if he thinks renovation shows on television are an accurate barometer of the housing market.

Reality TV shows do not accurately reflect reality - that is what makes them good television. They're certainly symptomatic of national obsessions - Masterchef tapping into foodie culture, The Block revelling in renovations - but they aren't indicative of market movements.

The Block premiered in June 2003, and has run successfully for more than 10 years. Its producers pull out new tricks season after season. Even if we were to take the ratings card as a reflection of the housing market, his argument doesn't stack up.

Ratings for the show have not climbed higher than they did when they peaked in season four, in June 2011.

In June 2011, interest rates sat at 4.75 per cent, after the Reserve Bank had hiked interest rates seven times since a cut in April 2009. They had not been higher since 2008.

As the housing market in Sydney and Melbourne did very little between the boom of the early 2000s and the last three years, it's fairly safe to say that the popularity of these shows has nothing to do with interest rates and speculation in the property market. 

The popularity of The Block, arguably Australia's favourite renovation show, does not suggest that there is a problem.

Australians have always been house proud and the proliferation of television shows merely reflects this national interest. Spending money to improve the home in which you live, to provide yourself a better quality of life, is not speculative overspending in the property market.

Bringing reality television shows into a serious discussion about rising prices and housing bubbles is nonsense.

Given it is the strongest line the Treasury has taken on the tireless housing bubble topic, it would be good to stick to the data and leave television shows out of the equation.

Posted by Jennifer Duke - Domain (The Age) on 2nd June, 2015 | Comments | Trackbacks | Permalink

Making the most of the current economy

Low interest rates are supposed to make us borrow and spend. But most of us are saving instead.

I've been fielding questions lately about interest rates and the economy.

Such as, with interest rates of 2 per cent being the lowest they've been for several generations, why is the economy not growing quicker? Why is government revenue not keeping up with spending? Why is unemployment still over 6 per cent?

The monetary policy – using interest rates to control economic activity – is not stimulating the economy as expected.

Low interest rates have triggered investors to buy established houses and apartments, but there's been less stimulation in the first-home buyer, or home-building sectors, or in markets outside metropolitan Sydney and Melbourne.                        

Low interest rates are supposed to make us borrow and spend. But the Reserve Bank said in its March Financial Stability Statement that our household saving rate is higher now than at any time in the decade prior to the GFC.

We're holding on to our dough – not spending it.

In the latest Budget the government tried to encourage spending by allowing business owners to claim an instant tax deduction on business items up to $20,000, a huge increase on the usual $1000.

So Canberra wants business owners to drive economic growth.

This week we'll have another interest rate decision but it won't matter if it drops to 1.75 per cent, or stays the same. You see, we're at 2 per cent already, which is the lowest cash rate most Australians have seen in their lifetimes. The last time it was this low was before I was born.

Among all the financial data, Australia's official cash rate is the number that really matters. Two per cent means the economy is in trouble.

Unfortunately for the government, Australians are not dummies – they know what to do with low interest rates. People with home loans are using the low interest rates to get ahead on their repayment schedules and on average, are now two years ahead.

And when Australians are not paying down debt, they're using low interest rates to fund investment properties that yield better than the 3 per cent yields on cash.

Owner-occupied home loans grew only 5.8 per cent in the year to March, while investment property loans grew by 10.4 per cent.

Of course, all these responses – the savings, the accelerated mortgage repayments, the refinancing and the investment loans – rely on employment.

We're above 6 per cent unemployment right now – not as bad as the late 1980s when it was mote than 10 per cent, and not as good as 2007 when it got down to 4 per cent.

The best strategy for most Australians is to hang on to their jobs and use cheap debt to do exactly what they're doing: pay off their home loan and other debts; find the best deal, and fund an investment.

And what about spending as a stimulus? We'll have to see if business owners are ready to open their wallets.

Posted by Mark Bouris - The Age on 27th May, 2015 | Comments | Trackbacks | Permalink

Tips on saving for your new home

 Meeting the upfront costs of buying a property is only the first step on your financial journey. We asked William Johns, Senior Financial Planner and Managing Director, Health & Finance Integrated, for his tips on saving for a new home.

Q: What are the best ways for first home buyers to save the money for the upfront costs of buying a new home?

A: “As the property market in major metropolitan cities continues to experience high demand, many new entrants and first home buyers feel ‘squeezed out’. There are a few ways you can get in. Couples can learn to live on one income and save the other. Living with parents or flatmating can also help. For established families, working with a financial planner can be extremely beneficial for putting together a plan.”

Domain’s research found that over half of those saving for a property purchase reduced spending on entertainment, eating out and clothes and accessories. This was followed closely by reducing spending on holidays and groceries.

There are many ways to cut household costs if you’re willing to do your homework, including reducing your utility bills, moving to a cheaper rental property, or even considering purchasing with friends or family.

ASIC’s MoneySmart website has some more good ideas on reducing your household expenses if you’re going to go all out. Make sure you have a good idea what your home buyer budget will look like when you start saving for your new home so you have some concrete figures to work towards.

Q: How can buyers be sure they will be able to afford the ongoing costs?

A: “Having the required deposit and being able to borrow money is only the first step in owning a property. Early practice of living on one income (for a couple) or seriously reducing your unnecessary spending on luxuries can set you on the correct trajectory. After the purchase, maintaining on-time payments will reduce the chance of incurring dishonour fees, and being disciplined with your spending will also help you pay the home off faster.”

Q: How much “fat” would you recommend people have to guard against getting into trouble with a large, unexpected expense? Should home buyers take out income insurance?

A: “When working with buyers, we recommend they have a ‘plan B’ in case ‘plan A’ fails. Plan A is usually buy the property, and do all you can to pay it off…but what if something goes wrong? The most common scenario is loss of employment. But buyers neglect more serious scenarios such as being diagnosed with a serious illness or acquiring a disability by accident or through illness. For some loss of employment, you need a cash reserve of few thousand dollars to see you through, but for more serious life challenges like sickness or death, then it is very important to invest in a solid income protection policy.”

MoneySmart has some sound advice on saving for your property purchase.

Posted by Jackie Neville - Realestate.com Blog on 26th May, 2015 | Comments | Trackbacks | Permalink

The key to property investment

 A LANDLORD'S key to success is being able to keep a good tenant. As investors continue to swarm the property market being able to maintain a longstanding arrangement with a tenant is crucial to ensuring you don't cost yourself in the long run.

Continually changing tenants can be an expensive process especially if there are periods when your property isn't leased out.

LJ Hooker's Amy Sanderson says the first thing to ask yourself is whether you as a landlord would happily live in the property.

“Tenants want security and a property that's clean, neat and tidy,'' she says.

“It can be worth giving it a freshen up, a paint, new carpet, new blinds and always think as a landlord whether you would live there.”

She says simple improvements such as new blinds, light fittings or ceiling fans can cost a few hundred dollars but add significant value to the property and at the same time keep the place looking modern.

It's also important to act quickly when something at the property breaks, for instance a fitting or fixture, but when tenants do move out look at doing bigger improvements.

“When the property is vacant look at the big-ticket items and things that would normally inconvenience a tenant,'' Sanderson says.

“You wouldn't want to inconvenience someone by recarpeting the house or repainting the home while they are living there.”

University lecturer, author and investor Peter Koulizos says you should also think twice before increasing the rent.

“Don't increase the rent just because you can,'' he says.

“If the tenant is good and unless there is a huge discrepancy with what the market rent is and you know they could go somewhere else for the same rent I would leave the rent as it is.”

However he says if you do improvements to the property it gives you licence to hike the rent, for instance by installing a dishwasher or building a carport.

The tenants won't be shocked if they are hit with a rent rise.

Koulizos also says rewarding your tenants is a good idea — give them a present at Christmas or send it to your agent to pass on to them.

“It might just be movie vouchers, it might only cost the landlord $50 but it's the thought that counts,'' he says.

And finally Koulizos says give the tenants plenty of notice to renew their lease — a few months before it expires.
This will help in getting them to resign well before they start hunting around for another place to live.

Posted by Sophie Elsworth - News Limited Network on 25th May, 2015 | Comments | Trackbacks | Permalink

Borrowers with small deposits for a home are getting stung

 STRUGGLING first home buyers battling rising house prices are getting pushed out of the market even further with hikes to compulsory insurance for those with small deposits.

Rises to lenders mortgage insurance (LMI) — which protects the mortgage lender not the borrower if the customer defaults — is the latest sting in the tail for borrowers entering the market.

LMI hits customers with a loan-to-value ratio of more than 80 per cent and has crept up since

the global financial crisis, costing customers thousands of dollars more when taking out a loan.

LMI rates have climbed from an average of 2.92 per cent to 4.37 per cent on the total loan sum.

On a $650,000 property with a five per cent deposit the LMI costs have risen by nearly $9000 from $18,000 to $27,000 over the past seven years.

Slamming the door on first home buyers

Industry experts say it’s making it tougher for entry-level buyers to crack into the market, as they continue to battle surging house prices and the banks’ toughening up around lending criteria in recent months.    

Home Loan Experts’ managing director Otto Dargan said it was just another barrier for first-time buyers trying to buy their first home.

“It’s already tough for first home buyers to enter the market with tighter lending criteria and higher property prices, increasing LMI is just another blow,’’ he said.

“The biggest roadblock for first home buyers is the size of their deposit.’’

He warns that borrowers who do pay LMI will pay interest on these costs as it’s rolled into the total home loan cost.

“If you added $10,000 in LMI to your 30 year home loan at 4.15 per cent then you’d actually end up paying $17,499 with the additional interest,’’ Mr Dargan said.

Price of entering property market

Property prices in Sydney are up about 14 per cent in the past 12 months compared with Melbourne at 6.5 per cent, Brisbane 2 per cent and ­Adelaide one per cent.

But a Genworth spokesman said despite LMI increases it allowed first home buyers to make their dream of buying a home possible sooner.

“Without LMI many first home buyers simply would not be able to get the finance to buy,’’ he said.

Westpac this week ended its longstanding agreement with the nation’s largest LMI provider, Genworth, and could provide a much needed shake-up to the mortgage insurance industry as more players enter the market.

Mortgage Choice figures show first home buyers continue to be sqeeuzed out of the market — in April this year 12 per cent of their loans were for first-time buyers compared to 23 per cent in April 2009.

LMI costs are not transferable too so if borrowers are wanting to refinance and have little equity in their home they will have to pay the cost all over again if they jump lenders.

Posted by Sophie Elsworth - News Limited Network on 23rd May, 2015 | Comments | Trackbacks | Permalink

Why it could be a good time to buy

 WITH all the talk of housing bubbles, it’s good to be cautious about the property market but for some people this could actually be the right time to buy.

Foxtel’s property expert Andrew Winter told news.com.au that you could always find value if you did your homework.

“It can always be a good time to buy. While buying during a slump is best, you can still find good properties in a boom, as some properties might get forgotten or left behind,” he said.

“It all depends on the property cycle and where the cycle is in your area.”

Mr Winter said that there were overheated markets in central Sydney and Melbourne but in most other areas of Australia, prices were not at their peak, and had not even returned to levels experienced in the last boom cycle.

“If the price of a property is not back to what it was seven years ago, then it’s not at a peak,” he said.

Property prices in Sydney have risen 14 per cent in the first four months of this year and are expected to crack the $1 million median soon. But interest rates are at historic lows so it’s never been cheaper to get a loan

Mr Winter’s advice for buyers trying to get a foothold in central Melbourne or Sydney, was to look at a different area or a smaller place.

But he warned that even when buying a “compromise property” that buyers should do their homework.

“If in three or four years time you do need something bigger, the property may not have increased in value or you could even have made a loss so you there’s no point selling, in that case you might want to rent something bigger, so make sure you can rent out the (first) property for a reasonable amount,” he said.

“If you’re in one of those bigger markets, the most important thing is to ensure you can afford it, and if you can afford it now, ensure you lock in your finance at least for the next three or four years so you know you can pay it off (in case interest rates rise).

“This is not the time to be looking at variable options.”

How much can you afford to borrow? Use realestate.com.au’s borrowing power calculators now.

Mr Winter also advised people to analyse why they were buying.

“A word of caution if you’re buying your first home, your seventh or whatever, decide if profit is important to you.

“If you’re buying a forever home ... if you get carried away that’s probably ok because you will hold on to it for a while but if you are buying a first home or an investment property, and everyone wants the property, they’re all chomping to get it, you probably need to walk away.”

Mr Winter said it was best to buy in markets you were familiar with as you would be less likely to make mistakes but if you did look further afield you needed to give yourself time for research.

“A bit of online research is just not enough, go to the area, talk to the agents, look at the papers, attend open houses even they are not your type of home, just to get a feel for the area. Get down and dirty as they say.

“The reality is the best time to buy is when nobody else is.”

CoreLogic RP Data senior research analyst Cameron Kusher said when deciding whether an area represented good value, the important thing to consider was whether you were buying at the right price and for the right reasons.

“Look for areas that haven’t seen much growth of late, are undergoing urban renewal or are seeing new infrastructure investment which will boost the area’s desirability,” he said.

“The best opportunities at the moment seem to lie outside of Sydney and Melbourne given the strong recent growth in values.”

Mr Kusher said while these cities were still recording growth, buying now meant you would be paying higher prices and would also have missed out on the past two and a half years of growth.

“The opportunities appear to be buying for the longer term in markets yet to have seen much in the way in capital growth,” he said.

“Although the Brisbane and Adelaide housing markets remain fairly muted and may do so for the next few years, they typically follow the growth in Sydney and Melbourne.

“Of course at this point their economies aren’t as strong but at some point, as people are priced out of the two largest cities, they may start turning their attention to these two cities. “Alternatively we are also staring to see some growth appearing in near capital city markets like Illawarra, the Hunter region and Geelong.”

He said the biggest consideration was interest rates.

“Given they are currently at historic lows, borrowers should consider how they can/will serve that debt when interest rates increase. Obviously other things to consider are cost, location size, future requirements, up-keep etc.”

Posted by Charis Chang - News Limited Network on 23rd May, 2015 | Comments | Trackbacks | Permalink

How to get a broken personal budget back on track

 If your personal budget is in bad shape, there are ways to clean it up — but cutting out your favourite luxuries should not be part of the plan.

A household budget - much like a Government budget - can turn sour over several months if people are not realistic about their spending.

But bouncing back can be a quick process if people focus on the big household expenses and develop new habits, says LifeSherpa founder Vince Scully.

“Don’t beat yourself up, start fresh, stop making it worse, but keep things that you truly love. If you are cutting out stuff that you really love, you are not going to sustain it,” Scully says.

If coffee and cake make you happy, don’t give them up. Instead aim to trim spending on big expensive bills such as utilities, he says.

“By changing electricity provider or switching off the lights at night you can save more — and that’s one decision rather than 365 decisions.”


Scully has created a PEARL system that groups spending in five categories:

POSTPONE recurring expenses such as haircuts, dentist check-ups or even car upgrades;

ELIMINATE spending that you don’t use such as under utilised memberships and subscriptions;

AVOID things that often cause cost blowouts such as drinks at the pub or clothes-buying sprees;

REDUCE how much you spend on common money-wasters such as grocery shopping and transport;

LOVE to spend money on the things that are most important to you, whether luxury cosmetics, travel or good food and wine. “Keep what you save for the things you love. If you want to make your budget sustainable, these are your most important expenses,” Scully says.


Nettina Baressi, founder of money mentoring program BudgetWorx, says good ways to get a budget back on track include switching your bills to direct debit payments and avoiding the use of credit and debit cards.

“Lots of people are not closely monitoring their spending. Cards are so accessible, even if they’re debit cards, and people aren’t tracking what they are doing,” she says.

“Go back to basics and identify your vision and goals.”

Baressi also believes in not giving up all the luxuries. “Try to be more positive and reward yourself. If you are under budget one week, you can splurge the next week,” she says.

There are plenty of budgeting and spending tools available to help consumers track spending and it’s important to learn how to use them, Baressi says.

“Be strong-minded and say ‘this is the way I’m going to operate my household’, and you will get results.”

Posted by Anthony Keane - News Limited Network on 19th May, 2015 | Comments | Trackbacks | Permalink

Bank regulation to favour owner-occupiers could mean cheaper home loans

 A CRACKDOWN by the banking regulator could mean cheaper home loans for first home buyers.

The Australian Prudential Regulation Authority (APRA), which oversees the banks, has imposed new rules to slow the growth of lending to investors, which could mean a better deal for owner-occupiers, who are often first home buyers.

This means that people paying off the home they live in are likely to become the new prime customer of banks, Fairfax reports. This fiercer competition could lead to cheaper home loans for owner-occupiers than what is offered to investors.

First home owners are increasingly competing against investors for the same properties. March housing finance statistics showed investors accounted for 40 per cent of property sales.

The National Australia Bank is among the lenders that has offered a better deal to owner-occupiers, with a 0.15 per cent interest rate discount offered to people living in the home they are paying off.

APRA has imposed a cap to slow the growth of credit offered to investors to less than 10 per cent a year, in order to rein in the risk that loans will not be repaid.

It is yet to be seen how each bank will respond to the measure.

NAB’s Anthony Waldron told Fairfax that he believed more banks would offer “differentiated pricing” to comply with the new rules.

“Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines set out by the regulation,” he said.

However, Michael Rafferty, of the University of Sydney’s School of Business, said the banks’ change in priorities was more to do with mitigating risk than giving first home buyers a fair go.

“They’re not interested in the fairness of housing. It’s about who are the lowest risk borrowers,” Dr Rafferty toldnews.com.au.

He said APRA argued that owner-occupiers were more likely to repay their loans because they tended not to walk away from home ownership, while a person taking on more debt for a second or third home was a riskier proposition.

“People hang on to home ownership as long as they can: they stop going out, and stop buying cars … So the argument is being put that selling homes to new young couples to live in is considered a safer bet than an investor,” he said.

Dr Rafferty said there had been a significant change in the way Australians looked at the property market, which had made it increasingly difficult for younger people to buy their first home.

“We’ve allowed housing to become a form of saving, when it used to be seen principally as place to live in,” he said.

“As a consequence, you’ve got all these investors and all sorts of other people securing housing like they’re playing the stock market.

“A young person in their 20s trying to pay off their HECS debt is looking at the housing market and seeing it whizzing past. It’s changed housing in less than a generation and that’s a big concern.”

Dr Rafferty said unions were involved in securing affordable housing for their members in decades past, but now it was seen as a dilemma for individuals, or considered only a concern for people on welfare.

“Today, I don’t see any institutional champion for people wanting to change the direction (of housing affordability),” he said.

Despite the difficulties, Dr Rafferty said younger Australians should continue to pursue the dream of home ownership, because it had it had other social benefits, such as offering security of tenure in the one home and helping people support themselves in retirement.

Record-low official interest rates of 2 per cent continue to make property an attractive investment.

Investors have led unprecedented growth in Australian home loan approvals, which has led to an overheated property market, particularly in Melbourne and Sydney.

The amount of home lending grew 3.8 per cent to a record $31.3 billion in March, helped by a $12.9 billion surge in borrowing by investors.

Posted by James Law - News Limited Network on 19th May, 2015 | Comments | Trackbacks | Permalink

Recycling can turn your bad debt good

Go forth and borrow is the word according to Joe Hockey, though as a financial adviser he should stick to his day job.

I know worrying about debt is so last year's budget and to be fair he did say we should "borrow and invest" as distinct from borrow to buy. That's just as well because have you seen what credit card rates have been doing?

Exactly. Nothing, in spite of numerous rate cuts by the Reserve Bank going back 3½  years. The average card charge of 17 per cent is more than eight times the official cash rate, when the norm used to be just over two times, according to www.canstar.com.au. 

And wouldn't you know, if you find a lower rate, sure as eggs, there'll be an annual fee. Is nothing simple? The only excuse for having one of those cards would be to take advantage of a zero rate balance transfer. Even then you wouldn't want to be adding more debt to it.

Truth is the rate doesn't matter when you use your credit card the right way. Funnily enough, using it to the max is even better than not using it at all but it has to be one of the 55-day interest-free cards. Use it for everything and then pay it off before it's due. That's the best revenge on the banks I can think of, especially if you can earn a bit of interest, not that it'd be much, while your pay is parked in an account in the meantime.

Hmm, might be an idea to download an app or something so you keep track of what you're spending.

If you have a mortgage with an offset account you'd save interest on the home loan and maybe accumulate lots of reward points, neither of which Joe had in mind. Still, he does have a point about borrowing to invest, aka gearing. I mean if you're going to be in debt you want it to be the nicer tax deductible kind.

I've banged on before about the difference between debt that's good – because the interest is tax deductible – and bad which is frittered away on things that lose value such as a car.

For argument's sake, a mortgage is bad debt too since the interest isn't deductible, even if home ownership boasts even better tax benefits.

It could be made partly tax deductible too but you'd have to rent out a room or two.

Or you could turn the bad into good debt.

Goodness, is that possible?

Yes, though I'm talking about recycling, not reducing, debt. Still, your tax will be lower and you'll finish up with an asset that grows in value.

The secret is stepping up your loan repayments and then borrowing whatever the extra was to invest – probably in shares since it wouldn't be enough for a property. It's as good as making some of the mortgage tax deductible.

Hang on, wouldn't that mean more money going out?

Ah, but the part going on shares becomes tax deductible, which was the whole point, and can probably be claimed during the year against your PAYG instalments by filling in a special form (NAT 2036) from the Tax Office. Plus the dividends should have a bonus 30 per cent franking credit.

I should mention it won't be good debt for long either if you buy some speccy stock that goes belly up.

Another way of creating good debt is getting any shares you already own – say Medibank Private or Telstra – to do some heavy lifting.

Sell and buy them back in the next market correction – or choose different stocks – using a tax deductible loan. This is one occasion when the lower the price is, the better off you are because there's less to borrow. A home equity line of credit, a margin loan or instalment warrant are all possibilities. A credit card isn't.

Since you'll probably be up for capital gains tax, I'll leave it to you whether it's worthwhile.

Or just use the proceeds to reduce bad debt such as a credit card. Would those shares return 17 per cent year in and year out? I don't think so.

And just between you, Joe and me – promise not to tell the Reserve Bank – there's even a case for switching your mortgage to interest only and using the savings to gear an investment.

I'm not saying you should because frankly the best and safest investment is reducing your mortgage, but it's another way of generating good debt from bad.

Posted by David Potts - Money Manager (Fairfax Digital) on 19th May, 2015 | Comments | Trackbacks | Permalink

Owner-occupiers may get cheaper loans than investors due to APRA cap

Home owners paying off a mortgage on the house they live in are on the way to becoming the new prime customer for the nation's banks.

Facing new rules on lending to investors, banks are set to fight hard for borrowers who intend to live in the home they are borrowing against and that could mean bigger interest rate discounts for these customers.

Just this month a wholesale lender owned by National Australia Bank introduced larger discounts for new owner-occupier borrowers than new investors.  

"We've got a bigger discount for owner-occupied lending than we have for investor lending," said National Australia Bank's executive general manager of growth partnerships, Anthony Waldron.

"It's a direct response to us having a higher appetite for owner-occupied lending."

The reason is that the Australian Prudential Regulation Authority, which maintains the safety of the banking system, is demanding that banks slow investor credit growth to less than 10 per cent a year, meaning banks must compete for other customers.

Mr Waldron said the bank's wholesale white label lending business, Advantedge, which sells loans through brokers under different brand names had this month introduced changes that meant new owner-occupier borrowers received deeper interest rate discounts than investors.

Advantedge​  is offering owner-occupiers a discount that is about 15 basis point larger than the discount given to housing investors, he said. The change does not apply to NAB-branded loans, but it could be a sign of things to come.

Mr Waldron said each bank would respond to APRA's 10 per cent growth cap differently, but the "differentiated pricing" approach may become more common, as banks seek to expand in home lending while still complying with APRA's cap.

"Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines as set out by the regulator," he said.

It follows Westpac's comment earlier this month that it would apply tougher tests to new property investor borrowers when assessing how they would cope with higher interest rates.

The focus on investor lending comes amid signs the Reserve Bank of Australia is torn between cutting interest rates again to push the local currency down and further stimulate investment and holding them to prevent over-indebtedness in Australian households, according to one senior board member.

Deputy governor Philip Lowe told an investment conference in Sydney on Monday that it was not in Australia's long-term interests to "engineer" a debt-fuelled consumption boom through a low cash rate. 

"This is especially so when debt levels are already high and prospects for future income growth are not as positive as they once were," he told a gathering of chief financial officers.

The comments come on the back of fears from ASIC chairman Greg Medcraft about  property bubbles in Sydney and Melbourne

At the same time, however, monetary easing around the world had stymied to some degree attempts by the RBA to lower the value of the Australian dollar to accommodate the economic transition away from resources-related investment.

Posted by Clancy Yeates - The Age on 19th May, 2015 | Comments | Trackbacks | Permalink

How small is too small for an investment property?

 Small properties are low priced, generate significant cash flow and in certain suburbs, are hotly in demand. Plan your investment strategy with caution and reap the returns.

When it comes to property investing, size does matter. Most banks have lending restrictions on mortgages for properties less than 50 square metres (40 square metres in some cases), excluding external balconies. That means buyers will typically have to fork out at least 20 per cent of the loan, plus costs, in order to meet approval.

David Johnston, who is managing director of Property Planning Australia, says banks usually exercise lending restrictions on small investment properties for valid reasons: “They typically perform poorly from a capital growth perspective”.

Even so, property investing is not a black or white matter and there are exceptions to every rule. Johnston shares his advice on selecting the right type of small property for investment purposes.

Rental yield

One-bedroom apartments and studios look like they attract a  high amount of rent for the space they occupy, but don’t be fooled, says Johnston. The reason studios and one-bedroom apartments are priced so high, from a renter’s perspective, is because they don’t tend to generate a lot of capital growth – a key factor to consider when investing.

“For small properties, my real advice to anyone is to buy the best property they can for what they can afford to purchase,” he says.


Johnston suggests buyers opt for a small one-bedroom apartment or studio in a two or three-story high apartment block.

“It isn’t the property that creates capital growth, it is the land the property is built on. The larger percentage of land the property is on, the larger the potential percentage of capital growth. And the larger the apartment block, the lower your share of land. So generally speaking, the smaller the block the apartment is in, the better.”


There are ways to maximise the capital growth prospects of a small property. Johnston advises buyers to choose a one-bedder with a:
  • Large living space.
  • Kitchen that has a good amount of space.
  • Good-sized bedroom.
  • Car spot.

One-bedroom apartments outrank the investment potential of studios. However, Johnston explains, if a buyer is determined to purchase a studio, they should follow the basic fundamentals of property.
  • Ensure the floor plan is logical.
  • The studio must be in a block that’s on a nice street in a  highly desirable suburb.
  • It should have a nice amount of natural light.
  • Buy new to boost its market attraction.

Car spaces

“The first and foremost reason to purchase an asset should be to provide a great return, typically with capital growth,” he says.

“Many people get sold on a smaller asset, like car spots, because of the tax deduction angle, without understanding how the asset is likely to perform.”

The truth is, Johnston says, car spaces don’t produce good capital growth rates. But he concedes that if an investor is not interested in capital growth, but instead set on cash flow and a tangible tax deduction, then a car space might be the option.

Serviced apartments

Managed studios or one-bed apartments tend to look like good deals, but they could come with much higher property management fees: from seven to 20 per cent.

“On top of that are the levies for the concierge, pool facilities, lifts and body corporate fees. You could end up paying $4,000-$10,000 pa, instead of $1,000-$2,000. So in fact, they end up being more expensive than standard properties as the holding costs tend to be greater.”

“Every investment decision must start with an individual’s goals and financial situation. Determine what you can afford to buy and then from there, develop a property strategy. It’s important that the buyer makes a decision with their eyes open,” he says.

Posted by Yasmin Noone - Domain Blog (Fairfax) on 19th May, 2015 | Comments | Trackbacks | Permalink

The rise of the first home buyer investor

The number of first home buyers purchasing investment properties has jumped to record levels in Australia, a new report has revealed.

Low interest rates, tax benefits, the potential for capital growth and the continuing lack of affordability of the kinds of properties the first-time buyer wants to live in are all fuelling the jump in the level of new investors in the market.

"We are now seeing first home buyers buying homes for different reasons, with more investors in the market than ever before," says Martine Jager, the CEO of RAMS Home Loans. "Pleasingly, we are also seeing that, despite some of the challenges, first home buyers are more determined than ever."

Jager was commenting after a first-time investor survey conducted by RAMS together with Core Data, found that 19 per cent of first home buyers were intending to buy their property within the next three to six months, up from 14 per cent the previous year. Around 44 per cent of those had been saving for a deposit for two years or more, compared to 41 per cent the year before. 

Many of those first home buyers purchasing investment properties are choosing to stay at home with their parents and pocket the rental income as a way of saving for their dream home later. It's often seen as a much more affordable way of getting that critical first step on the property ladder.

"We've really noticed that trend of first home buying going for an investment property and moving back home with their parents so they can save their money," says Andrew Fawell, director of Melbourne's Beller Property Group. "Current interest rates are so low, the rent often pays the mortgage.

"In addition, we're seeing a lot of them rent out their property privately for the first year, so they can claim first home buyer benefits by pretending they're living there, then when that period's up, they give it to an agent to manage. Buying an investment place at the moment, with these rates, makes perfect sense."

Sydney solicitor Aleksandra Ilic certainly thinks so too. She's just bought a two-bedroom apartment off the plan at Mirvac's Ovo building in Green Square as an investment.

At the moment living in Rosebery, Ilic, 24, felt that a unit in the 28-storey tower designed by architect Richard Francis-Jones would be a great buy – especially since there was so much competition for them on their release in April, when they almost sold completely out.

"In my experience, it's been difficult for people of my generation to enter the Sydney property market as it's so expensive, and it's a big step and a big commitment," she says. "So for me I was buying as an investment because I can see how desirable it'll be in the long-term, and it makes much more financial sense to rent it out so it won't cost me anything.

"I think a lot of professionals will be keen to live there as it's so close to transport options, and to the CBD. Then there's the tax incentive and the likelihood of great capital growth as Mirvac is an extremely reputable developer and, with all the infrastructure planned, I can see Green Square becoming a real urban hub."

That's a scenario Sam Elbanna from CPM Realty is seeing more of all the time. "A lot of first home buyers are pushing themselves to buy investment properties now," he says. "They're just very keen to get into the market and this is the cheapest option for them. The only downside is for the poor parents, who are having to house them for longer and longer."

In Melbourne, software designer Henri Lee, 28, is still living at home, a saving that's helped him buy his first home in Brighton, intending to rent it out. On his calculations, staying at home with his parents means he'll only have to make a minimal outlay on the mortgage after rental income.

"I'd like to live there one day but, to be honest, I can't afford it at the moment," he says. "Maybe in five years' time I'll be in a position to move in but by then hopefully I'll have made inroads into the mortgage, the place will be worth more and I'll be on a better salary at work."

The prospect of good capital growth in a rising property market has been singled out as the most important reason first-time investors intend putting their money into property, the RAMS survey found. Of those first-timers, 94 per cent required a home loan, while 59 per cent intended to take a loan with a partner, and 31 per cent by themselves.

Posted by Sue Williams - The Age on 19th May, 2015 | Comments | Trackbacks | Permalink

How to design the perfect home loan

BUYING a house is a widely held dream that has become increasingly achievable for many. Interest rates have never been lower and competition between lenders for your business means it is easier than ever to design yourself a great home loan.

By taking these four simple steps you can make a blueprint for the perfect mortgage and pay off that pad as quickly as possible.


Home loan rates — both fixed and variable — have fallen below the four per cent mark, data from financial comparison site Mozo shows.

The lowest variable rate for a standard $300,000 30-year loan is 3.98 per cent while the lowest three-year fixed rate is 3.95 per cent.

Choosing whether to fix or not comes down to your circumstances however always make sure you look beyond the “advertised” headline rate.

The comparison rate includes all the fees and charges associated with the loan and is a better guide to what the true cost of your mortgage will be.

First-home buyers Bronik and Corinne from Channel 7 reality series House Rules bought their home in 2014 and chose to lock in their interest rate.

“We decided to go with a fixed rate on our home loan over five years,'' Bronik says.

“The rate was quite good so we decided to fix it in and not have to worry about any variations.”


Banks have had their margins cut as interest rates hover at historically low levels, forcing them to look at other sneaky ways to sting customers.

The easiest way to do this is through fees and charges — lenders often hit customers with application fees, upfront fees, valuation fees and discharge fees.

“It's more important in most cases to get a home loan with a lower interest rate than worry about the fees,'' says Mozo spokeswoman Kirsty Lamont.

Home loan fees do vary greatly — annual fees range anywhere from zero to $450.

So factor in these costs when choosing your loan but as Mozo spokeswoman Kirsty Lamont says, “fees shouldn't be a deal breaker” when choosing your loan.


Interest rates for deposit holders are so low — some in the two per cent range — so it's hardly worthwhile parking money in the bank.

But building a home loan that has an offset account attached is essential to helping curb your interest bill.

It acts as an everyday banking account that's linked to your home loan and will lead you on the way to cutting your monthly interest charges by leaving cash in the bank.

On a $300,000 loan, if you have $10,000 tucked away in your offset account, you'll only pay interest on a balance of $290,000.

Lamont says an offset account is one of the easiest, no-fuss ways to help pay back your loan faster.

“You can save around $30,000 on the life of your typical loan by having an offset account, it will save you a huge amount of money by basically doing nothing,'' she says.


When signing up to your loan one critical feature is to make sure you can opt for weekly or fortnightly payments.

By steering clear of monthly repayments you will be well on your way to building the ideal mortgage, and Lamont explains why.

“By making weekly or fortnightly repayments instead of monthly repayments you can actually reduce the amount of interest you pay on your mortgage because you end up paying a few extra repayments on your mortgage each year,'' she says.

“Find a home loan that offers you the flexibility of paying weekly or fortnightly and not just monthly.''

Make sure you make principal and interest repayments to cut down the money owed — usually investors opt for interest-only loans to reap the negative gearing tax gains.

If borrowers also receive cash windfalls or are lucky enough to receive a cash windfall tip the extra money into paying back your home loan.

Posted by Sophie Elsworth - Herald Sun on 18th May, 2015 | Comments | Trackbacks | Permalink

New Zealand introduces 33 per cent tax on properties bought and sold within two years

 NEW Zealand will introduce a 33 per cent tax on any property that is bought and sold within two years in a bid to keep housing prices under control.

NZ prime minister John Key announced the measure today and it will only apply to homes that are not the seller’s main residence.

The country has been looking at ways to take the heat out of the Auckland property market, where median prices for a home have risen by 60 per cent since 2008.

“It’s not unreasonable to expect that if you buy an investment property and sell it for a gain within two years, then you should be taxed on that gain,” Mr Key said.

But Associate Professor Mark Crosby, of Melbourne Business School, believes the 33 per cent tax is a clumsy way of tackling a hot housing market. 

“I think this is a poor policy, and I wouldn’t be surprised to see this policy quietly dropped within a year or two,” Prof Crosby said.

When asked if it would be a good measure to introduce in Australia, Prof Crosby said figures on housing turnover collected by the Reserve Bank suggested about 7 per cent of the 500,000 Australian dwellings sold in 2011 were held for less than two years.

“Those selling within two years tend to be younger people, and it is hard to tell, for example, how many of these sellers might be foreign speculators, but there doesn’t seem to be any evidence that foreigners are more likely to flip properties than local residents,” Prof Crosby said.

“So the tax will hit those who are forced to sell for whatever reason, rather than targeting any particular group. It is also unlikely to have much effect on house price growth.

“Buyers will simply hang on for two years and then sell, rather than selling inside that window.”

The New Zealand Government has been under increasing pressure to control foreign speculators buying properties in Auckand, with the NZ Reserve Bank estimating that investors accounted for about 40 per cent of house sales in the city last year. While it does not know how many of these were non-residents, the Green Party believes they could be driving up prices.

“Foreign buyers are treating the Auckland housing market like a restaurant buffet — they’re going back for second, third and fourth helpings,” Green Party housing spokesman Kevin Hague said.

“Every house a non-resident speculator snaps up is a home an Aucklander can’t own.”

The New Zealand dollar fell after the government stepped up measures to curb Auckland’s bubbling housing market, stoking speculation the move would free up the Reserve Bank to reduce interest rates.

The Kiwi dollar dropped to 74.26 US cents at 8am in Wellington, from 74.72¢ at the New York close and 74.74¢ at 5pm in Wellington on Friday.

The government announced on the weekend that it would give the Inland Revenue Department an extra $29 million in this year’s budget to chase property investors.

It will also tighten rules on investment gains and link transactions to IRD numbers while it assesses a withholding tax for foreigners, in a response to the growing fears about the pace of Auckland house price inflation.

“The New Zealand dollar has opened lower this morning on news that the government is also increasing measures to cool the housing market,” ANZ Bank said.

This is expected to give the NZ Reserve Bank additional freedom to reduce interest rates as it eyes weaker dairy commodity prices and an elevated currency.

Posted by Charis Chang and wires - News Limited Australia on 18th May, 2015 | Comments | Trackbacks | Permalink

Renovate smart to boost property value

Australians have an ongoing mission to renovate. The rate of home renovations increased 147 per cent from 2010 to 2014 and the renovation shows are TV ratings winners.

There are many reasons for renovating but whether you do it to sell a house or make a home more comfortable, you're doing it for capital improvement. With such low interest rates, if you have been considering a renovation now is a good time to get it done.

Before you get started though it's worth noting that many renovators fail to make the gains they envisioned. This happens because they either spend too much, take too long or they make incorrect assumptions about valuations.                        

These are some things you should know before you break out the hammer. First, get an understanding of what adds value. Renovations that are most likely to improve the value usually centre on the kitchen, bathroom and garden. Extra bedrooms, bathrooms, and certain fittings are effective too, but the basics hold true in most markets. Another rule of thumb is your spending ratio: ideally a renovation shouldn't cost more than 10 per cent of the property's value. If you go over this basic budget limit, you should be clear the required uplift in valuation might not be achieved.

Also exercise caution in your plans: before going too far, ensure that what you're proposing has council approval. Remember that in residential areas, the lower the value of the renovation, the more likely it is to be approved.

Once you decide that you want to proceed, you'll need to determine how you will finance the renovation. There are two options that people generally take – equity or a construction loan. Ideally you use equity from your existing property, and some of your cash, to fund the renovation. When you use equity and cash to finance a renovation, you'd typically refinance your home loan, or use features in your home loan such as redraw, line of credit and offset account, to access the equity.

Doing it this way gives you more control over your funds, your timetable and the tradies you use – than a construction loan. However, if accessing equity isn't an option for you, then you can consider a construction loan. It gives more control to the lender but can still be a suitable solution. It provides certainty to the borrower by writing the loan against the property's renovated valuation, taking a lot of risk away from the property owner.

The lender deals directly with the builder and pays the builder in stages, holding the builder to milestones and a schedule. Interest on a construction loan is only paid on the drawn-down stage payments. Neither option is fast – they involve plans, building contracts and valuations. You have to be patient.

If you're unsure, a mortgage broker is a smart step. They can advise which option will best suit your needs and help you select the best deal on your loan.

Whatever route you take on your renovation, remember this: the most valuable part is usually the extra time spent doing your homework. Good luck!

Posted by Mark Bouris - The Age on 15th May, 2015 | Comments | Trackbacks | Permalink

Buying a home a tough task whatever the era

Victoria Walker has come up with a plan to slash the time it will take to save a home deposit.

The 30-year-old mental health nurse this month will move from her flat in Bondi into her grandfather's home nearby.

"We definitely have it harder than our parents did buying a home, but I figure that it's going to be hard no matter when you choose to do it," she said. "The move will help me save … and its not for everyone, but we have a good relationship and I'm lucky to have the opportunity."

Her comments come as a new Senate inquiry has revealed the national rate of home ownership is declining and more Australians are being locked out of the housing market.

Some rental markets are also being affected by prices which are rising much faster than the average median wage growth.  

The committee including Senators Sam Dastyari, Scott Ludlam, Kim Carr and Nick Xenophon has called for state government to dump stamp duties, which they argue should be replaced by more broad-based land tax levies.

They have also taken aim at negative gearing, arguing the Federal Government should consider slashing the controversial policy in a taxation review currently underway.

"The committee has called for an inquiry into the costs and impacts of negative gearing, particularly on renters, including the option of phasing it out," Senator Ludlam said.

"The Abbott Government should consider this as part of a sensible discussion of Australia's tax system."

Other recommendation include changes to infrastructure funding, which is usually funded by developers and passed on to consumers in the form of higher house prices, and the reinstatement of Minister for Housing and Homelessness.

Meanwhile, Ms Walker is prepared for a long battle no matter what action the government takes to improve the odds for new homebuyers.

She believes her parents' generation had it easier buying a home, but there are always other issues that affect the affordability at any point in time.

Obtaining credit for a home loan is easier for her generation than for her parents, she notes.

"You just have to figure out what your priorities are … mine was never to buy a house straight away, and so I spent money on travelling and my lifestyle, but now I'm getting to the age where having a home is becoming important to me and saving is becoming my number-one priority," she said. 

Ms Walker has worked for more than seven years at hospitals across Sydney, most recently Royal Prince Alfred hospital in Camperdown.

Saving for a housing deposit has been on the agenda since she started working, but has only become front-of-mind in the past two years.

Holding a coveted position within the mental health unit at Camperdown's Royal Prince Alfred hospital, she is not concerned about her earning capacity.

But price jumps in the Sydney housing market in the past 12 months of more than 13 per cent means the price of ownership is rising faster than she can save, which is where the opportunity to live with family comes in. 

Is she daunted by the task ahead?

"A little, but its something I want to do," she said. 

Posted by Samantha Hutchinson - Domain (Fairfax Media) on 11th May, 2015 | Comments | Trackbacks | Permalink

Make the most of the low interest rates because they won't be around forever

The cut in official interest rates brought them to the lowest level since the early 1960s. It was a move expected by many but perhaps not welcomed by all.

Cutting rates recognises the fragile state of our economy that could further unnerve consumer confidence. It is hoped that the rate cut will give that much-needed stimulus to business investment and consumer spending.

In his announcement, Reserve Bank governor Glenn Stevens acknowledged the Board wanted to "reinforce recent encouraging trends in household demand". That's a worrying thought considering the low wages growth.

There is only so much the RBA can do to repair economic growth back to trend. It really lies now with the state and federal budgets.

Low rates tend to attract higher activity levels putting upward pressure on price. The booming Sydney market and issues of affordability must be addressed. The Domain Group reported Sydney's median house price is now $914,056 and could be set to hit over $1 million by the year-end. Regulators need to find ways to turn this market down a gear, whether that be through limits on negative gearing, foreign investment or cashed-up self-managed super funds.

An unaffordable property market is unsustainable and out of reach for many Sydney residents. The RBA did state they are closely monitoring the housing market "working with regulators to assess and contain risks".

But it is important to remember that trends throughout the capital cities have been varied. While regulators need to act fast to contain the Sydney housing market, other cities such as Brisbane, Canberra, Hobart and Perth breathe a sigh of relief.

Borrowing is more affordable as many of the banks were quick to pass on the majority of the rate cut. Lower rates help to make repaying a mortgage that little bit easier and faster. Not only does this make upsizing more affordable it should encourage tenants to become first homebuyers, of which numbers have been dwindling. Savings? As rates fall it is becoming more illogical to save, making other forms of investment more attractive. Property investment perhaps one.

Remember low rates cannot remain; it is only a matter of time before we see increases. It is all too tempting to over-extend yourself. If your debt levels are high try to use this as an opportunity to pay off a mortgage sooner rather than borrowing more. Repayments may be affordable now but will they be when rates rise?

Posted by Nicola Powell - Sydney Morning Herald on 11th May, 2015 | Comments | Trackbacks | Permalink

Forget painting and new curtains, there is one thing certain to add value to your home

 FORGET about painting the walls and hanging new curtains, a new survey has revealed adding solar panels is what makes your home more valuable.

The survey for Origin Energy, done through realestate.com.au, revealed 85 per cent of respondents believed solar rooftop panels increased the value of a property.

They were considered the top “green’’ feature to increase a home’s value.

About three quarters of renters surveyed said they would be happy to pay more rent to live in a property with solar panels.

About 78 per cent of those surveyed believed it would add up to $10,000 to the price of a home.

A similar number agreed it would make the home a more attractive buying prospect for them.

Of the renters surveyed 40 per cent said they would be willing to pay $10 more per week for a house with solar panels.

Phil Craig of Origin said the findings showed that solar panels could be a significant asset.

He said as well as helping with the cost of running a household it could provide a “real boost’’ if owners decided to sell.

REA Group Chief Product Officer, Henry Ruiz, said if you were looking to sell or lease your property it would be worthwhile considering adding solar panels.

“If you’re looking to sell or lease your property, it’s a really simple measure you can take to gain a competitive edge in the market.’’

What green features owners believe adds value

Solar rooftop panels 85%

Energy efficient appliances 79%

Solar hot water system 78%

Water tanks 70%

Water saving fixtures 47%

Posted by Michelle Hele - News Limited Network on 9th May, 2015 | Comments | Trackbacks | Permalink

Why women are the key decision makers in real estate

 BUYING a house is more about purchasing an opportunity to create a lifestyle than deciding on bricks and mortar.

It’s hardly surprising then that women play a key role in deciding on property purchases and influencing how a home is presented and marketed for sale.

Harcourts chief executive Sadhana Smiles said women had always been the key decision-makers in real estate.

“There are not many men who would purchase a home without their partner viewing it and approving of it,” Ms Smiles said.

“Frankly, it would take a brave man to take the decision to buy property without the wife’s approval.”

“Almost at every auction behind every man bidding is the wife pushing him to bid again.”

Surveys conducted over the past decade show that the majority of people searching for homes on realestate.com.au are women. The latest survey, conducted in March by Nielson, found 53 per cent of the unique audience on realestate.com.au were female.

A breakdown of search habits showed 52 per cent were keeping up to date on the value and performance of the market, while 37 per cent were seriously planning for the future.

But what are women looking for?

“Women see the purchase of a home from a far more emotional perspective then men,” Ms Smiles said.

She said women looked for features including a stylish and functional kitchen, good sized bedrooms, plenty of cupboard space and a well equipped laundry.

They also wanted to envisage the lifestyle they would be able to create in the home with their children.

“Women will visualise the home with their family in it. These things have not changed,” she said.


She said while female buyers were more emotionally driven when it came to purchasing a family home, women who bought investment properties were able to take the emotion out of their decision.

“As more women enter the market as investors, they clearly look for return on investment and it becomes a more non-emotional purchase,” she said.

Ms Smiles said the influence women had over purchasing property hadn’t moved housing trends, but it had shaped the marketing messages used.

“The lifestyle a property can provide and location is always a key marketing message,” she said.

So what are the key messages sellers need to make?

That depended on the buying market you were aiming at, Ms Smiles said.

“Young families will have different needs to those who are buying to a have a family, to young couples to parents who are upgrading, as their kids haven’t left home,” she said.

“Location also plays a key role in the decision-making process.”

Identifying the type of buyer that was going to be attracted to the home would determine the best marketing approach, what features to highlight and how to photograph them.

“Often asking the vendor why they bought the home will be the reason why the next person buys it,” Ms Smiles said.

When it comes to presentation, decluttering is a key as it allows buyers to really imagine their own items in the space.

Highlight features that are likely to generate interest in the property.

Floorplans and video are a great idea. Professional photos are a must.

“Marketing is an expense that often vendors cut back on, however your property is not for sale in isolation, it is in competition with many properties that may look the same as yours,” Ms Smiles said.

“When a potential buyer is searching for properties they will always look at photos and videos so it is imperative that you present the property in the best possible way.

“Remember your photos need to attract people to come to your property.”


SANDY Ingram took the reigns when it came to finding her family’s first home.

Living with their parents for three years and with a second child on the way, Ms Ingram and husband Jarryd knew it was time to get in the market.

“It was getting crowded because our family is growing and we needed our own space, our own home,” Ms Ingram said.

With her husband working long hours, Ms Ingram started trawling through websites and following up leads on houses.

She compiled a list of what they wanted in a home.

“First it was a school for our kids. Second was how many rooms there were and how big the house was,” she said. “It needed a nice garden and a nice kitchen.”

The young family went through three or four properties before settling on a home in Pakenham.

“We could see ourselves living in it,” Ms Ingram said.

She said it was important to be able to visualise living there.

“It actually is because you’ll be living in this home forever,” she said.

Mr Ingram said they saw potential in the home.

“At the moment there’s no sort of rear yard, so there’s plenty of work to do as far as what we want. It’s a nice big family home within our price range,” he said.

Posted by Peter Farago - Herald Sun on 9th May, 2015 | Comments | Trackbacks | Permalink

Low rates drive hunt for cheaper loans

Even before the Reserve Bank reduced official interest rates this week, borrowers were testing the mortgage market to find the best rates.

Figures from finder.com.au show the big banks still dominate mortgage lending, with more than 83 per cent of new loans. But in March they lost ground to other lenders.

The reason is obvious: none of the big banks' standard variable mortgage rates are still below 5.3 per cent. That's a 1 per cent difference between the big banks, and the second-tier lenders.       

If you have a 25-year mortgage of $400,000, the difference between a variable rate of 5.3 per cent and 4.3 per cent is around $230 a month.

I applaud the people who are using the competitive nature of the mortgage market to their advantage. It's only by becoming informed and then acting, that you can secure the best deal. Low rates give you an opportunity to put more money in your pocket and not the bank's. It also allows you the benefit of creating a rate "buffer" for when rates start to rise.

When interest rates move there's no guarantee that it's by a quarter of a per cent each month. An upward movement could be in greater leaps, giving people with large mortgages a bit of "rate shock". By reviewing your statement, shopping around and ensuring you have the lowest possible rate, you'll be in the best position for when a rate rise occurs.

So what should you look for to secure the best mortgage? There's a few things to remember beyond simply the amount of interest charged on a loan.

The service proposition is one: a mortgage is a large, important debt and most borrowers find they not only find better interest rates with second-tier lenders, but also one-on-one servicing, faster approvals and decisions, and more flexibility in dealing with their circumstances. Second-tier lenders also have a reputation for charging lower fees than the big banks, largely because they have smaller overheads.

While keeping an eye on how much interest you pay, and the service quality of your home-loan provider, also remember to match your goals and lifestyle to the right home-loan features. A no-frills loan is excellent for first-home buyers and people on a budget, but an offset account home loan might be better if you're trying to build equity fast, and a line of credit facility is good for experienced borrowers. If you're buying an investment property, an interest-only loan might be the best pick.

When you're looking around for a better home-loan deal, first give your current lender a chance to match the best rate you've found: it's always worth a go. And remember that mortgage brokers are an excellent way to access the market if you don't have the time, the latest knowledge or the expertise.

The March lending figures are encouraging because it shows borrowers are finding a better deal and acting with their feet. Are you?

Posted by Mark Bouris - Sydney Morningg Herald on 8th May, 2015 | Comments | Trackbacks | Permalink

The truth about negative gearing

IT’S the tax concession governments dare not touch even though there could be savings currently estimated at $12 billion a year if it were it scrapped.

And again this year, negative gearing — the claiming of costs related to investment properties as tax deductions — has escaped the Budget axe.

Prime Minister Tony Abbott has said it won’t be touched: “The government I lead wants taxes to be lower, simpler, fairer,” said the Prime Minister.

And his government is not about to upset some 1.2 million Australians who use the tax rebate to cover expenses of investment properties, such as mortgage payments and repairs.

There are two issues at the core of this debate:


The common view is that only the rich can buy a rental property so only the well-off benefit from negative gearing. So eliminating the concession has been depicted as a measure of fiscal equality.

“The reality is that over half of geared housing investors are in the top 10 per cent of personal taxpayers and 30 per cent earn more than $500,000,” said Dr Cassandra Goldie of the welfare sector body ACOSS.

Well, that used to be the common view. It’s now a crowded debate.

“There is an urban myth running around that negative gearing is the province of the rich and should be for the high jump,” said Social Services Minister Scott Morrison recently.

Sometimes the same set of figures have been used to make competing arguments.

Research by the Australia Institute think tank found a third of the rebates from negative gearing went to richest 10 per cent of households. More than half went to the wealthiest 20 per cent.

But another reading of the same data found more than a million people were negatively gearing, and, said a report in The Australian, “the widespread use of the tax losses in areas once considered ‘blue collar’ Labor territory in suburban Brisbane, Melbourne and Sydney”.

Scott Morrison used a Property Council analysis of Tax Office data. He said it showed negative gearers included 83,000 clerical workers, 62,000 teachers and child carers, and 12,000 emergency service workers “who aren’t the rich and famous”.

Certainly the well-off are better placed to buy property and use the concessions, but the Australian obsession with property means second-home ownership is no longer a province of the rich.


This is the big obstacle faced by the anti-neg gearing side: The notion that eliminating the concession would halt investment in rental properties and push up rents.

“If you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,” warned Treasurer Joe Hockey.

The tax concession has been dumped only once, by Labor between 1985-1987, and, Mr Hockey said, “The net result was you saw a surge in rents.”

Well, rents did rise but only in Sydney and Perth. The ABC fact checking unit has taken exception to Mr Hockey’s reading of history.

“During the period that negative gearing was abolished real rents notably increased only in Sydney and Perth — where rental vacancies were at extremely low levels,” said the fact checking verdict.

“This is inconsistent with arguments that negative gearing was a significant factor, with negative gearing likely to have a uniform impact on rents in all capital cities.

“At the same time, high interest rates and the share market boom of the mid 1980s increased consumer demand for rental properties, encouraged existing investors to pass on high mortgage costs to renting consumers, and discouraged additional investors from investing in the rental property market.

“While the rent increases in two cities did coincide with the temporary removal of negative gearing tax deductions, it is unlikely that change had a substantial impact on rents in any major capital city in Australia.

“Mr Hockey’s claim doesn’t stack up.”

Posted by Malcolm Farr - News Limited on 7th May, 2015 | Comments | Trackbacks | Permalink

The secrets to managing debt

Before attempting to build up your assets, you need to be clear about what you owe, writes Alex Berlee.

Today debt is a way for life, with the average household owing nearly 1.8 times  its annual disposable income, and the average person about $80,000 in debt.

But debt doesn't have to be a dirty word.  The right kind of debt can be helpful. . It's a simple concept: good debt can create wealth and bad debt reduces it.

If you borrow to invest, and the investment earns money, debts can be paid off from the earnings. In this way, the debt is y working for you. That's good debt.

But if you borrow for a car, or use a credit card to buy things that lose value and don't earn money, you can be behind in two ways – you're left with something that has a lower capital value, while having to afford interest payments. This is bad debt.

If you're trying to win the battle against debt, you should consider paying out any non-deductible debt first, such as credit cards, personal loans and home mortgages. It's important to reward yourself for your hard work, but if you receive a lump sum of money, say from a tax return or a bonus at work, you'll probably be better off in the long term by using it to pay off any non-deductible debt.

Managing debt doesn't stop when you retire. One of the biggest changes to retirement in recent years is people's attitude about taking debt into their golden years.

This is not such a problem if we're talking about good debt, but bad debt can eat into super or retirement income. In the lead-up to retirement, look at how long it's going to take to clear your debts and stick to a plan.

You might also consider going slow on the mortgage in order to crank up salary sacrifice into super and then use some of the extra super at retirement to clear the mortgage. You're ultimately paying off the mortgage at retirement with low-tax dollars, via your super.

Retirees should think carefully before going guarantor for their children. This can seem like a great way of helping them make a start, but be aware of the risks, especially  if they lose their jobs or get in over their heads.

 Before attempting to build up your assets, you need to be clear about what you owe – how much, in what form and at what interest rate. Once you know this, you can work out whether your debt could be arranged more efficiently.

If you have several bank accounts and credit cards, consider consolidating them, which will help to reduce fees and charges, and make it easier to  track spending.

Think about rolling any non-deductible debt into your home loan as this will usually have the lower interest rate.

Arranging for income to be paid directly into a home loan and using a credit card for daily purchases can help make considerable savings on interest payments. Of course, this will only work if you pay off your credit card debt each month.

Without a budget, there's no way of knowing how much is left at the end of the week to save, invest or go toward reducing debt.

Make it easy on yourself by setting up an automatic spending plan – pay your debts down first, allow an amount for larger short-term expenses like holidays, then spend what's left (avoiding credit cards), rather than spending first and trying to reduce debt later.

Posted by Alex Berlee - Sydney Morning Herald on 6th May, 2015 | Comments | Trackbacks | Permalink

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