At its meeting on Tuesday, the Board decided to lower the cash rate by 25 basis points to 4.25 per cent, effective 7 December 2011.
There could be more rate cuts to come depending on the problematic situation in Europe . Futures markets have priced in a drop in official rates to a low of 3.25 per cent by May.
If there’s one topic property investors rarely agree on, it’s what makes a better investment: old or new?
Proponents of buying ‘old’ argue that established dwellings are typically more affordable and can be renovated to create equity, whereas those buying ‘new’ argue that this is outperformed by the tax incentives that new properties deliver.
Confused? Here are the arguments for both sides of the debate, but remember there’s no ‘right or wrong’ answer, regardless of which corner you stand in! Old and new properties both have distinct, unique advantages and what counts as an investor is that your decision matches your individual strategy and goals.
If you’re an investor, one of the big advantages of buying a newly constructed property is that you can claim depreciation as a tax-deductible expense. This includes the depreciation of assets in the buildings and the cost of the building itself, as well as for wear and tear on fixtures and fittings in the property. The newer the property, the higher the level of depreciation.
Brand new properties tend to attract a better quality tenant, which means a higher rental income and fewer headaches for the landlord!
Unlike new homes that require little maintenance, owners of second-hand properties are often faced with immediate maintenance issues. The costs of repair in older homes can significantly inflate ongoing expenses.
As a purchaser of a new property you are protected for a number of years against major building defects by home warranty insurance, which all builders of new homes in Australia are required to carry.
There is little opportunity to add value to a new home, whereas the investment made in an old home can grow in the future should you choose to renovate or extend.
It’s often said that you get more house for less dollars buying a second-hand home than when buying a new one. For entry-level investors, old properties can have the advantage of an affordable price tag.
Older homes often have great features that can’t be replicated in new homes. A well-maintained period-style home, for example, will reap rewards in capital growth down the track
There’s less guesswork in buying an established property because you’ll be able to trace back the property’s appreciation and find out how the suburb has performed. This can help give you the assurance you need that you’re buying a good property.
We’ve spent the year expecting interest rates to go up, now there’s hope they may be coming down. It’s an unusual reversal of fortune and one that took many economists by surprise when just a few months ago the Reserve Bank was widely tipped to lift rates at least twice before Christmas.
While there is much disagreement about when the rate cut will happen and by how much, the majority agree the Reserve will at least keep rates on hold until the new year.
In a recent survey of 20 economists by the Australian Financial Review, the most popular prediction for the next six months is that the Reserve Bank will leave rates untouched (9 out of 20). Five said they expect rates to be cut by the end of the year, while five tip rates to rise over the next six months.
The Reserve Bank’s next move is anyone’s guess, but the progression of Europe’s debt crisis and America’s economic slowdown may have a part to play. In the meantime a number of lenders are cutting their fixed mortgage rates, so if you are considering taking advantage of the lower rates on offer, call us and we would be happy to talk you through the process.
Here are a few tax tips from the experts that might help you lower your tax bill.
A mortgage offset account allows you to minimise your tax on interest earned on savings. It is an account that is tied to your loan account and allows you to use your saving account balance to reduce the amount owed towards your loan.
The interest earned on your savings is put towards the amount payable on the loan, enabling you to reduce how much you owe by cutting the time it takes to pay off your home loan.
There are two types of offset accounts: a 100% offset and a partial offset. A 100% offset means that the same interest is earned in the savings account as is paid in the mortgage account, whereas a partial offset means that a lower interest is earned than is paid.
Contact us to find out more about opening an offset account.
There are tax advantages in salary sacrificing items instead of purchasing them yourself. Under a salary sacrifice arrangement (also known as salary packaging), you agree to forgo part of your future entitlement to salary or wages in return for your employer providing you with benefits of a similar value. The type of benefits might include cars, property, home loan repayments, superannuation, mobile phones, computers and child care fees.
You only pay income tax on your reduced salary, but you receive the reduced salary plus the benefits. You can also make employee contributions out of your after-tax income towards the cost of the benefits and reduce any reportable fringe benefits tax.
To be eligible, first check with your employer regarding their fringe benefit tax policy and items you can salary package as there may be existing policies in place.
Make sure you are claiming all the deductions you can for your specific occupation. There’s a useful guide on the ATO website that shows allowable deductions for 20 different occupations. Go to www.ato.gov.au and search for ‘deductions you may be able to claim’.
The ATO allows you to claim income protection insurance as a work-related expense. It is insurance worth considering for anyone in the workforce as it pays a portion of your salary for a while if you’re temporarily unable to work because of sickness or injury.
Juggling commitments to work and family often seems to require the perception of a psychic, the balance of a tightrope walker and the stamina of an Olympic athlete. Striking the right balance has never been easy, but it will definitely become easier if you make the most of your time by becoming organised.
Start by keeping a time-diary to monitor where the hours in the day actually go. You can then decide if this is the best way for you to spend your time, and develop a set of priorities that will allow you to postpone unimportant tasks and delegate others. There will always be tasks that cannot be delegated, but if you look you can usually find opportunities to ease up your daily routine.
Put your health and happiness first with these four strategies for achieving a successful work life balance.
Ask yourself whether you are doing things in the quickest, most efficient manner? Once you have worked out what tasks you can delegate and what you can’t, consider how to go about working smarter, not harder. ‘Smart strategies’ include prioritising your workload, using technology, asking for help and setting yourself time limits and boundaries.
Don’t neglect the convenience of technology, whether it’s paying bills online or using apps on your iPod. It might seem daunting or time consuming to take on new technology but investing the effort up-front is worth the time-savings it will bring you down the track.
Take plenty of ‘no screen’ time during evenings and weekends – with no emails, internet, phones or laptop. To prevent work spilling over to your personal life you need to set boundaries with staff and colleagues so they know when they can and can’t contact you.
Chances are you will never get around to your hobbies and interests if you don’t schedule them into your day. Whether it’s attending a gym class or learning a language, you need to put aside the time and treat it as you would any other important commitment.
Switching home loans has become one step easier with the removal of mortgage exit fees.
While the removal of exit fees may not provide sufficient reason alone to switch mortgages, it may prompt consumers to shop around for what else is available in the marketplace. When it comes to refinancing to consolidate debt, purchase an investment property, find a home, undertake renovations or minimise mortgage repayments, consumers now have the flexibility to find a product to suit their changing needs.
Keep in mind that exit fees actually make up a very small proportion of the 25-year cost of a home loan and it is still interest rates that really dictate how much your loan will cost over the long term.
For this reason it pays to do your research and not be too influenced by the abolition of exit fees. More than ever mortgage brokers will play an important role in analysing the options that best suit your individual set of circumstances.
It may be that your current loan provides the best choice or that by switching to another product you can achieve savings. Whichever the case we can inform you of the current state of the market and help steer you through the confusion of comparing multiple home loan products.
The top 4 tips for managing your mindset:
1. Change your money beliefs
We learn our money beliefs predominately from our parents. We were often told that you must ‘work hard for your money’ and that ‘money doesn’t grow on trees’. This type of talk does nothing for our mentalities and therefore you must learn how to identify these limiting beliefs and replace them with powerful positive ones.
2. Change your attitude towards debt
We are taught that debt is bad and something to fear. While ‘bad debt’ debt used for consumables such as cars, clothes, holidays etc. is something we want to minimise; borrowing money to purchase growth and/or income producing assets is a powerful strategy to grow your net wealth. This is considered ‘good debt’.
3. Build up your knowledge Read as much as you can. This is the cheapest way to learn.
4. Surround yourself with like-minded people
Influence, or be influenced. The people we surround ourselves with shapes us into who we are. We can’t choose our family, but we can choose our friends and social circles. You just need to mention the word property and all of a suddent everyone’s an expert. Ask them what their experience and success stories are before taking their free advice.Join a mentoring group or mix with people who are actively investing . This can make a huge difference to your mindset and overall success.
Your car gets serviced at the mechanics, your teeth checked at the dentist, but when is the last time you booked your home loan in for a health check?
A regular home loan health check ensures you’re still getting the best deal and the maximum benefit out of your biggest investment. As your personal circumstances change over time, it’s important to make sure your home loan meets your needs and evolves with your lifestyle.
Here’s what a health check can uncover about your loan –
How to:
• save on interest and pay off your loan sooner by changing the frequency of your repayments
• achieve a lower interest rate
• negotiate better terms with your current lender
• reduce your loan balance and build your equity by using an offset account or paying income directly into your home loan.
• unlock the equity in your home to use for investment or renovation
• reduce debt by consolidating it into your home loan
• access product innovations that were not available when you first took out your loan
• transfer your loan to another lender.
How does it work? Mortgage health checks are free of charge and involve minimal time on your behalf.
Simply contact us and we will undertake a comprehensive analysis of your current loan by comparing it across a range of mortgage products available from banks and lenders. We’ll then share with you any potential ways we have uncovered for you to save money and time, and assist you with putting these into action.
A health check doesn’t mean you will have to refinance your loan; it can be as simple as restructuring with the same lender. Banks and lenders are constantly enhancing and fine-tuning their product range, which means there is often a cheaper or more efficient product provided by the same lender.
In situations where refinancing is the better option, we can help minimise the effort, time and expense that is often involved in moving from one lender to another. As part of this process we will help you weigh up any fees and other costs associated with switching your loan, with the expected savings and benefits of the new loan product.
Making Decisions Every day we make hundreds of decisions, some simple, others more difficult. Decisions which can have a lasting impact on your life, such as taking out a home loan or fixing your mortgage are far more intimidating and usually much more difficult to make.
Quick thinker or procrastinator? 
The first step in improving your decision making ability involves recognising how you face the difficult decisions that confront you. Do you make decisions quickly, or do you tend to put decisions off? Both courses are equally dangerous – a rash decision can easily come back to haunt you, while avoiding a decision can force you along a path which might not be in your best interests.
Do your homework
Before making an important decision there are three key points you should consider: the amount of time you have to decide, what you hope to achieve and what information will help you find the best solution. Gather information, explore different options and seek advice from an outsider such as your mortgage broker. Once you have the background information you need (which we can help you gather), you may find it useful to rate the pros and cons of each option on paper. Use the option which offers the best score as your first choice, but have a back-up ready in case things don’t work out as planned.
Your best is good enough
If you don’t have much time, gather the basic information you need (again, we can assist you here to save the leg work) and make the best judgement you can. Be prepared to continue your search for information and monitor the impact of your decision so you can modify if this is needed or make a better choice the next time the situation arises. Whatever you decide it’s important to remember that you can never please everyone. The most important person to satisfy is yourself. “We know what happens to people who stay in the middle of the road. They get run over.” – Aneurin Bevan
I have been hearing self-appointed experts say for a couple of years now that there is a housing bubble, and that property values are going to fall from the sky. We are all doomed, and everybody should sell their property now, or risk facing massive losses.
If you say something for long enough, eventually, that fact will become true. However over a period of a year or more, then these “experts” should admit they got it wrong, and the media should pay scant attention to them.
Of course that won’t happen. Headlines like “Housing prices to remains stable” won’t sell newspapers now will they?
The fact is that housing prices (let’s take Melbourne for example), will not drop appreciably. And there is a simple, basic reason underwriting that. Supply and demand.
So instead of guessing, maybe let’s look at who and what controls supply, and who controls demand.
Supply variables are:
(a) Physical barriers such as water, cliffs, freeways, etc (which we can do little about)
(b) Labor and materials cost (which are set by the market)
(c) Financiers – by way of access to funding for developers and builders
(d) By far the biggest controller of supply are zoning and planning restrictions. Daylight second.
These of course are controlled through the local councils (through zoning ordinances) and the State Government, through their Melbourne 2020 vision and their masterplan.
The adage “they are not making any more land” is not applicable. Smaller lot sizes creates more lots, and higher densities creates more living accommodation, albeit airspace. And the sole controller of this is local and State governments.
As to supply, let’s not forget that the Victorian government (via VicUrban) are by far the largest holder of residential land around Melbourne.
So they almost completely control the supply of vacant land, and by extension control land prices through controlled land releases. They are understandably, increasing lot prices with each stage to maximise their asset sales.
The State government also encourage interstate and international migration (both of which are very strong), thereby increasing demand for housing in a market where rental vacancies are still quite low. So they are the largest controller of demand as well.
I can’t see VicUrban decreasing land prices. Nor can I see the State government discouraging new investment or migration to the State. So there will be no change to this balance.
And if land underpins property values, and land prices around the fringe remain stable (as a result of the majority of land being held by VicUrban and a couple of large scale developers), how can the value of a property that is a piece of land with a house on it drop? Especially if it is more centrally located that the fringe areas so tightly held? And if house and land prices are supported through land prices, then apartment prices will be supported through house and land prices.
There is so little thought gone into claims the market will drop. Either that, or people just do not understand the asset class.
We are not in an asset bubble. There will be no bursting, as there is no bubble to burst. Unless the State Government goes bankrupt and has to liquidate its assets at firesale prices, at best there will be a stagnation of pricing.
If you still don’t believe me, consider what will happen if prices drop:
The impact of this is that builders will need to build new houses now for $100K which was formerly being built for $180K. Let’s say the average builder margin is 18 per cent, the raw cost of materials and labor alone is about $152K. Builders will be out of business in a hurry, as they would be losing $52K on the contract for the above example. The result – no new housing built.
So when we see an ever increasing population, in a market where rental vacancies are already low, and no new stock being built, what will happen to demand? It will increase rapidly, and again support housing value.
The only other single controller of property prices are banks. They can control a false market by creating demand from buyers by way of how easy it is to obtain credit, and how cheap it is. Which is exactly what happened in the US.
Getting credit in Australia is not easy for a buyer. It really never has been. It is hard. And it is certainly not cheap. The brakes have been applied in full for nearly three years. So there has been no false market lifting property prices over this period. Yet, prices still increased. And strongly. Which suggests that the banks carry little weight in determining current housing prices.
Over the past six months, it has loosening slightly which should further increase demand slightly.
Forget about statistics. Statistics are just numbers. They explain nothing. Anyone that claims that prices must decrease just because the numbers are unsustainable is not thinking.
It is ridiculous to compare the “affordability” of housing (an inappropriately named measure in and of itself in its current format) from one country to another. Not all countries have the same lending policy, the same interest rates, the same deposit requirements, the same loan term, the same control measures, the same population changes in percentage terms, or the same taxation (impacting on after tax income which can be contributed towards debt servicing; as well as Australia’s negative gearing laws which in turn attract investors to housing).
Buyers rarely pay cash for their property. Most people need to borrow. Finance as a result is integral to housing prices, and always will be. But as a buyer, what would you rather buy?
The former naturally. Because the actual property price is not how much you pay to purchase the property – the actual price is how much is costs to get into the property (the deposit) and how much it costs you on a regular basis (your mortgage payments).
If interest rates were zero per cent, demand would skyrocket. But they are not. The standard variable rate is about 7.8 per cent amongst the majors. That is not a low rate. So access to easy finance is not the variable setting the market. Supply and demand is.
And when mortgage payments are comparable to rent, people will be attracted to ownership almost every time.
Article by: Troy McErvale
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