X

Listen To Clinton’s Interview With The Real Estate Podcast

Household Income Homebuyers Surged to $220,000 – Clinton’s interview on Home Affordability!

Listen to episode #928 of @therealestatepodcast where Clint is interviewed by the shows host Craig. In this short 15 minute podcast Clint provides his expert insights on home affordability, interest rate forecasts, the surge in household homebuyer incomes, and the dynamics of sharing property ownership.

Moving house doesn’t have to be so heavy

We of course help clients everyday arrange competitive home loans for new homes and renovations and of course one of the outcomes is having to move all of your stuff from one place to the other.  Now we have all been there and moved ourselves and our friends many times over and I am pretty sure no one enjoys the joy of getting a four seat couch down a staircase! I for one will never forget dropping my mates grandmothers old piano on the front garden when I was in my late twenties (sorry Simon!!).

Now while you could look up ‘removalist’ online and take your chances an Australian company has come up with a great but simple idea. Muval is a platform that connects removal companies with people and businesses looking to move items locally or interstate. It removes the hassle of calling around for multiple quotes from different companies and removes the uncertainty and dread that is often associated with the moving process.

Given how time poor we all are and how much most of us loath moving why not lookup Muval and give them a go for your next home move – we recommend their services to our clients so give it a go next time for your move.

How to make a pre auction offer

With auction clearance rates slipping below 50% in some markets right now, vendors are much more open to a pre-auction offer. You’ll also find more vendors choosing a private sale over an auction because it allows them to hold out for their price and save on auction costs.

That means, if you’re ready to buy a property in the spring market, you’ll also want to be prepared to drive a hard bargain. Here are some tips on how to make a successful pre-auction offer and negotiate your price like a pro.

Have your finance in place

If you haven’t already done so, ask us to organise pre-approval on your home or investment loan before you put in an offer. That way, you’ll be confident of your finances and have a clear understanding of your upper spending limit. Having pre-approval in place gives you an edge over the competition because the vendor knows the deal will go smoothly.

Offer the right price

Research is always the key to paying the right price for a property. Whether you’re buying at an auction or negotiating directly with the vendor, it pays to know the property’s correct market value before you go in guns blazing.

Research will allow you to make an offer that’s too good for the vendor to pass up, without overpaying. It pays to be realistic – you’ll have a better chance of beating the competition.

Discover the vendor’s motivation

Knowledge is power. Ask the real estate agent why the vendor is selling and use the information to your advantage. For example, if they have already put down their deposit on their next property, the vendor may have time constraints that you could exploit by offering a faster settlement. If they are in a divorce situation, you could provide a more substantial deposit so that both parties will have more money for their next property deposit, which could help the vendor choose your offer over someone else’s.

Play your cards close to your chest

When it comes to liaising with the vendor’s real estate agent, be mindful about giving away too much information. Never tell them your budget in advance, as they could use the information against you. Always indicate that you’re interested in several properties and have other options – if they think you’re too keen on the property they’re selling, then they’ll be less flexible during negotiations.

Time your offer well

Timing is crucial when you do make an offer. Some experts suggest that you go in hard and early, well before the auction – as vendors may be more inclined to accept your offer because of the convenience factor, which may also be a good tactic in a softening market.

Others recommend waiting until right before the deadline to make the offer, to eliminate the possibility that the real estate agent will shop your offer around to other prospective buyers.

Another tactic is to stipulate a time limit – for example, tell them it’s only on the table for 48 hours. Whatever your strategy, be prepared to stay firm on your offer – don’t be too quick to budge from your original offer price as it could make you look comfortable.

Keep your emotions in check

It’s important not to be distracted by your emotions during negotiations. If the price is being pushed up, you may have to walk away if it goes beyond the correct market value you have researched. A common mistake is to be manipulated into paying more than a property is worth because you love the property or don’t want to be the loser in the negotiation process.

Making a winning pre-auction offer comes down to being informed and employing some strategic negotiation tactics. I can help you prepare by organising a pre-approval on your home loan.

Get a buyers advocate

If it is just getting all too hard you might like to consider some professional help.

Utilising the services that buyers advocates offer is becoming more popular across Australia, as buyers recognize the benefits having their own advocate brings to the entire purchasing process.

Buyer’s agents are professionals who specialize in searching, locating, evaluating and negotiating the purchase of property on behalf of buyers.  They do not sell real estate.  They are engaged independently and paid for by the buyer to act on their behalf.  The key difference between a selling agent and buyer’s agent is who they represent as, by law, an agent cannot act for and accept a commission from both parties in the same transaction.

Buyer’s agents offer a number of different service options, ranging from complete searches through to auction bidding and single property reports.  Their aim is to ensure that the purchaser is as fully informed as possible and doesn’t overpay for the property.  Having an experienced advocate on side who is familiar with suburb values and the purchasing process also assists in maintaining objectivity when it comes to negotiating the best possible outcome.

Give us a call to find out more or for an introduction to one of our preferred buyers advocates.

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed before acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice about your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Why is your interest rate increasing?

If the Reserve Bank of Australia (RBA) cash rate is so low, then why is your interest rate going up?

We are asked this question a lot.

The official cash rate, as set by the Reserve Bank of Australia (RBA), has remained at 1.5%pa since August 2016 when it was then cut by 0.25%. The below graph shows the last thirty years of the official cash rate – you would have to go back to the 1950’s to see rates this low.

There are a few simple reasons why some rates are increasing. As you probably know in the past few years, we have experienced a boom in property prices (mainly only in Melbourne and Sydney though). This has resulted in significant growth in investment and interest only lending.

Interest only loans are of course an attractive form of mortgage lending as it reduces your monthly cash flow commitments but it does significantly increase the total cost of a loan over its effective life. You can actually simulate this using one of our online calculators to see for yourself here.

Most accountants and financial planners will rightly recommend that you setup your investment purpose lending as interest only (the theory being do not pay down a debt that gives you a tax deduction first if you have a home loan mortgage that does not). While this structure is in most cases a wise one, it has also seen a significant increase in owner occupied home loans that have been set up as interest only. This of course means that borrowers have had more cash flow available to them to either spend on more investment debt or, more worryingly so, on living and lifestyle expenses – without having to pay off what they owe.

The government has recognised this trend and has been concerned with the level of indebtedness that Australian households have taken on; coupled with low wage growth and rising house prices. When interest rates increase (and they will) and if left unchecked this could create significant economic pain for borrowers and the government alike.

Subsequently APRA (Australian Prudential Regulation Authority), the government body tasked with ensuring sound governance of our banking system, set a speed limit that states that lenders cannot exceed 30% of all new loans being interest only – which has been running at something closer to 40% of all new loans approved.

Until recently, interest only and investment lending has traditionally been priced at the same rates as owner occupied mortgages and even the same as interest only loans – so effectively the rate you paid was the same across the board regardless of what the purpose or structure was.

This has now changed so there are effectively four types of rates on the market (excluding fixed options) They are summarised as follows and ordered cheapest to most expensive;

–    Owner Occupied – Principal and Interest (3.7%pa – 4.2%pa)*

–    Owner Occupied – Interest Only (3.9%pa – 4.5%pa)*

–    Investment – Principal and Interest (3.8pa – 4.5%pa)*

–    Investment – Interest Only (4.2%pa  – 5.00%pa)*

*Approximate interest rate ranges as at early July 2017

In summary – interest only and investment lending is now more expensive.

Mortgage lending policy is being tightened

As a result of these restrictions we are seeing significant changes in lending policies and rules across all lenders. In combination these rules have a direct effect of reducing demand for interest only and investment lending purposes.

Across the board there have been countless changes which cannot be summarised in this brief blog but at a high level they can be summarised as follows;

Reducing higher lending ratio loans

Generally higher lending ratio loans for investment and interest only lending are being capped at around the 90% loan to valuation (LVR) ratio with strong pricing incentives for borrowers to be at 80% or less.

Increased stress testing of borrowers

While the mainstream media may have made broad brush statements about irresponsible lending by the nation’s banks and lenders, this is simply not quite true. Banks have always maintained rigorous assessment criteria and have always sensitised interest rates in their calculations to account for a ‘what if’ scenario for when, not if, interest rates rise. Most lenders test borrowers for affordability at around 7.0% to 8.0%pa and apply minimum benchmarks to acceptable living allowances to determine affordability.

This latter requirement has come under significant scrutiny recently with most lenders demanding borrowers to summarise their own basic living expenses which will be compared against the banks own standards (some lenders now will also index living expenses according to the amount of income an applicant earns with those on higher incomes having higher minimum living expenses applied.).

Lender rules first, rates second

In this environment, more than ever before, it is important to get quality advice around your finance options. There are significant differences between what one lender’s rules are and anothers. There may be a slight difference in the rate but a huge difference in policies that will affect your ability to be approved, your structure and of course your total borrowing capacity.

What you can do about it

Fortunately there are a few simple things you can do about it. If you are completely unsure then just get in contact with us here or fill out our FREE mortgage health check link here

A few recommendations include;

  • Consider fixing some of you loan

Some of the lenders are offering some pretty attractive fixed terms that are the same or cheaper than many variable investment and interest only loans. With the likelihood of further increases for this sort of lending, now would seem like a pretty good time to consider your options around locking in a near historical low rate

  • Switch to Principal & Interest

Given that the banks are under significant pressure to reign in interest only lending taking a principal and interest repayment is attractive to all lenders these days and they have priced their products accordingly to increase demand for principal and interest repayments. It does of course increase your monthly repayments but you are paying down the loan and ultimately paying much less interest in the long term

  • Set up an offset account

If you have some funds sitting in a interest bearing account it can be a suitable option to put the same funds into an offset account. The effect is it reduces the balance of your loan and interest charged on your mortgage by the amount you have in offset (eg $10k in an offset account reduces the balance of a $100k loan to an effective balance of $90k). The rationale being that an interest bearing account may earn you a poultry 2.0%pa currently, less tax, less the effect of inflation and you aren’t really going anywhere. Where an offset account saves you interest at a much higher rate with nil tax payable on the saving. Consider it that saving money is better than making money.

  • Ring your current lender

You might be surprised at how a simple phone call may result in you getting a better rate. The recent rate increases have been a pretty broad brush 0.15%pa increase here or a 0.3%pa increase there on top of whatever you are paying. If your product is out of date and hasn’t been looked at recently you could be paying well above what is available currently. It also helps to use the magic words ‘Im looking at refinancing what can you do for me?’

  • Refinance to a new lender

There are dozens of lenders out there and you might just be better off refinancing to a new lender. We can of course give you some options around this. Here are two useful tools to help you start that process.

We hope that this helps shine some light on the current situation around why mortgage interest rates have been increasing recently. As mentioned please feel free to contact us here or call the office on 1300 706 540 to discuss your option tailored to your scenario.