Servicing Melbourne, the Mornington Peninsula and wider Victoria
Welcome to our May edition
Wow, what a couple of months it has been in the mortgage industry. We continue to experience a rising interest rate environment, some lenders have further tightened their credit assessment policies, especially in relation to Low Doc Loans, while other lenders have eased off the brakes slightly in the hope of attracting more quality applications.
The "Henry Review" - yes it's on everyone's radar and I have put a few words together on the effects for borrowers and those looking to enter the market.
Good news for the investor market which should be buoyed by the predictions of rental value appreciation over the next few years.
Also I think it is timely to look at the situation encountered by those plannning a family and a few pointers on plotting a course through the potential changes ahead.
As always, please contact us at Lightning Fast Home Loans if we can offer any advice or answer any questions you may have. Adrian Williams.
May 2010
Issue 09
The Henry Review + licencing changes
The weekend’s release of the Henry Tax Review and the public comments about this have implications for all of us, with the mortgage industry being potentially impacted upon quite significantly. Amid all this, there are looming dates for new legislation to become applicable to the mortgage industry in respect of registration and licensing for all people engaged in providing advice or arranging credit for consumers.
Henry Review recommendations: Much has been said about the recommendations contained in this important review of Australia’s tax system, however it appears that with a Federal Election on the horizon in November, many of the less palatable suggestions will be put aside in the quest for political favour in the community.
It would appear that the Negative Gearing benefits for investors may avoid the axe in the short term at least, which is a good thing for those with a property investment portfolio, while the floated idea of making the family home subject to Capital Gains Tax upon sale will also be resisted by the government – undoubtedly a position we would all approve of as home owners.
At the same time, a suggestion in the review that stamp duty on property be abolished is unlikely to gain much traction from the various state governments, as they derive substantial income from this revenue steam, especially in Victoria.
Licensing & Regulation of the Mortgage Industry: All people or organisatons who offer credit advice or products have to register their intention to meet the new licensing requirements that come into effect shortly. Indeed the failure to register by June 30th means that as of July 1st, dealing with anyone else who is not appropriately registered is an offence.
I am pleased to advise all of our clients that Lightning Fast Home Loans is already registered with ASIC as required and that I intend to personally hold an Australian Credit Licence and thus be accorded the legislative title as a Professional Credit Adviser (PCA) from the first effective date of this legislation. It is a priority for me to ensure that Lightning Fast Home Loans is always at the forefront of all customer service enhancements, be they legislatively-imposed ones or general service expectations.
Planning a family?
Then plan your mortgage
How can anyone afford both a big mortgage and a family? While lower interest rates in recent times have helped home-loan affordability, there's no question that juggling a mortgage and a family can be tough. Many first-home buyers in particular find they've just got on top of this 'making regular mortgage payments' routine, and then have to turn around and ask whether they can do it on one income for a period of time. Given we are now experiencing a rising interest rate cycle, this is even more important as a consideration.
That's why it's important that they start planning their financial situation early if they're thinking of starting a family. Building a buffer by making extra repayments is the ideal way to go. If the loan has a redraw facility or 100 per cent offset account, the borrowers can simply put in extra money now and use that buffer either to suspend or reduce their repayments when the time comes. Paying higher repayments now will also get them used to living on a budget. One strategy used by some couples is to live off one income even before they start their family and put the other partner's income straight into the mortgage.
What assistance is available?That's fine for all those people who've planned ahead but what about those who were less organised? There are still plenty of options and borrowers should discuss them with their lender or mortgage adviser. Budgeting is going to be critical. Borrowers need to understand all the assistance they'll be entitled to - government benefits, holiday, maternity and long-service leave and any other cash they can get their hands on. How effectively will this plug the gap while the couple is living on a reduced income? On the plus side (or downside given your point of view), they probably won't be spending a lot on lifestyle in the early stages of parenthood, though the new parents will have to meet other expenses such as medical care and items for the baby. Understanding how much money they'll need - and how much they'll have - will help them decide whether they can afford their current mortgage repayments. |
Options when things get tightWhat if the budget's looking a bit tight? Options open to the couple include a period of reduced repayments or even a repayment honeymoon. This will, of course, depend on how helpful the lender is prepared to be, but, even in these tougher times, most lenders are prepared to be more flexible with existing borrowers than they might be with new customers. It's in no one's interest for the borrower to default on their mortgage. Some people switch to a fixed-rate loan when they start a family to guard against interest-rate rises but that's not necessarily a good idea in the current economic environment. It might be worth considering fixing all or part of the loan, by taking into account the many considerations around the borrower's ability to meet the repayments and the likelihood of rate increases. When the honeymoon is over...Borrowers should also beware of repayment honeymoons, where they stop making repayments entirely for a period of time. Being able to keep making payments in some form, even if they have to switch to making interest-only repayments, is a better outcome than making no repayment at all. Paying nothing for a long period may see the loan amount owing grow beyond the means of the borrower and they may end up going backwards.
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As you enter this exciting phase of life remember, planning a family also means planning your financial situation.
Rental markets tighten
"Rental prices to soar" BIS Shrapnel's latest Residential Property Prospects forecasts property rental prices will rise seven per cent by 2012.
• Rents to rise by 5.8pc over next three years
• Landlords will pocket an extra $1.9bn
• Supply of housing has "plunged"
BIS Shrapnel's latest Residential Property Prospects report found rents are expected to rise by an average of 5.8 per cent a year over the next three years. This compares with a 5.7 per cent increase in 2009 and an average annual rate of 4.4 per cent between 2002 and 2008. If realised, the anticipated rental increases would result in landlords pocketing an extra $1.9 billion in rents between 2010 and 2012.
BIS Shrapnel senior economist Jason Anderson said the supply of housing had "plunged'' while demand remained very strong. "With the very low rate of medium and high-density dwelling construction in 2009, it is inevitable that rental markets will tighten considerably in 2010, and remain very tight in 2011."
The report said there were about 30,700 new medium-density and high-density housing starts in 2009, the lowest level since 1991 and a decline of about 30 per cent from a year ago. Sydney was expected to experience the highest average annual increase in rents at 7.1 per cent from 2010 to 2012. Melbourne (5.6 per cent) and Brisbane (5.0 per cent) were also forecast to be above the 4.4 per cent average annual increase experienced between 2002 and 2008. Rent increases in Adelaide (3.4 per cent) and Perth (3.2 per cent), where housing construction had kept pace with underlying demand, were tipped to be below the national average.
Mr Anderson said the high number of first home buyers was also adding to the pressure on rental markets. "Many qualifying first home buyers were young adults living at home, accumulating the savings which are now required for home loans ... a first home buyer moving out of the family home and purchasing a former investment property will have actually reduced the available rental stock."
Interest rate rises
Interest Rates Rise Again: Once again, for the 6th time in 8 months, the Reserve Bank has seen fit to increase the official cash rate by another 0.25%. Fortunately, again on this occasion, all lenders have been willing to pass on only this increase to their customers. However comments from senior representatives of both Westpac and CBA have indicated that they remain open to the possibility of making independent increases should the funding situation require them to do so. Homeside (NAB) on the other hand have stated that they believe that only RBA increases need to be passed on to their customers.
With their current market leading position in terms of price, we have seen the majority of our clients using Homeside over the past few months, although some of the non-bank lenders are now quite competitive in certain circumstances for those clients happy to use them.