How Does Your Bank Like Your Facebook Posts?

First our bank accounts, now our social media accounts?!

It’s no secret that the banks are scrutinising our transaction accounts, but what about our social media accounts?

We know that banks have easy access to data on our saving and spending habits.

When we apply for any type of finance, our income and spending is categorised AND scrutinised by the potential lender.

Your current lender will have access to your spending details. If you apply to a new lender they will most likely want to see your bank statements and transaction histories.

Open banking legislation has been passed recently and dictates that by 2021 all banks in Australia will need to provide open banking, and it starts with the big 4 in February 2020. Open banking is where you will be able to direct your bank to share your account and transaction information such as balances, regular debits, repayments, how much you spend and where you spend it. The aim is to make it easier for a new lender to understand your finance habits and history, allowing them an opportunity to assess a loan application with them more easily.

But wait – there’s more…

A report by the University of Melbourne suggests that we could expect our social media habits (aka boasting about our recent spending) to be scrutinised by the banks.

That amazing weekend away, brunch with friends or that recently redecorated home could cost you your next mortgage approval!

The lenders may think your spending habits will impact your loan serviceability. Serviceability is your ability to meet or service your home loan repayments.

Why is that?

We could make some assumptions on where this is headed based on two reasons.

1. What’s happening overseas

According to media in the UK, lenders are refusing mortgage applications and questioning tax and insurance claims based on social media posts.

2. Major Aussie lenders can use public information

Some of the major lenders state in their privacy policy that they “may collect information about you that’s publicly available”. What this public information actually is, is unknown (and possibly dependent on your privacy settings).

If the UK reports are anything to go by, it could very well mean your social media activity.

The paper by the University of Melbourne proposes a need to reconsider the role of new technology and data in the financial sector.

Dr Chris Culnane is quoted as saying “… We need to ensure these opportunities are used to improve the financial wellbeing of customers. This requires increased levels of transparency so decision making is fair and accountable, and customers know what data is being collected, how it’s being used, and on what basis decisions are being made.”

How can you increase your chances of home loan approval?

Of course the usual checklist applies:

• Show a regular and strong savings history

• Hold down a solid job

• Watch your spending and expenses

• Create a ‘buffer’ for the unexpected

• Keep ‘clean credit’ – pay your loans, bills and credit cards on time

• Limit ‘bad debt’– eg personal loans and credit cards, AND…

• The big tip from this article is to control who you share your spending habits with!

You don’t know who could be watching you!

Don’t let the break up, break the bank…

Three months after her separation, Cathy was unable to get a mortgage from a major bank. It took a clever broker to work out why and turn her situation around.

Cathy was 32 when she met Dan at a winetasting class. The two hit it off immediately and by the following year, family and friends gathered at the Botanic Gardens to raise a glass to the new bride and groom.

That was 18 years and two children ago, and sadly the marriage didn’t improve with age. Several months ago, the couple decided to separate. Cathy had worked part-time since the kids started pre-school 11 years ago. As Dan is an accountant, he took care of the finer details of their finances although Cathy stayed informed and involved. When the marriage ended, Cathy knew she had to start making independent financial decisions. She researched thoroughly, took advice from family and friends and started to make plans.

Some of those plans almost cost Cathy her financial future.

Three months after the separation, Cathy’s credit report looked as if she had applied for almost $1.5 million worth of property finance and she was unable to get a mortgage from a major bank. It wasn’t until she was introduced to a mortgage broker that Cathy’s well-intentioned mistakes were turned around.

“When Dan and I split, I started to think about where I would live,” Cathy says. “We had our family home which we owed very little on and an investment property on the coast. Whatever we did, I assumed I would be in a fairly good financial position, so I started to look for properties that suited my needs. I also considered my financial options, researching mortgages, comparing banks and organising a preapproval.”

As the dust settled on the separation, Cathy found the apartment she wanted to buy and began taking serious steps towards the purchase. That’s when things started to unravel.

“I was rejected for a loan from a major bank, which was a shock as I had around a 40% deposit and a great history of making repayments,” Cathy says.

“I knew banks were tightening up on lending, so I figured it was a one-off and applied to another major bank and was rejected again. After all the emotion of the separation, these rejections from the banks almost tipped me over the edge. I felt so lost and useless and was worried I wouldn’t be able to buy a home. So I went to see a mortgage broker. That’s when everything started to turn around.”

Her broker got to the bottom of Cathy’s predicament – she discovered that in her efforts to do her research and be prepared, Cathy had inadvertently made three applications for pre-approval of a $500,000 mortgage. On her credit report this looked like she had applied for $1.5 million in loans over a three month period – a red flag to most lenders.

“I was simply shopping around and seeing if I could get approval,” Cathy said. “I had no idea these enquiries were accumulating on my credit report. I also had no idea that pre-approval is not the same as an actual approval.”

“I was very fortunate to find an educated mortgage broker who helped me navigate the approval process. She mitigated the problem on my credit report and helped me find a mortgage that suited me. She also got me a line of credit and a better deal on my credit card, reducing my monthly repayments.”

Cathy’s advice to anyone facing divorce or separation is to get expert advice.

“Your friends and family will mean well, and some of their advice may be good, but you really need advice from an expert,” she says. “The lending industry changes so fast, and even someone like me who considers themselves fairly financially intelligent can get into trouble really quickly.”

Thanks to her broker, Cathy is now celebrating her new property purchase and starting a new phase of her life, safe in the knowledge that she is in a strong financial position.

Don’t let the break up break the bank

We see many ‘Cathys’ in our finance line of duty every day.

We wanted to share this story so you, your family and friends know it is safe to come to us in confidence to help you with your financial challenges and decisions, regardless of your personal circumstances and knowledge.

59% of Australians now use mortgage brokers in order to avoid:

• wasting your time

• damaging your credit file

• acting on poor or uninformed advice and

• missing out on finance that you should be approved for.

Remember, everyone’s personal and financial circumstances are different. What may have worked and been recommended to your friends a few months ago is unlikely to be suitable for you today.

Is Instant Gratification Creeping Up On You?

Buy now, pay later is growing in popularity as an alternative payment method to credit cards and other interest free term deals. If you are one of the over 2 million users in Australia who do use this payment system, we recommend following these 4 tips to avoid fees, charges and credit creep.

Our 4 tips to tame your buy now, pay later spending

1. Spend within your budget

Buy now, pay later payment options may be a means to pay off a large necessary purchase that hadn’t been budgeted for, such as replacing a broken washing machine or fridge, but be careful not to continue the convenience spending on wants, rather than needs. You may have great intentions of just replacing that broken washing machine, but when there is an Afterpay or Openpay account ready and waiting, the temptation may be too great and send you over your budget and capacity to repay.

2. Avoid late payment fees

Payments are automatically deducted from your chosen credit or debit card, so make sure you keep up to date with your repayments. We highly recommend you have the payments taken from your DEBIT CARD NOT CREDIT CARD to avoid credit card interest accruing and adding even more financial difficulty to your situation.

3. Keep your credit clean

Although customers are quickly approved and accounts swiftly set up, third parties such as credit reporting bureaus may check your credit history. Plus, when it comes time to seek finance for a loan or property, each credit limit can make a difference to your application and your borrowing capacity. A lender will take into account your total credit limit as it will impact your capacity to repay a new loan. We recommend a reduction in the credit limits and the number of cards held by you.

4. Build up an emergency fund to limit buy now, pay later

To prevent the need for using buy now, pay later, we recommend you build up a savings or emergency account. Then if the washing machine or fridge breaks down, you have the cash buffer to use. If you take our advice on step 4, you won’t need to worry yourself about steps 1 to 3!

AVOID the credit limit creep and don’t let instant gratification catch up with you. PLEASE spend within your budget.

Is it the season for Openpay?

Christmas shopping is now easier than ever before.

From pre-Christmas sales (39% of retailers plan to discount before Christmas this year) to online shopping and buy now, pay later (BNPL) options, it has never been easier to nab a bargain… AND pay for it later, INTEREST FREE!

Those of you who have been following us for a while will know our views on buy now, pay later options…. be cautious!

We highly recommend thinking twice about using these services, especially if you intend to buy a home or investment property or are considering refinancing in the next three to six months.

With over two million users of the buy now, pay later system in Australia, instore and online retailers are jumping onto a BIG opportunity.

But wait there’s more..

Even Amazon Australia has succumbed to the BNPL trend. Last month, they ventured into a partnership with Zip to allow customers to split the total cost of their order into instalments.

And more..

While Afterpay and ZipPay are the two most known in Australia, there are similar options growing in popularity such as Openpay and PayItLater, with varying terms and conditions.

The rise of Openpay

While Openpay has just 1,700 merchants and 310,000 customer payment plans, numbers have increased 100% year on year for three years. This is expected to only grow.

Openpay is looking to list on the Australian Stock Exchange and raise around $50 million through the listing. More money to expand!

Afterpay Vs Openpay

Afterpay and its alternatives provide an appealing option for customers with benefits including:

• immediate use

• easy to use

• interest free terms (It works like an interest FREE loan. You generally have longer to pay and you don’t have to pay a cent more than the actual cost of the item.)

• an alternative to using a credit card

• increasing availability instore and online While Afterpay and Openpay both offer interest free terms, Openpay goes a step further by offering flexibility. You choose your own plan. You can reschedule to avoid late fees. Repayment terms can be up to 6, 12 or 18 months (compared to 8 weeks for Afterpay).

BUT buyers beware of the pitfalls!

Afterpay and Openpay make money by charging retailers fees for offering the service. They also make money from fees charged to customers.

While with Afterpay there is no upfront fee to customers (but beware the late fees!), Openpay charges processing and establishment fees, in addition to late fees.

Don’t let your Christmas and impulse spending get out of control!

Pay by instalments options may seem manageable, but paying smaller amounts over time can lessen the impact of the TOTAL cost and potentially influence you to spend MORE.

A $25 instalment here and a $50 instalment there can all compound to substantial ongoing regular payments. Bundle half a dozen of those together and you could be racking up over $250 of regular (generally fortnightly) payments.

BNPL could affect your borrowing power

There are many factors that could impact your credit score (a number based on an analysis of your credit file that helps a lender determine your credit worthiness).

The type of credit providers you’ve applied for credit with and the amount of times you apply for credit, amongst many other factors, can greatly affect your borrowing power.

When it comes time to seek finance for a loan or property, each credit limit can make a difference to your application and your borrowing capacity.

Consider buy now, pay later as a payment option BUT make sure you make payments on time and keep a close eye on the credit limit – we don’t want ‘credit creep’ taking over your budget.

If you MUST use this system, we highly recommend you have the payments taken from your DEBIT CARD NOT CREDIT CARD to avoid credit card interest accruing and adding even more financial difficulty to your situation.

PLEASE AVOID the credit limit creep and don’t let instant gratification catch up with you. Spend within your budget.
Read our 4 tips to taming your impulse spending before you head to the shops this month.

If you or someone you know is confused about openpay or afterpay, read our 4 tips to tame your impulse spending before heading to the shops

Top Finance Tips

1.Be actively involved with your finance and wealth creation.

If you have joint accounts with another loved one

• know your lender, super and investment portal logins

• monitor your joint balance, credit card spend and savings • be part of the financial decision making

2. Prioritise and set yourself clear goals on what you want to achieve and by when.

It is sometimes easier when you are on your own to set and plan your goals because you are solely responsible for the outcome. If however, you have a partner, then communication is critical in understanding and appreciating each person’s individual goals. If you find you cannot agree, then seek expert intermediary opinion from your finance and planning team (and that’s not usually other family members – lol!)

3. Be an expert on understanding your financial position at all times – including savings, debt, insurance, investments and super.

4. Understand your saving and spending habits (and your partner’s).

• Know how much money is coming in and going out for you and your family

• Set yourself “safely spend” limits on your various shopping categories, eg groceries, food, clothes and entertainment etc. (A coffee a day adds up – just saying J) After all, as the saying by Charles A Jaffe goes… “It’s not your salary that makes you rich, it’s your spending habits.”

5. Purposefully plan your financial future

• know how much is in your super fund and how it is being invested

• find ways to accumulate more super to enjoy in retirement

• seek advice on whether voluntary contributions are a good idea if you have no ‘bad’ debt (66% of women are not participating in voluntary super contributions!)

6. Protect yourself against the unknown

Ensure you have appropriate and adequate insurances for health, life and trauma.

If you work part time and could not live without your additional income you should also have the appropriate insurances.

• Many women who work part time do not insure their income or have trauma cover

• Many people also think the income protection inside their super policy is adequate, however many policies only cover a few years

7. Review and update your will and estate planning on a regular basis to ensure they are still aligned with your goals.

In fact, anyone can use these seven money tips to achieve a better financial position.

We like to work with our clients to ensure they are using good money management tools and techniques so when it comes time for their first, or next, property purchase or investment, they are in the best possible financial position to secure their mortgage.

Contact the office TODAY to find out how WE can help YOU to purposefully plan for your future.

Your 4 step checklist to finance pre-approvals – Are you home loan ready?

Make your property buying easier and less stressful with a finance pre-approval.

A pre-approval will give you peace of mind knowing how much (if anything) a lender is willing to lend you.

Savvy home buyers will have their pre-approval completed before arriving at an auction or inspection.

What exactly is a pre-approval?

It is an initial assessment by a lender of how much you may be able to borrow. It is commonly known as a conditional approval and requires your financial information to be submitted as part of the application. It is just a first step and NOT a full approval.

It will be subject to a property valuation, other documentation and final full approval once you have found your ideal property.

A full application may still be rejected later on. As your mortgage finance specialist, we work with you to put the best possible application forward and coach you through each step to avoid disappointment.

How long does it last?

Pre-approvals vary by lender but are usually valid for three to six months. They are not binding so you are not obliged to borrow the pre-approved amount from your lender.

How do I obtain pre-approval?

Your 4 step checklist to pre-approvals

  • Review your finances and do a budget to get an idea of how much you may be able to afford to repay. Contact us if you need a good budget template.
  • Gather up your documents. You will need income and employment documents, identification and a list of assets and liabilities.
  • Find a suitable lender. We will do this for you. We have access to many lenders and products and will help find the most suitable lender for your situation.
  • Complete the lender’s pre approval process.

Again, that is where we come in. We prepare a lot of the application process for you. We just need you to do some work on points 1 and 2.

Beware! Pre-approvals are recorded on your credit file each time you apply.

Be careful about applying for several pre-approvals in a short time frame. It may negatively impact your credit score if you apply for too many home loans in a short amount of time.

It is best to check your credit score BEFORE submitting a pre-approval.

Contact our office and we will be able to get your credit score for you.

We are with you each step of the process and can offer advice on when and how to apply for your next home

Building or Renovating? Financing can be tricky.

Building or renovating is a great way to achieve the house you desire. You have the freedom to add quality craftsmanship and the design features that you and your family will value. Creative projects like these are both exciting AND stressful.

Many new home owners and upgraders are weighing up the benefits of purchasing a house and land package. Not only do you need the right loan features to move ahead financially and have greater control of your project, you also need the right advice on how the loan is to be considered by your lender.

There are generally two scenarios when applying for finance.

Scenario 1

You have the option to purchase a parcel of land with agreed building plans. You enter into a single contract for the purchase that settles on completion of the house. We call this a house and land package. In this instance the builder is the owner of the land until settlement.

When the lender assesses this type of contract, the loan is calculated on the value at completion and is settled in a single transaction similar to a normal house purchase. Most lenders will require council stamped plans, a fixed-price building contract and a certificate of currency of the builder’s insurance policy.

Scenario 2

You have the option to purchase a parcel of land and you may or may not have building plans available at that time. You enter into a contract for the purchase of the land and a separate construction contract for the building of the house. In this instance the vendor of the land may be different to the builder.

For this scenario, you will need two different types of funding: the first for the land purchase and the second as a construction loan for the building of the home. There will be separate settlements for each component. Firstly, you will be required to settle on the purchase of the land. In relation to the construction loan you will be required to draw down the loan in instalments to make progress payments as significant milestones in the construction are achieved.

Understanding progress payments

Typically, a build from start to finish encompasses anywhere from three to six stages. Before building or renovation begins, you will be required to pay a deposit to your builder for the construction (or renovation).

Then, after say the slab is poured, you draw down more money for that component while also paying interest on the previous draw down.

As the building work progresses, you will be required to make additional progress payments to the builder. With each instalment, you will be paying interest on the new portion of the loan plus interest on the previous payments until construction has been completed. These will be listed in the contract.

Your finance can be structured for these progress payments to be made on completion of these stages.

Please note: Building/construction loans aren’t generally available for renovations unless they are significantly structural and come with a fixed price build contract (for example adding another level or extension to your existing home). For a kitchen or bathroom renovation you would typically use your existing equity, line of credit or the money sitting in your offset account.

Budgeting for the associated costs of building a home

When it comes to choosing finance to build your new home or renovate, there are a number of associated costs to consider.

You will need to factor in stamp duty (on the mortgages AND on the transfer of the property or land), legal costs, insurance, surveys and searches, inspections, council rates and how progress payments are to be made. Other costs you may incur are rent and moving costs (if you have to rent while your new home is being built) and landscaping expenses after the building is complete if they were not included in your contract.

Your state stamp duty office can provide information on how much stamp duty you have to pay, how it is calculated and if you are entitled to a rebate, exemption or deferred payment. Better still, we are always happy to provide this information for you – simply call the office. We can also help you access your first home buyer rebate if this is your first home purchase. Remember these are different in every state.

Important note: Scenario 1 is a longer term project that is also off the plan, so it usually carries far more risk than scenario 2, hence banks will usually only approve finance for up to six months. If the project takes longer and there are negative changes to your financial position or policy/regulation changes in the meantime, you may not be able to settle the finance at completion. In this event, you could lose between 10 -30% or more of the project cost. Make sure you discuss this risk and its management with us together with your solicitor.

With so much to think about, it’s important to have the correct loan to suit your project. There are a range of options through a variety of lenders. Be sure to engage the professional services of a finance specialist like ourselves before entering into any contract with a builder. Our expertise could be the difference you need for a worry free building experience.

Property Development…

The rise of sub-division.  Profit-making or running a business?

With high price tags on many Australian properties, more and more people are cashing in on real estate assets and turning to subdivision.

Faced with perhaps an ageing home on a decent parcel of land or a growing family to accommodate, the decision is whether to sell up and move, knock down and rebuild or knock down and subdivide to create a duplex.

For duplexes on separate titles, the owner may sell both for a profit or sell just one duplex and remain living in the other.

Are you renovating, profitmaking or running a ‘flipping’ business?

While some homeowners wish to simply upgrade or rebuild their home at their existing address, others turn property development into an income generator.

The Australian Taxation Office has clear guidelines for those dealing in property.

For instance, you are required to register for GST if:

• turnover from your property transactions (and other transactions) is more than the $75,000 GST registration threshold, and

• your activities are regarded as carrying on an enterprise.

You will need an ABN if you are required to register for GST.

Generally, if you only receive residential rent, you won’t be required to register for GST.

Did you know? A one-off transaction can still be considered to be an enterprise.

Your activities may be regarded as an enterprise if, for example, you buy vacant land to subdivide with the intention to sell for profit or you develop new residential premises and sell them.

You are not carrying on an enterprise if your property transactions are for private
purposes, such as constructing or selling your family home.

There are also capital gains tax implications for land subdivision.

The Australian Taxation Office has information online to help guide you through the rules and regulations. It’s important to seek advice from the ATO and/or your accountant.

Developing a block of land may seem like a great way to build wealth but the reality is there are many processes, regulations and finance arrangements to work through.

For instance, the number of units or townhouses to be built on a block of land affects the type of finance you may be able to obtain. This is particularly so if your intention is to subdivide and/or build more than two properties.

So while some keen Australians are supplementing their day jobs with renovating (or rebuilding) for profit to build wealth, it is not without its risks.

As with all real estate decisions, location is a key factor. As is land size, street position, shape of the plot, local council development controls, amount of capital required and quality of the builder.

For first time aspiring developers, hiring professional project managers makes good sense to reduce first time developers’ costly mistakes.

For other developers with a number of projects under their belts, adhering to the numerous council, zoning, tax and record keeping rules and requirements, good industry connections and a strong auction or sales campaign will determine the success of their projects.

Finance to suit your development strategy

We have access to many lenders and products outside the big 4 who specialise in construction and development lending.

Parent Warning!!

Don’t let FREE app-based games blow your budget

Interactive games have weaselled their way into our culture – a culture of ‘digital almost anything’.

A 2018 Digital Australia Report states that 97% of homes with children have computer games, 80% of game households have more than one game device and 65% have three or more.

Thought that app was free?

Many app-based games are free to download but there is often a lure for children to progress or access the best parts of a game through in-app purchases.

Take Fortnite as an example. It tempts players with in-app purchases for ‘skins’ or outfits and customised weapons by encouraging spending on what characters are wearing and using.

There was one example where a seven year old child had spent about $1,000 on in-app purchases including paying to be upgraded to new levels. The parents had no idea until they got the bill. Even the child didn’t realise how much was spent at the time.

Avoiding in-app purchase blowout

Here are a few tips to prevent accidental in-app purchases:

• Understand how the games work – read reviews and look into the possible types of purchase •

Set rules around how much (if any) a child can spend on what they want to buy

• Turn off in-app purchases or change the settings so a password is required for every purchase and parents are notified each time a purchase is about to be made

The Australian Competition and Consumer Commission (ACCC) has further information on how to prevent unauthorised in-app purchases, how to restrict purchases on Apple and Android devices and how to take action. Obtaining a refund for unauthorised in-app purchases can be difficult but there are actions you can take for refunds and complaints.

Take control of your family gaming and free up your budget for much more worthy causes.

IT’S NOT YOUR SALARY THAT MAKES YOU RICH!

“It’s not your salary that makes you rich, it’s your spending habits” Charles A Jaffe

There is no doubt that we live in a country with a high cost of living. Many Australian cities are becoming more expensive to live in compared to the rest of the world. Regardless of where you live and how much you earn, managing finances is a big concern for many of us.

A 2018 consumer anxiety study by one of the major Australian banks showed that the cost of living has increased our anxiety level the most. Living comfortably in retirement remains a big worry as well as providing for our family’s future.

Common life events that may affect your financial aspirations and retirement expectations are:

• getting married

• starting a family

• returning to work after having a baby

• losing your job

• divorce and separation

• losing a parent

• dealing with illness

• dealing with financial abuse

Add to these issues the financial consequences and disparity for women, and you might say we have cause for concern.

Women live longer than men (on average, five years), and despite the increasing workplace equality, they are still typically earning less than their male counterparts.

On average, Australian women earn 14.6% less than men, or around $251 a week, although gender pay gaps do differ across industries.

Women:

• have an average of 52.8% LESS superannuation at retirement than men

• are more likely to take time out of paid work (or take reduced work hours and pay) to care for their children, and

• in some cases for the ‘sandwich generation’, are also caring for ageing parents The sandwich generation is commonly caught in the financial AND emotional middle.

Now with the royal commission into the Australian aged care industry, there is growing concern for the quality of care and more focus on caring for loved ones at home. The financial obligations can be many and varied.

BEST PRACTICE In regards to gender equality, workplace policies are slowly changing. The Workplace Gender Equality Agency (WGEA) announced the list of employers promoting best practice in the area of promoting gender equality.

The main trends were:

• tailored parental leave policies to support both women and men

• initiatives to encourage women to return to work after a career break

• supporting men’s caring responsibilities

• robust analysis and correction of gender pay gaps

Taking action closer to home

While it is encouraging to see workplaces taking equality more seriously, there is no doubt that taking personal responsibility and action for your own current AND future financial situation reaps MANY rewards. Not just for women, but for whole families and entire communities.

Contact the office  to request our  ‘Top finance tips’.