How long does it take for an interest rate rise to kick in?

Household budgets around the country are feeling the brunt of five back-to-back rate hikes. And we’ve been warned more are on the way. But just how long does it take for each rate rise to impact your monthly mortgage repayments?

As you’re probably aware, in early September the RBA raised the cash rate to 2.35%.

It was the fifth cash rate hike in a row and the fourth straight double rate increase of 50 basis points.

In response, many lenders have increased their variable interest rates.

But thankfully, lenders don’t slug you with a mortgage repayment hike straight away – there’s always a little bit of lag time to help you prepare.

Just how long? Let’s take a look.

When exactly will my variable rate rise kick in?

After the RBA hikes the official cash rate, your bank will (usually) announce its own interest rate hike from a particular date.

But this doesn’t mean your repayments will immediately increase when that day arrives.

Exactly when your rate rise kicks in depends on your lender, their policies and your home loan agreement, and your repayment schedule.

Lender notice periods for interest rate rises also differ from bank to bank – with CBA’s lasting 20 days, Westpac 30 days, NAB 32 days, and ANZ 30 days.

We’ll run you through a quick example.

Let’s say your monthly mortgage repayments are made on the 20th day of each month.

Let’s also assume the RBA increases the cash rate on October 4 next month, and you receive a notice from your lender on October 7 of a subsequent rate increase, with a 30-day notice period.

By the time October 20 arrives, you won’t be paying higher repayments, as the full 30 days notice will not have passed.

When that 30 days notice finishes on November 6, the daily interest rate you’re charged will increase to the new amount.

That means when your monthly repayment on November 20 rolls around, you’ll be charged at the new, higher rate (but calculated only from November 6).

But hey, at least you got a 44-day heads up from your lender – and it won’t be a full increase yet either.

By the time December 20 arrives, the repayment amount you’re charged will fully reflect the new rate.

Worried about how rate rises are increasing your mortgage repayments?

If you’ve received your rate rise notice and your budget forecast is looking tight, rest assured there are steps you can start taking now to help ease the pain.

First and foremost, if you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan.

For example, let’s say you refinance your variable rate home loan this month from 5% down to 4.5%.

⁣If the RBA raises the cash rate by 0.50% next month, and your bank follows suit, your interest rate will then be 5% – not 5.5% like it could have been if you didn’t refinance.

Another option is consolidating multiple loans – such as car or personal loans – into your mortgage to reduce your monthly expenses.

However keep in mind that, because home loans are longer, consolidating means you’ll pay more interest over the lifetime of the car and/or personal loan than you would have otherwise.

Similarly, you can consider refinancing to extend the term of your mortgage to help reduce monthly repayments.

Once again, you’ll end up paying more interest over the life of your loan (but hey, it could get you out of a pickle now).

Get in touch

Everybody’s situation is different. And we understand some of the ideas listed above might not suit your financial or personal situation – but there are others that could.

So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today and we’ll sit down with you to help work out a plan moving forward.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Is now a good time to buy?

Recent back-to-back interest rate hikes have led to a cooling of the property market, and with more rate rises predicted, you may feel like pumping the brakes on purchasing. But could the current climate offer opportunities?

With the predictions of coming rate rises and falling house prices, it’s not surprising many potential buyers are holding off.

But if you’re ready to buy, now could be an ideal time to strike – with other buyers holding back you could have more homes to choose from, less competition and more bargaining power against the vendor.

It’s a sentiment that’s starting to show in polling, with the Westpac-Melbourne Institute Index of Consumer Sentiment lifting by 3.9% between August and September – the first increase in the index since November last year.

Similarly, CommBank’s Household Spending Intentions index showed a 10% increase in home buying intentions this past month.

So if you’re ready to buy, or you’re on the fence, read on. We’ve outlined why it could be a good time to do so.

Less competition

Competition has been fierce and housing supply limited over the past few years, leaving slim property pickings for many.

But recent rate rises and inflation have made potential buyers hesitant.

We saw this in auction clearance rates at the opening of the spring buying season – typically a busy time for sales.

However this year the combined capital city auction clearance rate is sitting at 62%, according to CoreLogic, down from 74% a year ago, and a peak of 80% in March 2021.

And a softer market may not only mean less competition on auction day, but more choice and time to comprehensively evaluate properties without jostling with other contenders.

Less competition also means the power balance has shifted to the hands of buyers, which brings us to our next point.

It’s a buyer’s market

Are you ready to rock and roll with your finances? Then you could be in a position to negotiate on price and terms.

CoreLogic data shows fewer people are buying, with properties now sitting on the market for longer. In the three months to August, median days on market shot up from 20 days to 33.

Vendors want sales and are anxious about moving their property.

If you’re prepared to negotiate, consider targeting properties that have been on the market for a while – you may land a good price.

Prices are falling

Property prices dropped 1.6% in August, the largest national monthly decline since the 1980s. And ANZ economists are predicting a 15-20% drop next year.

But once those prices bottom out, you’re likely to face stiff competition – with plenty of other would-be home owners flocking to take advantage of relatively low prices.

And as we know in the property world, what goes down must come up, with prices expected to recover in 2024.

So if you’re ready to buy and want to take advantage of falling prices, sooner may work better than later.

Get ahead of interest rates

It feels like another month, another rate rise. The RBA recently hiked interest rates for the fifth month in a row. And the RBA governor has indicated more rate rises to come. It may seem odd, but buying now could be of benefit.

You see, lenders assess your borrowing capacity at an interest rate of 3% more than the loan you’ve applied for. That means as rates go up, the hurdle you need to clear for loan approval increases.

In other words: your borrowing capacity falls.

So getting ahead of rate rises now may make for a smoother loan approval process and higher borrowing power.

Come and speak to us

There’s no denying that picking the market can be tricky.

But finding the right home can be trickier, and you just never know when it’s going to pop onto the market.

So if you see a home you like and it’s in your buying range, get in touch today to find out your finance options and borrowing capacity.

We can help take care of the finance side of things, while you concentrate on the house hunting and negotiations!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

What happens when you roll off your fixed-rate mortgage?

They say all good things come to an end, and that includes your ultra-low fixed-rate home loan period. So what can you do to ensure a smooth transition?

With the past couple of years offering historically low interest rates, many Australians have been able to lock in an ultra-low fixed-rate home loan.

In fact, in July 2021, a whopping 46% of home loans taken out that month were fixed, which the ABS says was the peak period for fixing.

That means the peak time for borrowers rolling off their fixed-rate period will be between July and December 2023, according to RBA research.

And that time is fast approaching.

A looming fixed-rate cut off date can be daunting, particularly in the face of recent interest rate hikes. But you do have a few different options available, namely the three Rs: reverting, refixing and refinancing.

Reverting

If your fixed period ends and you haven’t made other arrangements, typically your loan will revert to the standard variable interest rate.

And this is set to give many home owners around the country a bit of a rude shock if they don’t start planning ahead.

In fact, RBA deputy governor Michele Bullock has warned that half of fixed-rate loans may face an increase in repayments of at least 40% when they roll straight onto a variable mortgage rate around mid-2023.

So before your fixed period ends, get in touch with us and we’ll help you explore your options. Which takes us to our next points – refixing and refinancing.

Refixing

Depending on the terms and conditions of your mortgage, you may be able to refix your loan with your existing lender.

It’s worth noting though, that due to the official cash rate going up dramatically over the past few months, it’s unlikely that you’ll be put on a fixed rate similar to the one you’re currently on. But there’s always the potential for negotiation.

The usual maximum time frame for fixing a loan is five years – but you can lock in shorter periods, too. So look into the current financial climate before deciding on whether to fix, and then the term length.

All that said, other lenders might be willing to offer you a better rate – be it fixed or variable – than your current lender, which brings us to refinancing…

Refinancing

If your current lender doesn’t want to come to the party, refinancing your loan elsewhere could potentially score you a better deal.

Rising interest rates have brought on record levels in refinancing. In fact, more owner-occupiers refinanced in June than ever before, according to ABS data.

This means the home loan market is highly competitive right now and lenders are keen for borrowers who have a good amount of equity and are on top of repayments.

If that sounds like you, then it’s certainly worth exploring your options, which we’d be more than happy to help you do.

How to start preparing now

If you’re coming off a fixed-rate loan in the near future, there are other steps you can also take to smooth the transition.

First and foremost, start planning ahead now. That includes building up a buffer of savings to cover higher repayments each month and if things are looking tight, cutting back any unnecessary expenses.

Last but not least, get in touch with us well in advance of your fixed rate ending, so we have plenty of time to model different options for you – whether that’s reverting, refixing or refinancing.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Property prices are predicted to dip: 5 ways you can prepare to buy

Property prices are predicted to fall over the coming year, but it’s always hard to know exactly when they’re going to start trending back up again. So if you’re interested in taking advantage of the dip, it could pay to start preparing now.

Earlier this year, Domain’s June 2022 Quarterly House Price report showed national property prices were starting to slightly dip.

And ANZ economists are predicting a 15-20% drop by the end of next year, before starting to recover in 2024 (prices never seem to dip for too long!).

So how can you prepare to take advantage of lower prices if you’re in the market to buy?

Here are our top five tips to help you get ahead of the curve.

1. Start researching the market now

Think about what you’re looking for in a property. Where do you want to live and what features are you looking for in a home? What can you realistically afford?

Then start researching market prices on realestate.com.au or Domain so you can compare similar properties in your preferred locations.

This gives you a benchmark to aim for while you’re saving your deposit, and when the time comes, you’ll be able to tell if the home you’ve set your eyes on is a great deal or not.

2. Keep your tax returns up to date

Having your tax returns ready to roll is a crucial step in the mortgage application process.

Before a lender can approve your application, they need to know all about your income and ability to meet repayments.

Your financial picture helps lenders to assess the risk of lending you money and what your borrowing capacity is.

Some accountants have a four to six week lead time on completing tax returns – not to mention the time it takes for you to get your paperwork together and get an appointment – so if your tax returns aren’t up to date, best to get onto it now.

3. Start reducing unnecessary expenses

Lenders also like to see whether you’re a splashy spender or savvy saver. It’s all about assessing the risk of lending you a hefty sum.

Go through your expenses and see where you can trim the fat. Excessive streaming services, too many takeaway meals, unused memberships and such can add up.

You don’t have to become a full-on minimalist. But tweaking your expenses can make you look good to lenders.

And the savings you unlock can go towards your deposit, which brings us to our next point…

4. Build up a deposit with genuine savings

Now that you’ve got an idea of market prices, you can work out how much you’ll need for a deposit.

Generally, a 20% deposit is regarded as a great savings goal, but there are certainly ways to get into the market with as little as a 5% deposit, such as the federal government’s First Home Guarantee.

Whatever deposit amount you’re aiming for, don’t forget to factor in a little extra to cover purchasing costs such as conveyancing fees, building inspections, and stamp duty.

Lenders will look for a portion of your deposit to consist of genuine savings – at least 5% of the purchase price. Some of the more commonly accepted examples of genuine savings are:

– Accumulated funds or regular deposits in a savings account in your name for at least 3 to 6 months.
– Term deposit savings accounts held for at least 3 months.
– Shares or managed funds held for at least 3 months.
– Rental history for the past 6 months.

5. Assess your borrowing capacity or obtain pre-approval

Knowing your borrowing capacity or getting your finance pre-approved gives you a great insight into your borrowing limit.

After all, you likely won’t know what kind of home you can afford to buy if you don’t know how much you can borrow.

And that’s where we come in – we can help you assess your borrowing capacity or obtain finance pre-approval.

So if you’ve got your eye on buying during the predicted dip over the next year or so, reach out today and we can help you start planning ahead.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

RBA hikes the cash rate for fifth straight month to 2.35%

The Reserve Bank of Australia (RBA) has hiked the official cash rate by another 50 basis points to 2.35%. Here’s how much you can expect to pay on your mortgage going forward and how we could give you a helping hand.

This is the fifth month in a row the RBA has increased the cash rate, and the fourth straight double rate increase of 50 basis points.

It’s also a seven-year high for the RBA cash rate.

RBA Governor Philip Lowe said in a statement that today’s increase in interest rates will help bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy.

“The (RBA) board expects to increase interest rates further over the months ahead, but it is not on a pre-set path,” said Governor Lowe.

It means a household with an $800,000 variable rate loan will pay an extra $1,000 a month than they were before the cash rate hikes at the start of May (with repayments going from $3300 up to $4300 in that time).

How much can you expect to pay on your mortgage from this month?

Unless you’re on a fixed-rate mortgage, the banks will likely follow the RBA’s lead and increase the interest rate on your variable home loan soon.

Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.

This month’s 50 basis point increase means your monthly repayments could increase by about $140 a month. That’s an extra $610 on your mortgage compared to May 1.

If you have a $750,000 loan, repayments will likely increase by about $215 a month, up $920 from May 1.

Meanwhile, a $1 million loan will increase $290 a month, up $1,230 from May 1.

How many more rate hikes are to come?

ANZ and Westpac are both forecasting the RBA cash rate will increase to 3.35% by November and February (respectively) next year.

So that’s another two double cash rate (50 basis points) rises.

Commonwealth Bank and ANZ are a little more conservative with their predictions. They’re tipping rates will hit 2.60% or 2.85% respectively, with just one more single or double rate rise left to go come November.

So where the cash rate lands could be somewhere around those four predictions.

Worried about your mortgage? Get in touch

Everybody’s situation is different. So if you’re starting to feel the pinch and are worried about what interest rate rises might mean for your monthly budget, feel free to contact us today.

Some options we can help you explore include refinancing (which could include increasing the length of your loan to decrease monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.

If you’re worried about how you’ll meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Could an eco reno boost your property’s value?

You’ve probably heard that interest rates are on the rise and national property prices are on the way back down. Here’s how you can kill two birds with one stone: by refinancing to unlock equity and giving your home an energy-efficient makeover at the same time.

Did you know that energy-efficient homes generally attract premium prices and sell faster than non-eco listings?

That’s according to the 2022 Domain Sustainability in Property Report, which found an energy-efficient house in the median range sells for $125,000 more (+17.1%) on average than a non-sustainable house.

The results are quite good for apartment owners too, with energy-efficient units selling for $72,750 more (+12.7%) than non-energy-efficient apartments.

Dr Nicola Powell, Domain’s chief of research and economics, says more and more sellers are addressing the demand for eco-friendly homes, as online listings with popular eco features attract 8.7% more views on average.

“More than half of all for sale listings in all states and territories contain energy-efficient keywords,” she says.

Installations that are popular with potential buyers

Here are the top three eco features popular in house listing searches right now.

1. Solar power: Australia has no shortage of sunshine. And there’s no shortage of demand for houses with solar panels either. A 2020 Origin Energy survey showed 77% of Australians view houses with solar panels as being more valuable. And 55% of renters said they would consider paying increased rent for solar panels.

2. Water tanks: if you have a sizable garden or lawn, a sustainable irrigation system can help keep your water bill down. Make use of the rainy season by collecting water in tanks. When the dry season hits, you’ll be prepared with free, nutrient-dense rainwater to lavish on your garden.

3. Insulation and glazing: window glazing and insulation can help stop your heating and cooling efforts from leaching out. You’ll also reduce the summer heat and winter chill invading your home.

Financing your eco reno

Depending on your situation, many lenders now offer green loans to help homeowners install environmentally sound features – and the good news is that lenders usually offer lower interest rates on green loans in an effort to encourage sustainability.

Another option at your disposal is to unlock the equity in your home to fund your eco reno.

And it’s not a bad time to consider doing so, as property prices increased 23.7% in 2021.

So how does ‘unlocking equity’ work?

Well, let’s say you bought an $800,000 house three years ago that, due to last year’s property price surge, is now worth $1 million.

And let’s also say you took out a $600,000 loan for that house, which you’ve managed to pay down to $500,000 (hurrah!).

By refinancing that $500,000 loan into a $700,000 loan (70% of your property’s new market value), you can unlock $200,000 in equity to help fund a deposit for your renovations.

It’s also worth noting that banks will typically let you borrow up to 80% of a property’s market value.

And don’t forget to check out any government rebates that may be available for eco your installations.

Get in touch today

If all of this seems confusing, don’t fret! We’re more than happy to help you navigate loans, equity, and refinancing for your eco reno.

And if you decide to proceed, the good news is that part of the process can include refinancing your home loan.

Why’s that good news?

Well, just because interest rates are going up, doesn’t mean you can’t scope out a better deal on your mortgage. Competition amongst lenders remains fierce, particularly if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.⁣

So if you’d like to discuss your reno and/or refinancing options, get in touch today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Why you might want to refinance sooner rather than later

Thinking about refinancing? As interest rates rise, so do the hurdles you need to clear. Here’s why you might want to look at refinancing soon to avoid potentially missing out.

When was the last time you refinanced?

If the answer is “never”, or you can’t actually remember, there’s a good chance you’re paying a higher interest rate than you could be due to the “loyalty tax”.

You see, the banks don’t think you’re paying attention, and as such, they only offer their lowest rates to new customers in a bid to win them over – as proven by the RBA.

In fact, a recent RateCity analysis found that customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone (based on a $500,000 loan taken out with CBA in 2019).

For a $750,000 loan that would be an extra $7,652 in interest, and for a $1 million loan it’s $10,202 extra.

This is a big reason why owner-occupier refinancing across the country rose 9.7% in June to a new record high of $12.7 billion, according to the Australian Bureau of Statistics.

Great. But why is refinancing now so important?

Ok, so when you refinance, your new lender must assess something called your “home loan serviceability”.

Basically, that’s your ability to meet your home loan repayments at an interest rate that’s at least 3% above the rate you’re being offered.

And as you might have seen on the news, the big four banks are tipping the RBA’s official cash rate to increase from 1.85% in August to anywhere between 2.60% (Commbank forecast) and 3.35% (ANZ forecast) by November.

That means as interest rates go up, so too will the hurdle you’ll need to clear for home loan serviceability when refinancing.

All in all, that means the sooner you refinance, the lower the hurdle you’ll need to clear to ensure you’re not stuck with your current rate and lender.

How to explore your refinancing options

This is the easy bit! Simply get in touch today and we’ll help you get the ball rolling.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current lender to review your rate, indicating that you’re prepared to refinance if they don’t come to the table.

After all, loyalty should be a two-way street!

So if you’d like to find out more about what options are available to you, give us a call or flick us an email today – we want to help you through the period ahead as much as we possibly can!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Interest rates to keep climbing as RBA hikes cash rate to 1.85%

The Reserve Bank of Australia (RBA) has increased the official cash rate by another 50 basis points to 1.85%. Here’s how to hang in there and keep up with all these monthly cash rate hikes.

Another month, another RBA cash rate hike – that’s four months in a row now!

It’s hard to believe that at the beginning of May the cash rate was just 0.10%. Now, it has increased to 1.85%.

RBA Governor Philip Lowe said in a statement that the increase was a further step in the normalisation of monetary conditions in Australia.

“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy,” said Governor Lowe.

“The (RBA) board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path.”

If you’re having a little trouble hanging in there, below is a condensed version of an article we put out to help you alleviate some pressure on the household budget.

1. Build up a buffer

There are no two ways about it – interest rates will only continue to climb in the months ahead.

That means it’s important to start planning ahead now, if you can, by building up a buffer.

This usually includes putting extra money into an offset account, redraw facility, or savings account – usually a facility that’s attached to your mortgage or easy to access.

2. Reduce expenses

Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge … how much do you spend on subscriptions each month? And how many can you cut out?

Next on the hit list: takeaway coffees. Six takeaway coffees a week costs you about $120 per month, or $240 per couple.

Instead, you can brew your own (barista-quality) coffee at home for $30-$70 a month.

And if you can, try to cut back on takeaway meals – they can really add up over time and home-cooked meals provide more leftovers for lunch the next day, too.

3. Shop around

A recent Choice study found Aldi to be the cheapest grocery store. Failing that, this ING survey found the average Australian family saves $114 a month simply by doing their grocery shopping online.

And don’t forget to look around for better deals on your car insurance, pet insurance (sorry Rex!), home insurance, utilities, your phone bill, and your internet bill.

4. Refinance

If you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan.

And you may want to get the ball rolling sooner rather than later.

That’s because lenders need to stress test your ability to meet your home loan repayments at an interest rate that’s at least 3% above the loan product rate you’re being offered.

So as interest rates go up, so too will the hurdle you’ll need to clear to pass that test (aka home loan serviceability).

Another option to consider is consolidating multiple loans – such as a car or personal loan – into your mortgage to reduce your monthly expenses.

Similarly, you can also consider refinancing to extend the term of your mortgage, which could help reduce your monthly repayments.

Both these options come with a downside, however, as by extending them you’ll pay more interest on the loan than you would’ve otherwise (ie. car loans are shorter than home loans).

But if you need cash flow now they can be an option to get you out of a jam.

5. Come and speak to us

Last but not least, if you’re concerned about what’s going on with interest rates, inflation and/or how you’ll meet your home loan repayments, please don’t hesitate to get in touch with us.

Everybody’s situation is different. And we understand many of the ideas we’ve listed above might not suit your financial and personal situation.

So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Keep calm and carry on: 5 ways you can absorb interest rate rises

We’ve seen interest rates bounce back up over the past three months, and most economists are predicting more increases to come. If you’re starting to worry about your finances, rest assured there are several steps you can take now to get on the front foot.

The days of ultra-low interest rates are officially over (it was nice while it lasted!).

And while all the talk of doom and gloom you see in the media about rapidly rising interest rates can be a bit spooky, now’s not the time to panic.

Check out this Reserve Bank of Australia (RBA) graph here, for example. It shows interest rates are currently lower (as of July 2022) than they ever were prior to May 2019.

So the current cash rate is nothing extraordinary – although it might come as a shock to newer borrowers, as we previously hadn’t had a cash rate hike since November 2010.

Still, there’s no denying that some households are starting to feel the squeeze, and if you put yourself in that category, now’s the time to consider implementing one or more of the below measures.

1. Start building up a buffer

There are no two ways about it – interest rates will go up over the next few months.

Currently, the RBA cash rate is at 1.35%.

Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November.

That means it’s important to start planning ahead now, if you can, by building up a buffer.

This usually includes putting extra money into an offset account, redraw facility, or savings account – usually a facility that’s attached to your mortgage or easy to access.

2. Reduce expenses

Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge … the list goes on.

How much do you spend on subscriptions each month?

While they helped us get through lockdowns, these subscription services (that you might have forgotten to cancel) could be costing you a lot more than you realise.

In fact, the average Australian household spends $55/month on entertainment subscriptions.

Next on the hit list: takeaway coffees.

Six takeaway coffees a week costs about $27, which is about $120 a month, or $240 per couple.

Instead, you can brew your own (barista-quality) coffee at home for $30-$70 a month.

Then there’s Uber Eats, Menulog, DoorDash, Deliveroo – sure, takeaway dinner is great every now and then, but if you’re making a habit of it then it’ll really start to add up.

And the best part about home-cooked meals is the leftovers for lunch the next day – that’s two meals for the price of one.

3. Shop around

A recent Choice study found Aldi to be the cheapest grocery store. So that’s a start when it comes to your weekly food bill (which is also going up each month thanks to inflation).

Failing that, this ING survey found the average Australian family saves $114 a month simply by doing their grocery shopping online (must be because you spend less time in the choccy aisle, and more time buying just the essentials!)

But it’s not just your groceries that you can shop around for a lower price on.

Car insurance, home insurance, utilities, your phone bill, and your internet bill are other monthly expenses you can usually find a better deal on.

4. Refinance

While we’re on the subject of shopping around, it goes without saying that if you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan.

But why refinance now if interest rates will just keep rising anyway?
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Well, let’s say you refinance your variable rate home loan this month from 3.50% down to 3%.
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If the RBA raises the cash rate by 0.50% next month, and your bank follows suit, your interest rate will then be 3.50%. ⁣
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But if you choose not to refinance (and your bank follows the RBA’s lead) it’ll be 4%. ⁣

This 0.5% gap would remain for all subsequent upcoming interest rate rises – so long as the banks increase their interest rates in lockstep with the RBA.⁣

Another option you can consider is consolidating multiple loans – such as a car or personal loan – into your mortgage to reduce your monthly expenses.

Now, it’s important to note that if you do this you’ll pay more in interest on the car and/or personal loan over the lifetime of those loans, but if you need cash flow now, this could be a possible solution.

Similarly, you can also consider refinancing to extend the term of your mortgage, which could help reduce your monthly repayments.

Once again, you’ll end up paying more interest over the life of your loan with this option, but it can give you more breathing space if you need it.

5. Come and speak to us

Last but not least, if you’re concerned about what’s going on with interest rates, inflation and/or how you’ll meet your home loan repayments, please don’t hesitate to get in touch with us.

Everybody’s situation is different. And we understand many of the ideas we’ve listed above might not suit your financial and personal situation.

So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Renovate or invest? How 7-in-10 Aussies are using their equity

Seven in 10 homeowners have recently used the equity in their home to renovate, invest in property or shares, or boost their superannuation. Have you thought about how you could take advantage of last year’s property price spike?

You might have heard that property prices spiked 23.7% in 2021, yeah?

That’s quite the growth spurt!

So how do you take advantage of that growth without (or before) selling your home?

Well, one way to do so is to cash out equity while property prices are high (which we’ll explain in a little more detail below).

According to NAB research, three in 10 mortgage holders have recently done just that and have used the money to give their home a facelift by renovating.

Other popular options include using unlocked equity to buy an investment property (16% of homeowners), invest in shares (12%) and boost super balances (8%).

So how does ‘cashing out equity’ work?

It might sound complicated – but we promise it’s not.

Let’s say you bought an $800,000 house three years ago that, due to last year’s property price surge, is now worth $1 million.

And let’s also say you took out a $600,000 loan for that house, which you’ve managed to pay down to $500,000 (you little beauty!).

By refinancing that $500,000 loan into a $700,000 loan (70% of your property’s new market value), you can unlock $200,000 in equity to help fund a deposit for your renovations or to buy an investment property.

It’s also worth noting that banks will typically let you borrow up to 80% of a property’s market value.

So if you upped the ante and refinanced to an $800,000 loan, you’d be able to unlock $300,000 in equity.

Want to find out more about unlocking the equity in your home?

If it still all sounds a little confusing, don’t stress, we’d be more than happy to sit down with you and help you work out how much equity you can unlock.

And if you decide to proceed, the good news is part of the process can include refinancing your home loan.

Why’s that good news?

Well, just because interest rates are going up, doesn’t mean you can’t scope out a better deal on your mortgage. Competition amongst lenders remains fierce, particularly if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.⁣

So if you’d like to explore your options when it comes to unlocking the equity potential in your home, get in touch today – we’d love to help you crunch the numbers.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The tax on luxury cars just got a little cheaper

Got your eye on a luxury car? Or perhaps something that’s a little more fuel-efficient and environmentally friendly? Today we’ll run you through a new tax change that could help you buy something a little more la-de-da.

Have you heard about the luxury car tax (LCT) threshold?

Basically, if you buy an imported car with a GST-inclusive value that’s above the LCT thresholds, the tax man slugs you with an extra 33% tax on the exceeded amount (minus the GST component).

But the good news is the LCT thresholds have just been given a pretty decent boost – the third one in a row.
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From July 1, the threshold has been boosted by $5,257 to $84,916 for fuel-efficient vehicles, and by $2,697 to $71,849 for other regular vehicles (all inc. GST).

According to the ATO, a fuel-efficient vehicle is one with fuel consumption that doesn’t exceed 7.0L/100km on the combined cycle.

How does the LCT threshold work?

Ok, so this threshold boost isn’t just good for people wanting to buy a vehicle under the threshold.

It’ll also make cars above the threshold more affordable, too.

Let us explain.

Say you want to buy a Tesla Model 3 Performance, which has a GST-inclusive price of $93,325.

Under last financial year’s LCT threshold of $79,659 for fuel-efficient vehicles, you would have paid a LCT tax of $4,100 (exceeds LCT threshold by $13,666, subtract GST component paid, multiply by 33% = $4,100 LCT).

But now that the LCT threshold for fuel-efficient vehicles has been boosted to $84,916, you would only pay LCT of $2522 ($8,409 – GST component paid x 33% = $2522).

And if you wanted to avoid paying the LCT altogether, you could instead purchase a Model 3 Long Range, which has a GST-inclusive price of $81,725.

That means this financial year, it’s below the LCT threshold, but last year you would have been slugged with a LCT of $620.

Get in touch today to explore your finance options

If you’ve got your eye on a particular vehicle – luxury or not – and you’d like to explore some finance options to help purchase it, give us a call today.

We can help you find the right loan for your circumstances, depending on whether the vehicle is for business, personal use, or a mix of both!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Single and under 30? You’re a great fit for the 5% deposit scheme

Single Australians under 30 snare the lion’s share of spots in the federal government’s 5% deposit first home buyer scheme, according to new data. Here’s how to secure one of the highly coveted 35,000 scheme spots released on July 1.

Long gone are the days when you had to scrimp and save for a 20% deposit to buy your first home (that’s so 2019).

These days, you can crack the property market with just a 5% deposit and pay no lenders’ mortgage insurance (LMI), thanks to the federal government’s First Home Guarantee (FHG) scheme.

NAB – which is one of two major lenders (alongside dozens of non-majors) that provides finance under the scheme – recently released some pretty insightful data on just who is jagging the limited spots each year.

The data shows almost two-thirds of people (63%) who purchased a house under the scheme were single buyers – whereas for non-scheme purchases, single buyers only made up 49% of borrowers.

Of the single people snapping up First Home Guarantee spots, 59% were female and 41% were male.

Government data also shows that the median age of people using the scheme is 25 to 29 years old.

“People going at it alone shouldn’t be disadvantaged and we are seeing the scheme help them buy a property,” says NAB Executive Home Ownership, Andy Kerr.

How the scheme helped one homebuyer purchase 4 years sooner

First home buyers who use the scheme fast-track their property purchase by 4 to 4.5 years on average, because they don’t have to save the standard 20% deposit.

Better yet, not paying LMI can save you anywhere between $4,000 and $35,000, depending on the property price and your deposit amount.

This is exactly what helped car salesman Rihan Nasser purchase his villa unit last August.

Initially, Rihan had been crunching the numbers on what he’d need to do to save a 20% deposit, admitting “it would have taken him years”.

“The scheme fast-tracked the process by maybe two, three or four years and made it easier to come up with the deposit to buy,” says Rihan.

“Once I knew I needed 5%, I knuckled down on the saving. It took me about a year and a half. I would 100% recommend the scheme. It made it so much easier.”

How to get the ball rolling today

Ok, so here’s the catch: places in the First Home Guarantee scheme are generally allocated on a first-come, first-served basis.

And don’t let this year’s expansion to 35,000 spots lull you into a sense of complacency – they’ll get snapped up fairly quickly.

So if you’re a first home buyer looking to crack the property market sooner rather than later, get in touch today and we can explain the scheme to you in more detail, check if you’re eligible, and then help you apply through a participating lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

RBA lifts cash rate for the third month in a row to 1.35%

The Reserve Bank of Australia (RBA) has increased the official cash rate by another 50 basis points to 1.35% amid continuing inflation pressures. How much will this third consecutive rate hike increase your monthly mortgage repayments?

At the beginning of May, the cash rate was 0.10%.

Today, it was increased by the RBA to 1.35% – the second double-barrel 0.50% hike in a row.

RBA Governor Philip Lowe said in a statement that the cash rate rise was the result of high inflation, both in Australia and around the world.

“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,” said Governor Lowe.

“Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.”

How much more will this latest rate rise cost each month?

Unless you’re on a fixed-rate mortgage, the banks will likely follow the RBA’s lead and increase the interest rate on your variable home loan soon.

Let’s say you’re an owner-occupier with a 25-year loan of $500,000 (paying principal and interest).

This month’s 50 basis point increase means your monthly repayments could increase by about $137 a month.

If you have a $750,0000 loan, repayments will likely increase by about $205 a month, while a $1 million loan is expected to cost an extra $273 a month.

But that’s just factoring in this month’s latest cash rate hike.

Let’s take a look at how much more you can expect to pay moving forward, compared to when the cash rate was 0.10% in April.

For a $500,000 loan, you’ll likely be paying an extra $67 (May hike), $133 (June hike) and $137 (July hike) = $337 per month in interest repayments.

For a $750,000 loan, you’ll likely be paying an extra $100 (May hike), $200 (June hike) and $205 (July hike) = $505 per month in interest repayments.

For a $1,000,000 loan, you’ll likely be paying an extra $133 (May hike), $265 (June hike) and $273 (July hike) = $673 per month in interest repayments.

If you’re worried about your monthly repayments, get in touch

As you can see, unless you’re on a fixed rate, your monthly mortgage repayments will likely have gone up quite a bit since the end of April.

And it’s likely that we’ll see a couple more RBA cash rate hikes before the year is out.

So if you’re starting to feel the pinch and are worried about what interest rate rises might mean for your monthly budget, feel free to contact us today.

Some options we can help you explore include refinancing (which could include increasing the length of your loan to decrease monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Financial hardship arrangement reporting is about to change

With interest rates on the way back up, there’s no doubt some households around the country are starting to do it a bit tough. Coincidentally, some big changes kick in on July 1 when it comes to recording financial hardship arrangements.

In the past, if you were unable to meet your loan repayments, you could enter into a financial hardship arrangement with your lender and it couldn’t be reported in official credit reporting systems.

In many cases, the repayment history in your credit report would show a blank month or possibly a missed payment during the hardship arrangement period.

Neither of these two approaches told the full story about your credit history and that a financial arrangement had been agreed upon with your lender.

So what’s changed from 1 July 2022?

Ok, so from July 1, the credit reporting system will introduce financial hardship information into credit reports.

This means that if you enter into a financial hardship arrangement that reduces your monthly loan repayments, then for the next 12 months your credit report will show:

– that you were current and up to date with your payments for that hardship month, provided you made your reduced payments on time; and

– a flag alongside your repayment history information for the hardship month, indicating a special payment arrangement was in place.

The flag in the credit report will be referred to as ‘financial hardship information’ and can take two forms (A or V) depending on the type of arrangement:

A indicates there was an arrangement for the month that temporarily deferred your repayments (which will need to be repaid later or be subject to a further arrangement).

V on the other hand means the loan was varied that month to reduce your repayments.

The good news is that the financial hardship information flag will only stay on your credit report for 12 months, whereas regular repayment history information stays for 24 months.

So is all this good or bad news?

Well, like most changes in life, it comes with pros and cons.

The changes are intended to give you the ability to ‘protect’ your credit report if you experience financial hardship – in no way are they designed to exclude you from applying for credit.

However, a financial hardship arrangement flag may prompt prospective lenders to make further inquiries to better understand your situation.

If, for example, the hardship arose because of a temporary reduction in your work hours, but you’re now back in stable employment, in most cases it shouldn’t cause any major issues for your loan application – especially if we can provide proof to your prospective lender.

Additionally, hardship arrangements can stem from a natural disaster that’s completely outside your control, such as a flood or bushfire, which can be explained to a lender.

Importantly, the financial hardship information cannot be used by a credit reporting body to calculate your credit score, whereas regular repayments that are missed outside a hardship arrangement will impact your credit score.

Having trouble meeting your repayments? Get in touch

As you’ve probably noticed, the Reserve Bank of Australia has been aggressively raising the official cash rate in recent months, which means your monthly repayments would most certainly have gone up if you’re on a variable loan rate.

And if you’re on a fixed loan rate, you also need to think ahead to what your monthly repayments might be when the fixed-rate period ends and reverts to a variable rate.

So if you think more rate rises may soon strain your monthly budget, now is a good time to start putting extra money away into an offset or savings account to build up a buffer.

Other options we can help out with are refinancing and debt consolidation, both of which can help reduce your monthly repayments.

Whatever your circumstances, we’re here to support you however we can over the period ahead.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Want a first home buyer scheme spot? Here’s how to get the inside lane

We’re just days away from 35,000 first home buyer scheme spots becoming available on July 1. If you’re keen to snare a place in the scheme – and buy your first home sooner – here’s how to get ahead of the pack.

Have you heard about the federal government’s Home Guarantee Scheme? (previously called the First Home Loan Deposit Scheme).

It allows you to buy your first home with just a 5% deposit and pay no lenders’ mortgage insurance (LMI)

First home buyers who use the scheme fast-track their property purchase by 4 to 4.5 years on average, because they don’t have to save the standard 20% deposit.

Better yet, not paying LMI can save you anywhere between $4,000 and $35,000, depending on the property price and your deposit amount.

But once July 1 arrives, competition for the 35,000 spots will be fierce, so here’s how to give yourself the best possible chance of securing a place.

Get the jump on the competition

End-of-financial-year: it’s a phrase that usually sends a shiver up your spine.

But getting your 2021/22 tax return in order asap can give you the inside lane when it comes to jagging one of those 35,000 FHB spots come July 1.

That’s because lenders require your most recent financial information when assessing your home loan application, and that will most likely include your latest tax return.

So now is the time to:

1. Speak to your employer to make sure they’ll provide your PAYG summary in a timely fashion.

2. Book an appointment with your accountant in July (before availability fills up).

3. Start compiling all your work-related expenses.

How we can help

Getting your tax return completed is just one (important) step in the process.

But it’s far from the only one.

When assessing your application, lenders require you to provide them with an accurate picture of your monthly expenses and discretionary spending, which can take a little time to put together.

And that’s where we come in.

Not only can we help you calculate your monthly budget – which includes your income and expenses – but we can help you crunch those numbers to give you an idea of your borrowing capacity, and therefore, what you can afford to buy.

This is especially important if you want a spot in the Home Guarantee Scheme because it has borrowing caps depending on where you want to buy.

And lenders these days are increasingly strict when it comes to your debt-to-income ratio and home loan serviceability – both of which contribute to your borrowing capacity.

Last but not least, you might have heard that interest rates are almost certain to increase over the next 12 months – so it’s also important to factor in a little buffer if needed.

Get the ball rolling today

Places in the Home Guarantee Scheme are generally allocated on a first-come, first-served basis.

And don’t let this year’s expansion to 35,000 spots lull you into a sense of complacency – they’ll get snapped up fairly quickly.

So if you’re a first home buyer looking to crack into the property market sooner rather than later, get in touch today and we can explain the scheme to you in more detail, help check if you’re eligible, and take steps to get the ball rolling.

Then when spots become available on July 1, we’ll be ready to help you apply through a participating lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

No more Mr Nice Guy: the ATO wants its money

Tax time is just around the corner and the ATO has sent out a warning to businesses around the country that owe it money: the COVID-19 moratorium on debt collection has come to an end. Rest assured though, you’ve got some options.

During the early days of the pandemic, the ATO says it deliberately shifted its focus away from firmer debt collection action to help businesses that were experiencing challenges.

However, the ATO has been busy in recent months sending out almost 30,000 awareness letters for business tax debts and 52,319 awareness letters about the use of Director Penalty Notices.

“We’ve seen an encouraging response. More than 20,000 taxpayers have already responded to our awareness letters by making payments or entering into payment plans,” says ATO Deputy Commissioner Vivek Chaudhary.

What happens if you get a letter and don’t respond?

In a nutshell: nothing good.

The ATO has already issued nearly 300 intent to disclose notices and has commenced disclosing some debts to credit reporting bureaus Equifax and Creditor Watch.

The ATO is also currently issuing 30 to 40 Director Penalty Notices each day and expects that daily number to increase.

If you get one of these notices, you’re in hot water and need to act quickly.

Worst case scenario, if you don’t immediately pay back the debt, the ATO could sue you in court, which could lead to your business going into liquidation or voluntary administration.

And if you have a business loan that’s secured against your family house, that could be at risk, too.

So what are your options?

First and foremost, if you receive any correspondence from the ATO about a tax debt you should contact your registered tax professional straight away, or call the ATO to engage in a payment plan.

Mr Chaudhary says the ATO’s preferred approach is always to work with taxpayers to resolve their situation through engagement rather than enforcement.

“We understand that a lot of people – especially small businesses – have done it tough through COVID and may now have a tax debt,” says Mr Chaudhary.

“But don’t stick your head in the sand. Even if you can’t pay the full amount owed straight away, please contact us or your registered tax professional to discuss and we will work with you to set up an appropriate payment arrangement.”

That said, not everyone enjoys the ATO hovering over their shoulder waiting for them to pay off a large tax debt.

If you’re one of those people, feel free to get in touch with us to explore some of your other options with business loan lenders.

The SME lending space is growing each month, with a surge of new lenders and products recently hitting the market – some of which offer flexible repayment options.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Refinancing numbers are surging across the country, here’s why

Rising interest rates got you feeling a little vulnerable? It might be time to take some control back by refinancing or asking for a rate review. Here’s why we’re seeing refinancing numbers surge across the country.

In just two months we’ve seen the Reserve Bank of Australia (RBA) increase the cash rate from a record-low 0.10% to 0.85%, and it hasn’t taken long for most lenders to pass those rate increases on to customers.

Unfortunately, the RBA has warned that more rate hikes are on the way, which might have left you feeling at your lender’s mercy.

But there are ways you can make yourself feel more in control, including by doing what tens of thousands of mortgage holders around the country did in May: refinancing or asking their current lender for a better rate.

Homeowners are refinancing in droves

According to PEXA’s latest refinancing insights, refinancing increased by more than 20% in May (from April) across each of Australia’s four most populous states.

Here’s a quick breakdown:

NSW: 10,838 refinances. That’s up 20.8% on April, and up 15.6% year on year.

VIC: 11,500 refinances. May up 26.7% on April, and up 23.3% year on year.

QLD: 6,699 refinances. May up 21.8% on April, and up 49.6% year on year

WA: 3,244 refinances. May up 25% on April, and up 46.1% year on year

So why the big increase in refinancing?

Lenders now, more than ever, need to attract and retain borrowers.

So just because rates are going up, doesn’t mean you can’t scope out a better deal – especially if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.

If that sounds like you: you’re a good customer. And lenders want good customers.

The other big reason for the recent surge in refinancing is that smaller lenders are stealing more and more borrowers away from the major banks with super-competitive rates.

In fact, in NSW, Victoria, Queensland and Western Australia combined, the major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders in May, according to PEXA.

Competition is fierce!

Why work with a broker now?

The amount of loans being written by brokers continues to grow.

In fact, brokers are currently writing 70% of all new home loans in the country – the biggest market share ever.

And as you know, brokers are loyal to you, not to any particular lender.

That means that if we think you can get a better deal elsewhere, we’ll encourage and help you to do so – not hope that you’ll stay put on your current rate.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current bank to review your rate (and indicating that you’re prepared to refinance if they don’t come to the table).

So if you’d like to find out more about what options are available to you, get in touch with us today – we’d love to help you feel like you have some agency in the period ahead.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Banks tighten lending, reducing the maximum you can borrow

Some of Australia’s biggest banks have tightened their mortgage lending criteria, meaning you might not be able to borrow as much from them. How might this affect your next purchase?

This week ANZ lowered a key lending cap, indicating it will no longer lend to borrowers with a debt-to-income (DTI) ratio above 7.5 (meaning people can borrow up to seven and a half times their gross annual income).

NAB meanwhile has reduced its cap to eight times a borrower’s income.

Up until this month, both banks had been willing to lend up to nine times a borrower’s income.

In effect, the changes mean the maximum amount you can borrow with them to buy a property will be reduced.

Fellow big four banks CBA and Westpac have not announced any reductions but have said they’re already applying tighter lending rules to borrowers seeking loans with high DTI ratios.

Why are banks tightening lending?

The increased focus on lending caps comes as financial institutions and the industry regulator, the Australian Prudential Regulation Authority (APRA), prepare for the impact of higher interest rates (many economists are tipping another rate hike in June).

APRA started making moves as early as late last year when it announced new borrowers would need to be tested to see if they could cope with interest rates at least 3% above the current rate (up from 2.5% previously).

Then, this week APRA Chair Wayne Byers indicated the regulator was concerned about the rise in high DTI loans being issued by some banks.

“We will also be watching closely the experience of borrowers who have borrowed at high multiples of their income – a cohort that has grown notably over the past year,” he told the AFR Banking Summit in Sydney.

“Interestingly, this growth has not been an industry-wide development, but rather has been concentrated in just a few banks.”

So how do DTI ratios work?

Your DTI ratio is very simple to work out.

The formula is: total debt / gross income = debt-to-income ratio.

So, if you’re seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be very comfortable with.

However, a household in the same financial position seeking to borrow $1.4 million for a home would have a DTI of 8.75, putting it above the caps now being imposed by ANZ and NAB.

So how much can you safely afford to borrow?

There’s a fine line between maximising your investment opportunities and stretching yourself beyond your limits, especially with interest rates on the rise.

And that’s where we come in.

It’s not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers – such as multiple interest rate rises.

So, if you’d like to find out your borrowing capacity and options, get in touch today. We’d love to sit down with you and help you map out a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Bulk of SMEs preparing for growth over next 12 months: research

Small businesses around the nation are once again confident about their future and ready to start driving toward their next phase of growth, according to new research.

The research, carried out by small business lender Prospa, found that 81% of Aussie SMEs expect their businesses to grow over the next 12 months.

This is despite 87% of business owners anticipating challenges within the same timeframe.

“Small business owners have not had an easy ride navigating through the pandemic, supply chain issues, staff shortages, and now increasing operating costs,” says Beau Bertoli, co-founder and chief revenue officer at Prospa.

“Despite ongoing challenges, the majority of small business owners have been working hard to make smart decisions to drive new revenue and become more efficient to propel growth.”

Business owners are also looking to access funding

The research found that 7 out of 10 business owners have either made, or are in the process of making, changes to their business.

This is combined with 71% of business owners expressing that they plan to embark on accessing funds in the short-term, ahead of possible further interest rate rises.

“Small businesses are not only confident, but studies show business owners are planning to apply for funds sooner to spare them from paying extra on their repayments,” adds Mr Bertoli.

Heads-up! The end-of-financial-year is fast approaching

Another key reason why small business owners are looking to access funds over the next few weeks is to take advantage of the federal government’s temporary full expensing scheme this financial year.

The scheme allows businesses keen to invest in their future to immediately write off the full value of any eligible depreciable asset purchased, at any cost.

This can help with your cash flow, as it allows you to reinvest funds back into your business sooner.

Trucks, coffee machines, tools, excavators, and vehicles are just some examples of assets eligible under the scheme.⁣⁣

But here’s the catch: the asset must be installed and ready to use by June 30 in order to be eligible for this financial year.

So if you’d like help obtaining finance to make the most of temporary full expensing ahead of the impending EOFY deadline, get in touch with us today.

We can help you with financing options that are well suited to your business’s needs now, and into the future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

ATO hit list: rental property income and capital gains

Property investors beware: the Australian Taxation Office (ATO) has revealed the four key areas it will be targeting this tax year, and rental property income/deductions and capital gains are high on the hit list.

Tax office Assistant Commissioner Tim Loh says this tax season the ATO will be targeting four key problem areas where it commonly sees people making mistakes, including:

– rental property income and deductions;
– capital gains from property, shares and crypto assets;
– record-keeping; and
– work-related expenses.

“We know there are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to,” says Mr Loh.

1. Rental property income and deductions

If you’re a rental property owner, it’s important to include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain.

“We know a lot of rental property owners use a registered tax agent to help with their tax affairs. I encourage you to keep good records, as all rental income and deductions need to be entered manually,” explains Mr Loh.

He adds that if the ATO does notice a discrepancy it may delay the processing of your refund as it may contact you or your registered tax agent to correct your return.

“We can also ask for supporting documentation for any claim that you make after your notice of assessment issues,” Mr Loh adds.

For more information visit ato.gov.au/rental.

2. Capital gains from property, shares and crypto assets

If you dispose of an asset such as property, shares, or a crypto asset including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

“Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations,” adds Mr Loh.

3. Record-keeping

For those who deliberately try to increase their refund, falsify records or cannot substantiate their claims, the ATO warns it will be taking firm action against them this year.

If you’re not in a rush to complete your tax return, it might be better to wait until the end of July, which is when the ATO can automatically pre-fill a lot of information for you.

“We often see lots of mistakes in July as people rush to lodge their tax returns and forget to include interest from banks, dividend income, payments from other government agencies and private health insurers,” the ATO says.

Just note that not all information can be pre-filled for you, so be careful to double-check.

“While we receive and match a lot of information on rental income, foreign-sourced income and capital gains events involving shares, crypto assets or property, we don’t pre-fill all of that information for you,” adds Mr Loh.

4. Work-related expenses

Many people around the country have changed to a hybrid working environment since the start of the pandemic, which saw one-in-three Aussies claiming work-from-home expenses in their tax return last year.

“If you have continued to work from home, we would expect to see a corresponding reduction in car, clothing and other work-related expenses such as parking and tolls,” says Mr Loh.

To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances.

You can choose from the shortcut method (all-inclusive), fixed-rate method, or actual cost method, so long as you meet the eligibility and record-keeping requirements.

For more information visit ato.gov.au/deductions.

We’re around to help you this tax season

The end of financial year is a busy time for all finance professionals – and mortgage brokers are no different, as there are plenty of important June/July deadlines we can help you with.

That includes helping your business obtain finance to make the most of temporary full expensing before CoB June 30, and assisting potential first home buyers apply for the Home Guarantee Scheme come July 1.

So if there’s something you think we can help you with this EOFY period, please don’t hesitate to shout out – we’d love to help you out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.