Archive for the ‘Wealth’ Category

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Rate cut fails to improve sentiment

Friday, May 18th, 2012

Consumer sentiment is flat, despite a 50 basis point cut from the Reserve Bank. The Westpac Melbourne Institute Index of Consumer Sentiment increased by 0.8 per cent in May from 94.5 in April.  Westpac’s Chief Economist, Bill Evans, said the results were surprisingly low and fell well below expectations.  Its is a disappointing result. It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 per cent to 4.9 per cent.

However, other factors appear to have offset these positives. Firstly there might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by an average of 0.37 per cent. The results show that sentiment is two per cent lower now, than when the cash rate was, 100 basis points higher last October at 4.75 per cent.

 
The lower than expected sentiment could give the Reserve Bank reason to cut the cash rate again in the coming months.  Westpac’s current view that the Bank will wait until July before it cuts again but developments overseas along with today’s evidence that the recent cut has had little impact on Confidence could easily see the Bank bring that decision forward to the next Board meeting in June.

Posted in Budget, Enconomy, Financial goals, Home loan product, Inflation, Interest rate, Wealth | Comments Off

Residential vs Commercial

Thursday, May 17th, 2012

Are your investment goals and finances better suited to residential or commercial property investment? To answer this commonly asked question it’s important to first understand the differences between the two…

Length of leases
Commercial properties attract longer lease periods – typically three years or more rather than the 6-12 months of residential properties.

Maintenance costs
Most residential property maintenance is the responsibility of the landlord, whereas the costs of maintenance, rates and repairs on a commercial property are paid by the tenant.

Costs and returns
Commercial property offers the potential for higher rental yields, whereas residential property generally offers higher capital gains.

The net income tends to be higher for commercial property investment, in part because the tenant pays most of the property expenses.

Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10 percent on the property’s purchase price, which you may be eligible to claim back as a tax credit.
Both commercial and residential options have tax benefits such as negative gearing, depreciation and reduced capital gains tax rates.

Risk
Commercial property value can be hard to predict and demand tends to fluctuate with the business cycle, which is why it is usually regarded as a higher risk asset than residential property.

To manage this risk, lenders commonly charge higher interest rates on commercial loans, higher upfront and ongoing fees and lower loan to value ratios, which means borrowers have to come up with significant deposits.

Loan terms are typically shorter for commercial property and it is not uncommon for lenders to require regular review of the borrower’s business financials.

Tenants
It can be harder to find tenants for commercial properties, but on the flip side commercial tenants tend to pay more attention to maintaining the property as part of their business.

Both types of properties have their pros and cons so it is advisable to research well before you make your investment decision. Please give us a call for any questions we haven’t yet answered.

Posted in Enconomy, Finance News, Financial goals, House prices, Wealth | Comments Off

Affordable Property Investment

Wednesday, May 16th, 2012

A large bank balance is not a prerequisite for affording an investment property.
There are many options available to help you get a foot in the door including using home equity, tax incentives and tailored investment loans.

Equity
If you already own a property, you can use its equity (‘unrealised value’) to fund your next property purchase. Equity is the difference between your home’s market value and the balance of your mortgage, so when your property increases in value, the amount of equity also increases. Refinancing your mortgage allows you to access this increased equity to use as a deposit on another property purchase.

The property you live in is not the only source of equity – you can use the equity in your business, parents’ home or an investment property. Contact us for help in working out how much equity you may have available and how it can be used as a source of funding.

Negative gearing
Negative gearing lets you invest in an asset of greater value than you could afford using your own money. It occurs when you borrow to invest in an income-producing property, which costs more to own and maintain than the rental income you receive from it. This ‘loss’ can be claimed as a tax deduction, reducing the tax you are required to pay on income earned elsewhere, such as from a salary.

Contact us to find out more about negative gearing and what precautions you should have in place to ensure this investment strategy works for you.

Loan choice
Choose your loan carefully because the way you fund your investment property will impact on the returns you receive. Investment loans differ in their structure and flexibility – while one might be designed to help you reduce your debt more rapidly, another might be designed to help you purchase more investment properties in the future.

There are a range of loan features especially useful for investors such as interest only, interest in advance, mortgage offset, split loan and line of credit.
We can work with you to match your investment goals to the right type of loan from our large panel of lenders.

Posted in Budget, Financial goals, House prices, Wealth | Comments Off

Refinancing Mistakes to Avoid

Monday, May 14th, 2012

Avoid these common mistakes and refinancing your home loan should be a simple, trouble-free experience. Successfully navigating the refinancing process can enable you to take advantage of better rates and features, as well as provide finance for a renovation, construction or property purchase.

Mistake # 1: A history of arrears
Lenders want to avoid taking on risk, which is why they ask for at least six months of loan statements in order to check your conduct. They won’t be impressed with missed/late repayments or going over the limit on any lines of credit, so wait until you have six months of clean history before making an application.

Mistake # 2: Too many credit enquiries
Every time you submit an application to a lender, it is recorded on your credit report. When the lender sees a number of applications they wonder why your application hasn’t yet been approved by another lender – this may be all the reason they need to decline the application. It’s our business as your mortgage broker to know how the criteria varies among different lenders and which lender you will have most success applying to.

Mistake # 3: Not thinking ahead
When shopping for a new loan, you’re probably looking for one that will suit your needs now, but what about a few years down the track? If you move house or take a career break to raise a family, the loan you choose needs to accommodate these life changes.

Mistake # 4: Failure to lock it in
If you fail to lock-in the new favourable rate of interest on your new loan, it may increase by the time your loan gets processed. If you wish to lock-in a rate we can offer that facility.

Mistake # 5: Not taking costs into account
Sometimes the savings you could make by switching loans are outweighed by the expense involved. Make sure you know what up-front fees you will be charged and conduct a thorough cost-benefit analysis before you go ahead. Let us know if you need us to do this for you.

Mistake # 6: Poor paperwork
Not supplying all the supporting documents when putting in your application can send it back down the bottom of the pile and the waiting game will start over again. It’s equally important when your loan is approved to review the documents properly before signing for a clear idea of the terms and conditions. As your mortgage broker we are experts at guiding borrowers through the paper chase and explaining what’s in the fine print. Give us a call anytime about helping you successfully navigate the refinancing process.

Posted in Finance News, Financial goals, Home loan product, Wealth | Comments Off

Buyers Wish List

Friday, May 11th, 2012

Multiple bathrooms are rated as number one on a wish list of features that buyers look for in a new home.

The results of a national pool of 114 real estate agents have uncovered some surprising research about what buyers want. The survey, commissioned by Turf Australia, found that 42 per cent seek more than one bathroom and 41 per cent desire a quiet street. A decent sized backyard was the next most sought out by 34% of buyers, followed by being close to a bus route or shops (20%) and off-street parking (13%).

It seems that it is not any old backyard that buyers want, but one with grass – the survey found that nationally a lawn could add 18 per cent, or just over $75,000 in value on the average $420,000 home. Three quarters of real estate agents said buyers want a safe playing area for their kids while a third believe a lawn adds to the look and feel of a home.
A lawn was shown to add the most value in Victoria (19%), followed by NSW (16%), Queensland and South Australia (12%) and WA (9%).

As a seller, the key message is that it pays to put some time into making sure your backyard – particularly the lawn – is in tip top condition!

Posted in Financial goals, House prices, Inflation, Wealth | Comments Off

More banks move rates

Wednesday, May 9th, 2012

As more lenders continue to move on rates, one thing is becoming very clear: no lender is prepared to pass on the full rate cut to borrowers. In the last few days, BankSA cut 38 basis points from its standard variable rate to 7.04 per cent, while St George also cut 0.38 per cent from its SVR, taking it to to 7.04 per cent effective from May 14. Bendigo Bank cut its rate by 0.35 per cent and CUA passed on half of the Reserve Bank’s 50 basis point cut by slashing 25 basis points from its standard variable rate. One of the biggest interest rate cuts so far is the Bank of Melbourne, which passed on a 0.41 per cent rate cut to borrowers.

Posted in Enconomy, Financial goals, Home loan product, Interest rate, Wealth | Comments Off

Cash rate to hit 3pc by year’s end: ANZ

Tuesday, May 8th, 2012

The Reserve Bank is expected to cut the official cash rate by a further 75 basis points before the end of the year, after new research revealed job advertisements slumped yet again. According to the latest ANZ Job Advertisement Series, the number of job advertisements on the internet and in newspapers fell 3.1 per cent in April. Overall advertisements are now approximately 1.7 per cent below the level of April 2011.

 
Sustained uncertainty by consumers and businesses and an expectation that fiscal policy will subtract from growth in the year ahead as the Government returns the budget to surplus in 2012/13, has forced ANZ to forecast further 0.75 per cent drop in official interest rates by the end of 2012. In addition, expect to see the unemployment rate rise slightly to 5.3 per cent this month.

Posted in Enconomy, Financial goals, Inflation, Interest rate, Wealth | Comments Off

CBA follows NAB lead

Thursday, May 3rd, 2012

The Commonwealth Bank of Australia has cut its standard variable rate and thrown down the gauntlet to ANZ and Westpac. This morning, CBA announced it would cut 40 basis points from its standard variable rate, taking it to 7.01 per cent – 0.02 per cent higher than National Australia Bank.

Yesterday, NAB announced it would cut 32 basis points from its borrowing rates, taking its standard variable rate to 6.99 per cent. CBA’s rate decision now puts pressure on Westpac and ANZ. It is very unlikely that any lender would look to pass on the rate cut in full to their borrowers. I expected all of the lenders to withhold 10 to 15 basis points of the 0.5 per cent rate cut.

It is just a sign of the market at the moment. It looks like Australia’s second tier lenders will withhold even more. Last night, ING DIRECT announced it would decrease the interest on its variable rate mortgages by 0.3 per cent.

Posted in Bank Profits, Enconomy, Finance News, Financial goals, Home loan product, Inflation, Wealth | Comments Off

Majors hold fire on interest rate cut

Wednesday, May 2nd, 2012

Australia’s major banks are unlikely to pass on the full 50 basis point rate cut to borrowers. Yesterday, the Reserve Bank cut the cash rate by 50 basis points to 3.75 per cent the biggest drop since the peak of the Global Financial Crisis and the lowest level since December 2009.

Within hours of yesterday’s announcement The Bank of Queensland confirmed that it would pass on 35 basis points of the rate cut to its borrowers.However, at close of business yesterday, all of the majors were yet to make announcements around their mortgage rates.

 
I expect the big banks to follow the lead of BoQ and hold back some of the rate reduction. This is a very big move from the Reserve Bank and it will help thousands of households, with people on a $300,000 mortgage potentially saving around $1,000 per year.

But it’s unlikely that all lenders will pass on the full 50 basis point rate cut. The signals from the big four banks suggest that they will try to hold on to part of this rate cut,  remember that of the 50 basis point cash rate reduction from the RBA since November, the big four banks have only passed on around 40 basis points to variable rate home loan customers.

Posted in Bank Profits, Enconomy, Financial goals, Home loan product, Inflation, Interest rate, Wealth | Comments Off

RBA cuts interest rates 50bp

Tuesday, May 1st, 2012

The Reserve Bank of Australia (RBA) has cut the official cash rate in its May Board meeting today, following weaker than expected inflation data. The Board thought it was prudent to cut the official cash rate 50 basis points to 3.75 per cent, after headline inflation turned out to be significantly lower than the RBA’s target range of 2 to 3 per cent.

The rate cut failed to shock industry analysts, with many forecasting a rate cut last week.   The RBA’s decision was the right one, as the economy was in serious need of a boost. We have seen a lot of softness in the economy of late. House prices are down on where they were, retail activity has slumped and headline inflation was just 1.6 per cent for the year.  There is no doubt the economy is doing it tough at the moment and hopefully this rate cut will help ignite consumer spending once again.

Minutes from the meeting today show the RBA took inflation results onboard was making the rate cut decision. Recent data for inflation show that after a pick up in the first half of last year, underlying inflation has declined again, and was a little over two per cent over the latest four quarters.

In considering the appropriate size of adjustment to the cash rate at today’s meeting, the Board judged it desirable that financial conditions now be easier than those which had prevailed in December. A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates.

With the RBA slashing rates, all eyes will now  be on Australia’s lenders to see if they pass on the full rate cut to borrowers.

Posted in Enconomy, Finance News, Financial goals, House prices, Inflation, Interest rate, Wealth | Comments Off

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