18 Feb February 2013 Newsletter
Welcome to our February newsletter
Just as many leading economists predicted, the Reserve Bank of Australia decided to leave the cash rate on hold at 3.0 per cent at its February meeting.
As the effects of last year’s rate cuts continue to filter through the Australian housing and financial markets, the Reserve Bank decided to err on the side of caution.
“Sentiment in financial markets has continued to improve, with risk spreads narrowing and funding conditions for financial institutions becoming more favourable,” Reserve Bank governor Glenn Stevens said.
“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.”
The central bank’s decision comes on the back of some encouraging news in both the residential housing and mortgage/lending markets.
According to the latest ING Direct Financial Wellbeing Index, Australians are becoming increasingly comfortable with their mortgage repayments, with almost 50 per cent paying down their mortgages ahead of time.
In addition, the proportion of households that are “very comfortable” with their long-term debt has also hit its highest level, with 64 per cent of borrowers unfazed by their debt.
“It is great to see comfort with long-term debt remaining high, demonstrated by households choosing to get on top of their debt,” ING DIRECT’s executive director for delivery, Lisa Claes said.
“The index shows we are paying down debt and building up savings, which is a very positive sign of overall financial wellbeing.”
There are also favourable signs ahead in the Australian property market, with new home sales increasing for a third consecutive month.
According to the Housing Industry Association’s (HIA’s) New Home Sales report, total seasonally-adjusted new home sales increased by 6.2 per cent in December 2012.
Nationally, detached house sales increased by 7.1 per cent in New South Wales, 6.0 per cent in Victoria, 3.8 per cent in Queensland and 12.2 per cent in Western Australia.
HIA economist Geordan Murray said the strong performance in residential housing and unit markets underpinned the results.
“The promising headline rise last December was driven by both detached house and multi-unit sales,” Mr Murray said.
Finally, in an announcement that took the country by surprise, Prime Minister Julia Gillard has set a date for this year’s federal election.
According to Ms Gillard, the September 14 date should hopefully bring some stability to Australian families and businesses and allow them to plan the year ahead.
However, not everyone agrees, with some economists questioning whether the announcement will negatively impact the housing sector as buyers wait to see what a new government may bring.
Regardless, now is a great time to evaluate your current financial situation and seek advice about how best to manage your mortgage.
To discuss financial aspirations or new home dreams for 2013, please give us a call today.
Sincerely, Nick Foale
Why less is more when renovating
Strategic spending, rather than splurging, is the safest way to ensure you reap the best possible returns from your next renovation project
I’m sure you’ve heard it all before: ’You only get out what you put in’. It’s a common phrase and one that carries great merit in most circumstances. But does it also ring true with property investment and home renovations?
You might be surprised to hear this, but no it doesn’t – or at least not always.
Simply throwing thousands of dollars at your next renovation will not guarantee you the best returns. In fact, you may end up losing money when the time comes to sell. To help you nail your next renovation project here are a few ways to ensure you get the most out of your spend.
Set a budget
The most important element to any successful renovation is setting a realistic and achievable budget from the outset of your project.
Your budget should include materials costs, labour fees and any additional expenses such as pest and building inspections.
Be sure to stow away a few extra dollars to be used as an emergency slush fund should you encounter any problems along the way.
Plan ahead and stay focused
Failing to plan is planning to fail. Embarking on a renovation without a clear list of goals and objectives is the best way to send your bills soaring. If you are renovating the family home to sell or adopting the ’buy, touch up and sell’ strategy, you will need to assess the home and determine which areas of the house require the most work.
Once you have developed a renovation ’mind map’, be sure to stick to it! Most investors go astray in the midst of renovation as they become too emotionally involved with the project and forget the overarching goal: achieving the best possible sales price.
Spend strategically
Overcapitalising is the most common mistake made by investors and is often due to reckless or miscalculated spending.
Some rooms, such as the kitchen, bedroom and bathroom, are more likely to return higher profits than others and so these should be your prime focus. Ironically, these rooms are often the easiest to overcapitalise on.
Every dollar you put into the property needs to be solely to increase your profits. To put it simply, only spend what you need. The most lavish bathroom fixtures, door handles or kitchen tops may look amazing in your family home but are not necessary for a property you intend to sell.
Finally, research your local market and get a feel for the local demographics and housing expectations. If a majority of houses in the local market do not have a backyard swimming pool, then neither should yours. Paying tens of thousands of dollars for an indoor spa bath or outdoor lap pool will not guarantee a higher sales price if the market does not call for it.
Remember, you cannot expect the buyer to compensate for your overzealous spending!
If you are looking to conduct a renovation and need additional finance, or you want to look at what you can draw out of your current loan, please get in touch with us today.
Refinancing: one route to effective debt management
If you’re struggling under the weight of mounting debt and feeling the stress of multiple loans, there is a simple solution you should consider…
Debt is an unavoidable stage of your financial journey. Over the years, you are sure to take out a range of loans depending on your needs in life.
Whether you are buying a new home or upgrading your family car, chances are you will need some extra cash to finance your purchase.
Managing one or two loans shouldn’t be a hassle; however, once you throw three or four credit cards and other personal loans into the mix, then you may encounter the difficulties associated with handling multiple debts.
If you find yourself surrounded by mounting debt, it may be time to consider consolidating your debts into one financial location. Refinancing can be a quick and simple way to gain greater control of your various debts, but there are few tricks to ensure you get the best deal.
First, consider the rate of interest you are paying for each of your loans. Credit cards and personal loans tend to carry a high interest rate and are therefore not the most financially viable loans.
So, what is the most cost-effective way to consolidate your debts through refinancing?
If you have sufficient equity in your property, it may be possible to consolidate your higher interest debts into your home loan (which would have a lower interest rate).
Rather than paying an interest rate as high as 14 per cent for a personal loan, your average home loan will carry an interest rate of less than 6 per cent for a $300,000 variable rate loan.
By consolidating your debt and refinancing your home loan you may be able to save thousands of dollars that otherwise would be spent on excessive interest rates. You would also rid yourself of some of the stress of managing multiple monthly repayments.
If you are considering refinancing, then now may very well be the right time to do it. Record low interest rates and strong competition among the major lenders can only mean one thing: savings are there for the taking by savvy Aussie borrowers.
As features and rates vary from product to product and from lender to lender, we are best suited to find you the loan that reflects your personal circumstances and is right for you.
First-time finance – A Quick Guide
Buying your first home can be a scary decision. We take the stress out of buying your first home with this simple guide to first-time finance.
How much should I save?
As a rule of thumb, 20 per cent of the total value of the property is the recommended deposit. Some lenders will loan you up to 95 per cent of the value of the property. You would then only need to save a deposit of five per cent.
Keep in mind that the larger the deposit the less you will have to borrow. This could save you thousands of dollars in interest over the life of the loan.
Are there ’hidden’ costs?
Unfortunately, there are some costs you may not have expected.
First off, lender’s mortgage insurance (’LMI’) will almost certainly be charged to buyers looking to borrow more than 80 per cent of the total value of the home. It can be paid as a one-off premium or added to the value of the loan. It protects the lender if you default on your mortgage.
Second, loan application fees. These are a one-off payment that covers the costs of establishing the loan.
Finally, you will need legal advice before exchanging contracts with the vendor and when finalising your purchase. Whether you hire a solicitor or conveyancer is up to you, but check that they are right for you before you sign them up.
These are just some of the costs involved. Others include government stamp duty – which can run to several thousand dollars – transfer fees and building and pest inspection charges. Figuring out what costs you will and won’t be liable for should definitely not be left until the last minute!
What types of loan are available for me?
There are literally hundreds of loans available in today’s market, but two of the most common are fixed and variable interest rate loans.
To put it simply, a fixed rate loan has an interest rate set for an agreed period of time and is therefore not subject to rate changes. Variable rate loans may have rates go up or down depending on broader interest rate movements. Both have their advantages and disadvantages so be sure to ask us plenty of questions prior to making your decision.
Don’t forget, buying your first home is (meant to be) exciting! It may not always be fun, running around every weekend for house inspections, but we are here to help on borrowing options and the buying process. It’s a huge step, so enjoy it!
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