11 Apr April 2012 Newsletter
Welcome to our April newsletter
The start of the year might have been rocky, but 2012 might just prove to be a year of stabilisation – welcome news for home buyers and investors alike.
For the third consecutive month, the Reserve Bank of Australia (RBA) left the official cash rate on hold when it met on Tuesday April 3 and while the road to recovery for Europe still looks like being a long one, expectations of a major shock for the Australian economy are declining.
The official cash rate now sits at 4.25 per cent, with forecasts from leading economists suggesting this could remain so until at least mid-year.
While we would all like to see a reduction in borrowing costs, a steady cash rate indicates a more stable economy, which is good news for everybody.
Comments from the Reserve Bank Governor Glenn Stevens which accompanied this month’s announcement reconfirmed a decidedly more stable outlook for the global economy.
“Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring,” Mr Stevens said.
It is important to note in any case that while the RBA is obviously less concerned about international crises, the Bank noted that domestic economic growth has been sluggish and the prospect of an interest rate cut in the future is a possibility.
According to the latest ING DIRECT quarterly economic outlook report, we could see home loan costs remain stable for the bulk of 2012, except for a potential reduction around the middle of the year.
“In the absence of further destabilisation in Europe and the potential subsequent flow on effects to the domestic economy, the RBA will more than likely be on hold over the next few months,” the report said.
“Over the second half of the year interest rates are expected to be unchanged, with the risk that as the global and domestic economies strengthen, markets may begin to incorporate higher interest rates into the outlook.”
Despite the central bank’s hold on the official cash rate, the exact outlook for home loan prices remains somewhat unclear, with lenders no longer moving exclusively in sync with the RBA.
Comments from the central bank would indicate however that though still high by historical standards, the cost of finance is improving, which should bode well for home loan rates.
Remember that while interest rate is important, there is more to a home loan than price alone. That means product features, flexibility and of course, service.
For any help navigating the sea of home financing options or if you’d like to get together to discuss any financial concerns or aspirations, please feel free to get in touch.
Sincerely, Nick Foale
The best way to buy
Are you planning on buying a property in the near future? If so, it certainly pays to have a little know-how when it comes to the pros and cons of buying at auction versus purchasing via private treaty
What’s the most effective way to start your property portfolio? Purchasing a home via private treaty or trying to snag a bargain at auction. This old debate continues to divide investment experts.
In fact, both options have their benefits and their drawbacks, so it pays to understand how they both work and what you need to consider when purchasing your investment.
While sometimes you may have a choice about which path to take, quite often you will have very little pulling power or none at all regarding how a property is sold. So it’s essential you know what’s what.
Private treaty – what you need to know
‘Private treaty’ simply refers to the process in which the home buyer and vendor meet on an agreed price and is the most common property transaction process used in Australia.
Once the home buyer and vendor have agreed on a price, a Contract of Sale will be exchanged.
This contract will outline the terms and conditions for the sale and will detail any special sale conditions, required deposit fee and length of the settlement period.
It is important to have the Contract of Sale reviewed by your legal representation to ensure from the outset that there are no elements that may work against you – or even that might be illegal. From this point, your solicitor should be involved at every stage of the purchase process.
After both parties have agreed on the terms and conditions detailed and the contracts have been exchanged, a settlement period of four to five weeks will follow. The length of this period can be negotiated by the parties.
It is important to examine and assess the property with a real estate agent or legal adviser just prior to settlement to ensure all details of the property are accurate, no fixtures and fittings included in the contract have been left out, and that there are no other nasty surprises.
Auction – what you need to know
Unlike purchasing a property via private treaty, an auction is a public event at which multiple home buyers bid against each other to secure the best price for the property.
An auctioneer will oversee the bidding until the amount offered by the highest bidder is acceptable to the vendor.
If the highest possible bid is deemed insufficient by the vendor, the property will be ‘passed in’ and the property will remain on the market.
An auction is a fast paced and exciting way to purchase a home, but there are several issues of which you need to aware.
It may be difficult not to get caught up in the heat of the moment, but when attending an auction it is vital that you know your limits and do not over commit on price. Remaining clear headed and in control is essential.
If you have made a bid which has been accepted by the vendor, contracts will be exchanged immediately and you will be required to pay a deposit.
There is no ‘cooling off’ period when purchasing a property via auction, so be sure to assess the property, including having building and pest inspections done, prior to attending.
A little family help
Offering to be a guarantor can be a great way for parents to help their children into the property market sooner, but first there a few potential catches to be considered
Faced with high house prices and the rising cost of living, many would-be first time buyers are finding home ownership well and truly out of reach.
The difficulty is that while there are many young buyers who have the financial capability to service a loan, they simply can’t raise the sizable deposit typically needed to satisfy the banks.
If you have children who are in this position, with the right strategy and approach there is a way you can help them break into the property market sooner rather than later.
Putting yourself down as a guarantor will give your children the extra financial support needed to maximise their chances of meeting the requirements of their bank or other lender.
This simple process will allow you to unlock the equity built up in your own property and use this as collateral, helping your kids achieve homeownership sooner.
Best of all, this strategy does not require you to dip into any of your own savings or liquidate any assets, reducing the risks and financial strain for you.
Speak to a financial adviser or mortgage broker prior to seeking a loan as they are in the best position to advise you on the right approach.
While going guarantor can be a great way to help your children break into the property market, there are some associated risks of which you need to be aware.
When talking to your financial adviser or mortgage broker, be sure to discuss the circumstances in which you will be held accountable for loan repayments, how much of the loan you will be responsible for and for how long will you need to act as guarantor for the loan.
Once you have agreed to be a guarantor for your child’s mortgage, you will be held accountable for any late or delinquent repayments.
Before becoming a guarantor therefore, it will pay to look closely at your child’s current financial status and assess their ability to make the required repayments.
Traditionally, you would have been held accountable for the first few years of the mortgage; however, the exact period will ultimately depend on the lender and the size of the mortgage.
As the size of the mortgage decreases and the value of the property grows, you will be able to relinquish your support, allowing your child to take full responsibility for their home and mortgage.
Deciding to go guarantor on your child’s mortgage is a big decision and one which requires careful consideration.
But with the right approach and understanding, you can give your child a head start in life and place them in the right direction to secure their financial future.
Common investor traps to avoid
The road to successful property investment begins with research and understanding, and being familiar with some of the hurdles you’re sure to encounter along the way will certainly help
Every investment strategy – including property investment – carries with it a degree of risk and unfortunately, most forms of investment also have their fair share of horror stories.
Some of the commonest investment mistakes are often easy to avoid, provided you have done your research and understand what you are getting yourself into.
To help you maximise your returns and build that property portfolio sooner, we have highlighted some of the commonest investor traps that you need to avoid.
Failing to prepare is preparing to fail
Property investment is a long-term commitment and one that should not be entered into lightly.
Too frequently, investors find themselves in trouble because they have failed to do their homework.
While it might seem obvious, the best way to get off on the right track is to gather as much data and do as much research as possible.
There are literally hundreds of research products now available and finding them is only as hard as visiting your local newsagent.
Moreover, don’t forget to assess your own financial situation and calculate how much you can afford to spend on your property – without spending beyond your means.
What’s hot and what’s not
Finding out where and when to invest your money can be a daunting task, even for the most seasoned property investor. Thankfully, there are experts out there who can help.
However, a common trap many investors fall for is property ‘experts’ spruiking the next big investment hotspot.
While it is always smart to seek out professional advice prior to investing, be sure your investment network is made up of trustworthy and reputable experts.
Don’t be afraid to ask for references, appraisals and previous testimonials, because at the end of the day you will be the one paying the bill.
Capital gain vs cash flow
Knowing what you want to get out of your investment is important but beware, there are dangers associated with being too specific.
Many investors do not realise that they can often achieve both capital gains and positive cash flow through their investments.
In the case of larger property portfolios, it can pay to have a stable combination of positive cash flow investments and properties that yield strong capital gains.
But for those looking to secure their first investment, the long-term and ongoing returns should be the prime concern.