‘Big school’ means a lot of things, however from a financial perspective it can mean No More Childcare Fees!

Did you know that it is not unusual for parents to spend $10,000 or more per year on long day care per child?

That equates to more than five months of repayments every year on their mortgage!2

For many families, the start of primary school is an opportunity for a parent to increase their hours of work or return to the workforce on a part or full time basis. This can have a significant effect on family income, lifestyle and relationships.

If you are one of the 270,0001, what are you planning to do with the extra cash to ensure it does not simply disappear into your everyday spending?

Time to review

When your children start school (or your employment circumstances change) it is a great time to re-assess your overall financial situation. Over the years, having worked with many clients who have young children, we have observed (either intentionally or maybe unknowingly) the following:

  1. mortgage payments reduced to minimum levels,
  2. personal debts and/or credit cards built up,
  3. limited refinancing options due to lower income levels, and/or
  4. investments being placed on hold.

We have also observed that when our clients re-enter the workforce, most forget that they actually managed quite well on lower income levels. Instead of investing, saving or paying off debt, the additional cash flow has been absorbed in their new daily lifestyle.

What are some of the options to secure a strong financial path?

  1. Increase mortgage repaymentsUsing any money previously assigned to your childcare facility to make additional mortgage repayments. These additional repayments have a compounding effect and can significantly reduce the term of your loan, thus saving you thousands in interest over the lifetime of your loan.
  2. Review your debt and consider new optionsWhen living on a single income it is not uncommon for additional expenses to be added to credit or store cards. Unfortunately these types of credit facilities typically accrue very high interest. We recommend that you take the time to review all your debt and talk to us about consolidation options to reduce your overall interest (and mostly lower your repayments).
  3. The deal gets better…Refinancing your home loan can be difficult when children are young as lenders are hesitant to lend on a single income or consider part time earnings. When you re-enter the workforce, refinancing your home loan becomes easier as your ability to repay improves. There are currently some very attractive interest rates available.

    As your spare time now becomes so much more important, if you have not reviewed your home loan for a while, we would recommend that you allow us to do so while rates are at their all time low.

  4. Plan your investment strategyInvestments are typically the first item that we see families put on hold while their children are young. With both parents working and the elimination of childcare fees, an investment property may become an affordable option. Remember you don’t need to pay off your own home before considering an investment property.

Ask us for our information guide on how to use your existing equity to start investing sooner.

If big school is the on the cards for your little one, then make sure to call the office on 02 8215 1559 to start on the right foot this year!

*Disclaimer: This article is generic in nature. All investment decisions should be considered wisely and based on your personal and financial circumstances. Seek proper advice before committing to any course of investment action. This is not deemed as advice.

1abs.gov.au/ausstats/abs@.nsf/0/93EB4563583425CCCA25773700169C91?opendocument
2censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0 median monthly mortgage repayments $1800

Soft jobs data raises prospect of rate cut

A weak employment report for December has increased the chance of an interest rate cut in February, so economists say. The Australian Bureau of Statistics (ABS) announced that the nation lost 5,500 jobs in December. The result was well below market consensus of a 4,500 gain in total employment. NAB group chief economist Alan Oster said the data showed the labour market was soft. “Generally the message is that the labour market whilst it is OK is softening and therefore unemployment is starting to go up,” Mr Oster said. The ABS said the unemployment rate was at 5.4 per cent in December, up 0.1 percentage points from an upwardly revised 5.3 per cent in November.

The Reserve Bank of Australia has delivered 175 basis points of interest rate cuts since November 2011, sending the cash rate to three per cent and levels not seen since the global financial crisis. Mr Oster said the unemployment data had raised market expectations of more interest rate relief from the RBA in February at the next meeting. However, the release of the December quarter consumer price index (CPI) report due on January 23 would have a bigger bearing on the central bank’s thinking. “This is soft, so this would basically mean that the market would price in a bigger chance of a rate cut,” Mr Oster said. “But I think you really need a low CPI before they actually pull the trigger.”

The Australian dollar also reached negatively due to the jobs numbers. The currency dropped to 105.36 US cents after the data was released at 1130 AEDT, down from 105.64 US cents shortly before.

2012 Wrap Up

Mortgage holders and home buyers received an early Christmas present this year, with the Reserve Bank slashing 25 basis points off the official cash rate and taking it to an all-time low of just 3 per cent.

In terms of interest rates, it has been a good year for borrowers, with more than 125 basis points cut from the cash rate over the past 12 months. In fact, we haven’t seen a cash rate this low since September 2009.

So, while the news came as little surprise to many leading economists, home owners and potential buyers have an extra reason to celebrate this festive season. Several lenders have been quick to pass on the rate cut, with many more expected to make a move over the coming weeks.Whether you are an existing mortgage holder or are looking to enter the property market soon, rate reductions can only mean one thing – savings.

As the new year draws near, some economists are predicting an influx of activity in both the Australian real estate market and retail sectors as recent cash rate reductions filter through to consumers’ wallets. HSBC chief economist Paul Bloxham said the Reserve Bank’s recent decision reflects the country’s need for increased spending in economically sensitive sectors such as retail and housing.

“Lower interest rates are needed to support a pick-up in the non-mining sectors of the economy so that Australia sees a smooth transition from mining investment-led growth to growth that is driven by the interest-rate sensitive sectors,” Mr Bloxham said.

“Australia’s growth needs to switch from being commodity-price driven to being credit-driven, and the 175 basis points of rate cuts the [Reserve Bank] has delivered in the past year or so will help to drive this.”

The question on everyone’s mind now is what’s coming next? Can we expect to see the Reserve Bank lower the cash rate once more early next year, and should we wait and see before considering entering the property market?

According to Mr Bloxham, you may be disappointed if you decide to take the ‘wait and see’ approach.“The labour market remains a key focus for us, as do further signs of a pick-up in the housing and retail sectors over the Christmas period,” he says. “At this stage, we think this may be the last of the Bank’s cuts in this easing phase.”

If you are looking to enter the property market, there may be no better time than right now.

We are seeing an influx of discounted mortgage products currently available in the marketplace– with potential savings offering significant benefits to the hip pocket. Give us a call today if you would like to discuss your situation.

First Time Choices

Should you enter the property market now, or later?

Most first-time property investors find themselves facing the challenge of coming up with sufficient funds for a deposit and so will be torn between two options:

Do they enter the market now and borrow a hefty portion of the property’s value? Or should they bide their time so they can put together a larger deposit?

Keep in mind that the choice you make now can impact greatly on the profitability of your investment, so it pays to consider the relevant factors carefully before entering the market. With property values relatively flat – at least for the moment – and lenders offering considerable discounts across many home loan products, it might be enticing to enter the market now, regardless of how much money you have saved. Many lenders now offer loans of up to 95 per cent of the value of the home, allowing you to enter the market with a deposit of just five per cent. However, it is important to assess your financial situation first. Ask yourself, can I afford to meet the repayments if interest rates increase, as well as put aside some money for emergencies?

Don’t forget that with a deposit of less than 20 per cent, it is highly likely you will be required to pay lender’s mortgage insurance (LMI) to protect the lender if you are unable to meet the repayments. While it will take longer to save a large deposit, there are some advantages in doing so – including being able to avoid paying LMI. Being able to put down a larger deposit will also help minimise your monthly mortgage repayments. However, while you save for that deposit you may be missing out on house price growth and investment returns, and the cost of your potential purchase will likely increase in the meantime.

There is no right or wrong decision here – it is up to you and it depends on your own, unique financial position. The best thing to do is to weigh up your options carefully. If you’d like help assessing your options, come and speak to us. We can assess those options – including calculating the numbers – and can help you get a better picture of what the best opportunities are for you.

Tracking down your lost super

Maintaining a healthy superannuation fund is an important step in securing a comfortable retirement

It’s a bit scary, but one in two Australians will lose track of their super during the course of their working life. Losing some of your super can have a drastic impact on your financial freedom and lifestyle during those golden years of retirement. Statistics released by the federal government indicate that approximately 5.8 million superannuation accounts, with a total estimated value of over $20 billion, have been lost by fund members.

Safeguard your retirement today by taking some simple steps to see if you have any lost super. If you have switched careers, changed your name or moved house in recent years, chances are you have had super building up in different funds. The problem with owning multiple super funds is the more accounts you have, the harder it becomes to manage.

If you know where your super is currently deposited, it might be wise to set up just one account and transfer all funds into one central location. Not only will you find it easier to keep track of your money, you will also avoid those hefty fees associated with juggling multiple accounts.

Thankfully, there are a few cost-effective ways to help you locate and retrieve any lost super, funds that are rightfully yours. The Australian Taxation Office (ATO) has established a simple and cost-effective way to locate your super by using an online program. The program, known as SuperSeeker, is free to use and available online 24 hours a day, seven days a week.

To access the service, visit the ATO website at www.ato.gov.au and click on the ‘Super Funds’ tab near the top of the page. You can use SuperSeeker to check all super accounts to which you have made a contribution and to track down all lost super accounts in your name that have been reported to the ATO – as well as any super money the ATO currently holds for you.

SuperSeeker can also help you lodge a request with your fund online if you wish to transfer your super to another super account. Don’t let your super get away from you this year – get cracking and track down your lost funds today!

Higher costs of funding?

In a bid to determine whether or not Australia’s lenders were appropriate to move their rates independently of the cash rate, the Reserve Bank of Australia has launched an investigation into the true cost of funds.

Earlier this month, all four of Australia’s majors moved their rates independently of the Reserve Bank, blaming “higher funding costs”.

ANZ chief executive Phil Chronican said the bank could no longer “absorb the additional funding costs in the hope that funding pressures would ease”.

“Margins in retail and business banking have now been squeezed for a number of months and we’ve taken the difficult decision to pass on part of the higher costs to customers while we also get on with taking action to reshape the bank for tougher times,” he said.

As such, the Reserve Bank is now set to interview banking executives and release a report on the true cost of funds next month.

The investigation comes one week after French Bank Société Générale labelled Australia’s funding cost problems “dubious”.

According to research by Société Générale using publicly available data from the Reserve Bank and the Australian Prudential Regulation Authority, nearly all funding costs are falling.

“What we have seen over the last six months is that overall funding costs for Australian banks have absolutely come down. Research suggests that effectively pretty much every source of funding that they use – in terms of domestic deposits, short-term funding onshore, long-term funding onshore – has actually gone down,” Société Générale’s head of strategy in Asia Christian Carrillo told the ABC.

Source: The Adviser

Establish the true value

Whether you’re a home buyer or an investor, if you’re contemplating buying a property, understanding its true value is crucial.

Finding yourself facing a barrier to financing is one of the most serious setbacks you can experience if you pay over and above what your lender believes to be the true worth of the property.

For example, if you agree to pay $450,000 for a property, but your lender’s valuation comes in at $400,000, they will only finance you based on that amount. And if you haven’t got the cash to cover that shortfall, this could cause you serious problems.

Organising a proper valuation of a property you are serious about buying is a must.

Several valuation products and services are available to buyers, from instant online varieties to thorough on-site inspections.

Typically, an online valuation is a very useful guide for buyers but should really only be used as a starting point. A more thorough valuation is the best indicator of a property’s true worth.

In addition to providing you with a more accurate price guide, a full valuation can also deliver an assessment of the local area, market trends and the local market conditions’ likely impact on the property’s value at future sale.

It’s a worthwhile investment.

Do keep in mind that a valuation doesn’t prevent you from spending more than you expected on a property, but it will give you an idea about the implications of doing so.

Moreover, with the real estate market so volatile, just because a valuation might indicate a certain price range for a property pre-auction, a valuer may be willing to reassess this subsequently.

Say, for example, that a valuation suggests your target property is worth $520,000 but you agree to pay $550,000 at auction. If there are several other bids over and above $520,000, this demonstrates strength in the market and may see the valuer suggest a new valuation.

Generally speaking, it will be up to the lender’s valuer to assess the situation, taking into account a broader view of the market.

Whether you are willing to commit to a price over and above your own valuation will depend on your financial circumstances. If you know you simply don’t have the cash, it is certainly a wise idea to avoid bidding any higher than the valuation you receive.

Breaking the Rules

With the Australian property market an increasingly hard nut to crack, success now requires a little bit of fresh thinking.

All too often, people complain that they’ll never be able to break into the market because it’s just so expensive to buy a house in their neighbourhood. Others dream of property investment, but the idea of another $500,000 mortgage on top of their own home loan is too much to bear.

Little do they know, it is not the cost of real estate that is stopping them from cracking the market, but the way they’re thinking about it.

Property investment needn’t break the bank. Moreover, the best investments are not always found in the top-end markets.

One strategy that is growing in popularity among investors – both first-time and experienced – is investing in suburbs at the edges of our capital cities, where it’s easy to pick up apartments and houses for under $300,000.

Many such markets offer a great investment selection as they not only offer an affordable entry point but also compelling returns.

Take a $250,000 property, for example, that brings in a rental income of $350 per week. This equates to a gross rental yield of more than 11 per cent.

A $600,000 property by contrast, though more expensive, may bring in a rental income of $600 a week, equivalent to a gross rental yield of just over five per cent.

Less expensive property is also much less cash-intensive, making it easier to fund and generally a much lower risk strategy.

For first time buyers, this can be a great way to dip your toes in the property market, while continuing to rent in the location you love.

The rental income will go a long way toward paying down your debt and you’ll be building up that much needed equity to get your property investment portfolio or dream home aspirations on track.

The same goes for existing home owners. Just because you can’t afford a fancy unit in the CBD, doesn’t mean you can’t buy an investment property.