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’.

Get Plogging!! Combining fitness with a good cause.

Did you say plogging?

Plogging is an exercise movement, originating in Sweden, that is spreading around the globe.

The word ‘plogging’ or ’plocka upp’ is a mix of Swedish words for ’to jog’ and ’to pick up’.

Started by Erik Ahlstrom after he noticed a lot of litter during his daily bicycle commute, plogging is collecting rubbish while on the run. Or for the walkers out there, it is known as plalks – walk while picking up rubbish.

Social media has helped spread the plogging movement. After appearing on Instagram back in 2016, this trend has gained popularity spreading to almost every continent.

It’s a run club with a purpose

This fitness craze has taken off in Australia, particularly in Byron Bay and Footscray, Victoria.

Members of the Byron Bay Runners group have taken to the trend with member Geoff Bensley founding the Facebook Plogging Australia Group.

The Byron Bay group usually focuses on the beach areas and keeping plastic out of the ocean. They find mostly single-use plastic bags, bottle tops, straws and cigarette butts.

The Footscray Rubbish Runners are also doing their bit to help the environment.

The group aptly began on Clean up Australia Day by Derek Atkinson and is gaining followers who have set their sights on improved fitness and weight loss while plogging.

Not purely an environmental benefit, you too could realise the varied health benefits of plogging including:

• obvious cardiovascular benefits of jogging, or walking, coupled with the added benefit of squatting, lunging and carrying

• flexibility required to reach and bend

• extra load and weight to challenge you • improvements in physical AND mental health

• plog in a group – walk or jog with friends

• helps control your weight

AND all the other benefits of jogging or walking:

• reduces stress by boosting serotonin in your brain

• improved self-esteem, and

• improved mental stamina

How can you get plogging?

• Scour social media for existing plogging groups

• Start your own local plogging group

• Create a work running group in your lunch hour

• Simply plog on your own

Any day is clean-up day – so encourage your friends and family to join the war on waste.

Australians produce 540 kg of household waste per person each year.

We all need to participate in reducing rubbish entering our waterways, our environment and the waste sent to landfill.

With our combined efforts, we can all do small acts of environmental kindness to make a massive difference.

“Small acts, when multiplied by millions of people, can transform the world” – Howard Zinn.

Create or join a community, business or school clean up event. Jump online at www.cleanup. org.au/campaigns.

AUCTIONS Strategy or science?

How does the theory of supply and demand apply to auctions?

Almost everyone has an opinion on auctions. Love them or loathe them, auctions have been around for years and they are here to stay.

As of June this year, 61.5% of homes are sold at auctions. And with housing affordability reported to be the best it has been since 20162, this number may very well rise.

Auction strategies

If you have ever been involved in an auction campaign you would no doubt have had a planned strategy. Whether you stuck to it in the (sometimes) frenzy of the auction is another thing.

When attending an auction would you:

• be the first bidder and open with a strong first bid?

• stay silent then come in with a killer bid right at the end?

• make a quick counter bid as soon as someone bids against you? or

• recruit a professional to bid for you?

According to auction streaming service Gavl, the most common knockout bid is a $10,000 increase. Some auctioneers suggest that avoiding round numbers can work well for buyers and changes the pace of the bidding.

For example if you open the bidding at say $595,000 instead of $600,000, the bidding will likely continue in smaller increments of $5,000 instead of $10,000.

Perhaps the biggest (and subconscious)
psychological barrier to success during auctions is our body language.

Real estate site Domain suggests that projecting assertive body language and knowing your limits are critical. Bidding confidently, loud and proud, can impact the final result. Understanding how other bidders behave at an auction can help reveal when a buyer is reaching their limit.

But enough about strategies, back to the science

We opened this article with the theory of supply and demand. How does this work in the case of auctions?

New research from the University of Sydney and the University of Technology Sydney shows that people participate (bid) LESS at auctions that have MORE bidders.

Findings from this research are consistent with the ‘loss aversion’ theory – people tend to prefer avoiding losses as opposed to acquiring equivalent gains. We are more upset about losing $10 than we are happy in finding $10.

So the theory suggests when there is more supply (bidders) = we tend to bid less.

Contrary to our belief of ‘bigger crowds and more bidders at an auction create more money for the vendor’, that isn’t always the case!

Regardless of the strategy you adopt (or if science takes over), it is important to take these steps BEFORE you attend an auction.

1. First and foremost, secure finance pre-approval so you know your true borrowing power.

2. Do your research – inspect as many comparable properties as possible to know the market.

3. Attend other auctions to understand how they work and experience different auctioneer styles.

4. Inspect the property thoroughly, take measurements if you need to and invest in a building inspection – you don’t want any nasty surprises after the gavel strikes and you have to sign the papers!

As your finance specialist we work with our clients to ensure you have your finance pre-approved prior to auction AND prior to making an offer for a private sale.

Remember, due to the range of lenders we have available and the maze of interest rates between them all, we have extensive knowledge across a variety of lenders to help you find the right finance to suit your situation.

Contact our office today if you have any questions regarding finance and pre-approvals for auctions or private sales.

The top 9 things you should know before applying for a home loan

Whether this is your first home purchase or eleventh property investment, there are always 9 essential steps to take before applying for your loan.

We all need to be smart when carrying out research for our next loan. Understanding how to position your loan application to ensure you obtain the outcome you are looking for is critical to your successful application. We often find that those who come to us after they have tried applying for a loan themselves have done more damage than good to their application. So here are some great tips – and remember to call us first before applying for your next loan.

1. GET YOUR FINANCES IN ORDER

Clean up any bad debt

There is good debt and there is bad debt. Good debt helps you get ahead financially (like buying a home or investment property). Bad debt hinders your loan application (like credit cards, store cards and after pay bills). We need to present your best financial case when applying for a loan.

Pay ALL your bills ON TIME for at least 3 months

Close down any unused or unnecessary credit cards Did you know that every $10,000 limit you have available on your credit card lowers your borrowing capacity by about $50,000 or more on your loan?

2. MAKE SURE YOU HAVE A GOOD SAVINGS/ PAYMENT HISTORY

You will need at least 3 months of savings history to convince a bank to lend you money. You will require evidence that it is real savings and not just money gifted to you from your parents.

If you rent, then your rental payments can be used to show a history of regular payments, so make sure you are a good tenant and pay your rent on time.

3. BE AWARE OF HOW YOUR SPENDING HABITS WILL AFFECT YOUR APPLICATION

Lenders now have clear visibility and technology to track, categorise, evaluate and predict your spending habits. So it is important to reduce your unnecessary spending at least 3 months prior to applying for a loan. This will give you greater capacity to borrow.

In our experience, unfortunately most people underestimate their expenses. A good way to keep track of your spending is by establishing a budget backed up with tracking and reconciling your expenditure regularly. There are some great mobile apps to help you with this.

4. CHECK YOUR CREDIT RATING

There are 2 types of credit checks that can be performed.

Soft check – done by yourself and will not affect your rating. ASIC recommends individuals should do this annually to ensure important personal details are kept up to date. It will also allow you to identify any information that is incorrect (eg faulty debt listings) and even identity fraud.

Hard check – is when you have given permission for lenders to perform a credit check when applying for or enquiring about a loan. This WILL affect your credit score and will be recorded on your file. Lenders can decide on the credit score to use during their loan assessment. Each lender has its own criteria for credit report calculations.

5. ATTEND TO CREDIT REPAIR

If you have defaulted on consumer repayments they may have been reported on your credit file. As your finance specialist we can assist in the process to help you remove and improve your credit listings in regards to payment defaults or judgements.

6. MANAGE YOUR EMPLOYMENT STATUS

If you are considering a change of career we recommend that you attend to your finances first. Some lenders will make you wait out a probationary period (now often up to six months) before considering your loan application.

7. THERE’S MORE THAN JUST YOUR DEPOSIT

You are probably aware there is more than the deposit required to complete a property settlement. We can help you estimate the total amount of funds required for your purchase. These expenses will include upfront costs, fees, taxes, stamp duty and legal fees, and will be a help for you to know before applying for a loan.

8. GATHER ALL YOUR DOCUMENTS REQUIRED FOR LOAN APPROVAL

These will include:

• Proof of ID (100 point checking system: passport, birth certificate, driver licence)

• Proof of employment and income via pay slips and/or tax returns

• Proof of savings (bank statements)

• Proof of debt (bank credit card and store card statements)

• Proof of assets (eg council rates)

• rental statements (if a landlord), payments (if renting)

• all other bank and credit card statements Start collecting this information now to make your application process faster and more efficient.

9. UNDERSTANDING THE TYPE OF LOAN THAT WILL SUIT YOU BEST

Do you want:

• frills or no frills?

• interest only or principal and interest payments?

• fixed or variable?

• a split of fixed and variable?

Will you take the loan out for 20, 25 or 30 years? Are you too old for a 30 year loan? Do you want a redraw facility or an offset account?

With so many things to consider, we recommend you allow us to help you select the type of loan options and facilities that you most likely need for your personal circumstances.

FINALLY…

Obtain a pre-approval before you go shopping

It is always a good idea to arrange pre-approval for a mortgage before you start the house hunting process. It will help you identify any obstacles to approval, such as having too much debt or a low credit score. Remember your pre-approval will only last for three to six months, so get cracking to find that next property. A pre-approval also does not guarantee you will secure the loan, it is simply an indication of how much you can borrow. Formal approval will be decided when we lodge your loan application for you.

Overcoming the tightened lending environment

It would be easy to listen to the media, your friends and family and worry about the future of finance and property.

So… is the tightening of credit and tough lending criteria a good thing or a bad thing?

It depends on which side of the fence you sit on doesn’t it? Let’s have a look.

SPENDING HABITS

Let’s look at the ‘against’

• Your spending habits are now under the spot light – BIG TIME!

• Now more than ever you need to make sure you pay all your bills on time

• You have to live within your means

• You need to declare your REAL living expenses not your ‘I THINK THESE ARE MY’ living expenses

• You have to reduce your bad debt (pay down those credit cards) The fact is that MOST of us need to change our spending habits NOW before we get into trouble.

When you see those ‘specials’ you really should consider if you actually NEED those items and not simply purchase them JUST because they are on sale.

And let’s also look at the ‘for’

If you do obtain a loan approval, the bank has already stress tested you so you ‘should’ be ok in a rising interest rate market.

If you are good at paying your bills on time, you will now be rewarded.

If you have lots of equity in your property, valuations should not be a problem.

If you are on interest only (IO) repayments (at a higher interest rate) and you change to P&I at a lower rate, the GREAT news is that in most instances your repayments should now be equal or lower than what you were paying before AND you are also starting to pay off that debt.

DEPOSIT

Let’s look at the ‘against’

You now need a larger deposit (with most lenders).

And let’s also look at the ‘for’ If you have your deposit – you have the power. Or if you are prepared to pay LMI, then that includes YOU as well.

LENDING

Let’s look at the ‘against’

The lending platform has changed. NOW interest only loans typically have higher interest rates than principal and interest (P&I) loans.

Ouch for investors!

It could be time to consider refinancing and/or consolidating your debt and considering P&I repayments.

And let’s also look at the ‘for’ If your finances are in good  shape, your loan application should be processed quicker.

INTEREST ONLY LOANS

Let’s look at the ‘against’ After your IO period expires it defaults to P&I repayments.

Interest only periods generally last about 5 years, after which you might have to refinance to another lender if you wish to continue making interest only repayments.

If this is you – let us look at changing lenders for you with a new IO period.

And let’s also look at the ‘for’

If you have had your investment property for more than 10 years then you are more than likely in a new stage of life.

It just might be a good time to consider changing your repayments into P&I and start paying down that debt ready for your early retirement!

TOUGHER MARKET

Let’s look at the ‘against’

The housing market is getting tougher to enter (or are our poor saving and spending habits holding us back?)

Need budgeting help? Let us know NOW!

And let’s also look at the ‘for’

A tougher buying market means that there will be more renters. Wouldn’t you prefer to be the landlord when people can’t afford their own home?

IN SUMMARY

If you have heard of Warren Buffet, the American business magnate and the third wealthiest person in the world, then you would know his secret to success.

Q: What is his secret to success?

A: Doing the opposite to everyone

Q: When no one is borrowing to purchase or invest – what do you think he is doing?

A: That’s right – the opposite.

No one can predict what is going to happen in the finance or property world. But there is one thing we know…

You won’t find out if you don’t ask these questions:

• Can I obtain better finance options?

• Are there different ways to structure my lending to my advantage?

• Am I paying too much interest?

• How do I take advantage of a buyers’ market?

• Are there quicker ways to pay down my debt?

If you want to outsmart the media reports and industry experts, let’s have a conversation. There is always a little diamond in the rough.

Taking advantage of a buyer’s market

When investing in property you have most likely heard the saying ‘it’s not the TIMING OF THE MARKET – it’s the TIME IN THE MARKET’ that is important. For long term ‘set and forget’ investors, this is an appropriate comment. However, one of the most important keys to success with property investment is also KNOWING WHEN the market presents great opportunities. When to get in, when to get out, when to wait and when to hold…

So how do you identify good investment opportunities?

Although there are some historical signs and patterns for property investors to work with, in more recent times regulation and the political environment have certainly changed the playing field in the world of property investment.

There are a number of factors that come into play and provide us with hints including:

1. housing availability

2. interest rates and finance trends

3. borrowing capacity and debt serviceability levels

1. Housing availability

During a property boom, auction clearance rates consistently top 75% with properties staying on the market for ridiculously short periods. Many of these properties do not even make it to open house or auction day. This is what we see in the below graph from mid 2014 until about mid 2017. These are clear signs of being at the higher end of a property market.

What we need to look for in a buyers’ market is a slowing down with a reduction of properties on the market and lower auction clearance rates.

In the first few months of this year, we saw clearance rates averaging around the 44% mark nationally, ending the first quarter at around 56.8% (started to increase just before Easter).

Comparative to the last 12 months, there is a decrease of new properties in the market, however the total number of properties for sale nationally is higher.

This indicates that the market is now holding more properties as it is taking longer for vendors to sell with the possibility of having to offer significant reductions in order to move their property.

In summary – what does this mean?

• More houses in the market than buyers

• Longer timeframe to sell

• Buyers taking their time to purchase

• Vendors potentially having to reconsider their asking price

These can be signs of reaching or approaching the bottom of the property market and introducing a property buyers’ market.

Because of the reduction in housing prices, a property that may have been unattainable for you 12-18 months ago may now be within your grasp.

Another sign that we could be entering a buyers’ market is when rental yields start to increase. When this happens, it is a sign that people are now putting their property search on hold for a while, they continue to rent or our potential first home buyers are entering the rental market for the first time.

The first CoreLogic Quarterly Rental Review for 2019 showed that national weekly rents have risen by 1% during the first three months of the year.

2. Interest rates and finance trends

Historically, property cycles have been dictated by the changes in interest rates but the RBA has been holding the cash rate at a record low for nearly three years now.

The current downturn in lending has also been influenced by credit availability. This was apparent during the Banking Royal Commission with lenders tightening their criteria and APRA capping interest only loans (typically used by investors).

For the first time in history many home owners have been tapping into interest only loans as well as investors, bringing an all-time high in interest only loans of 45.6% in 2015 as a proportion of total borrowings. This also had an impact on investor borrowing.

However in December 2018 we saw the restriction being lifted on interest only loans. Is this a sign that they want investors back in the market?

It is also important to note that although the RBA has held the cash rate steady, variable mortgage rates have crept up over the last 12 months with the major banks independently of any official cash rate movement. The lenders are taking it into their own hands to increase rates. And when one major lifts rates, the others follow.

The good news is…

Due to the greater competition from second tier lenders and non-bank lenders, there are still very competitive rates available for buyers through mortgage brokers.

We have access to many alternate lenders outside the majors so you can trust that we will be considering these options when assessing your finance opportunities.

3. Debt serviceability

It could be argued that the amount of debt we have is not the issue. Instead, it’s the serviceability of that debt. Australian debt as a total has grown3, but the interest paid on that debt (as a percentage of household disposable income) has fallen.

Interest paid on those increased levels of debt has stayed relatively manageable because interest rates have remained low.

The concern we all have when it comes to servicing our debt is the potential for personal circumstances to change.

Good debt can turn to bad debt very quickly when a property loses value instead of gaining value or when personal circumstances change (eg divorce, redundancy or illness). These events can make your loan repayments become unmanageable.

If you find yourself in this situation, early action is the best move forward.

In summary…

As for that ticking property time bomb, it could be said it’s more of a property clock, and understanding how to read the property cycle clock plays a large role in weighing up risk and your investment strategy.

Finally, we are yet to fully understand how the outcome of the federal election will play out for the finance and property market and the recommendations from the Banking Royal Commission being implemented or not. So stay tuned for updates as they progress with these decisions.

In the meantime, if you want to take advantage of the potential buyers’ market – we look forward to your call.

SHOPPING FROM THE COMFORT OF YOUR COUCH… costing you more than your waistline

For generations we have prepared our own food at home resulting in a more positive impact on our bodies. We were more likely to eat smaller portions, take in fewer kilojoules, less fat, salt and sugar tending to make us healthier in weight and better general health.

So why are we not cooking as much anymore?…

1. WE ARE BUSY

2. TOO MUCH CONVENIENCE

Australians are increasingly using apps and online payment methods to shop.

Sadly, for many of us, we use mobile apps to spend money more than we use it to track and manage our money.

Here’s how we spend our money

Australians are spending an average $328 a month on food, movies and music delivered
to their doors or downloaded on devices.

This is purely based on what is delivered to our home without us even leaving the house.

A third of Australians living in capital cities order food through online delivery services such as Menulog, UberEats, Deliveroo and Foodora.

Even our relaxing Friday night drinks at home is changing. The local ‘bottle-o’ is being replaced by delivery apps like Tipple and Jimmy Brings. We do not need to make a stop on the way home or head to the pub for our grog. With a click of a button, it can be delivered to us in under 30mins.

So, if you order in… AND you are adding this to your buy-now-pay-later shopping through Afterpay, Zippay and the like, you could very well jeopardise financing your next loan if not used sensibly.

This is made even more dangerous if you are an impulse buyer prone to overspending. Why? Well…

The facts don’t lie. Users admit that…

• 30% have missed at least one Afterpay payment – penalties apply

• 65% said the ability to make smaller payments influenced them to make purchases they wouldn’t normally make.

Nearly 50% of users said they SPENT MORE using afterpay than using a debit or credit card

Therefore, with our modern busy lifestyles, we are creating a real disconnection with what we are actually spending – convenience spending is making us lazier and unhealthier consumers.

We all know people who live less than a five minute walk from restaurants, yet still order-in!

Why are we concerned?

Because of the sheer transparency of the way we spend our money – ‘Big Brother’ is watching our every move. Along with tighter lending criteria, lenders also have greater visibility over our spending. As your finance specialist we find ourselves spending more time and effort than before to help our clients develop strategies with their finances because many of us are totally disengaged with our actual financial status.

Have you noticed that your bank now groups your transactions into categories such as groceries, utilities, cash out, retail spending etc on your online statement and app?

Lenders use this information and now have the technology to review and evaluate the risks for your loan assessment.

There can be a variety of reasons a lender may reject a loan application

Perhaps you’ve renovated, are paying off holiday expenses on a credit card or have bought a new car. As your finance specialist, we can ensure you are ‘loan application ready’ by favourably drafting your situation to the lender that is most favourable for your circumstances. This is often missed by going directly to the bank yourself.

So… how else can WE help?

Our expertise will help you review your spending and budgeting habits to provide you with the best plan for improving your chances of approval before applying for your next loan.

An accurate assessment of your situation and home loan readiness will help you move forward with confidence.

If you are thinking of applying  for a new loan, reach out to us  for our checklist:  ‘The top 9 things you should know before applying for a home loan’.