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Archive for category: ONYX Finance

Who Gets It?
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Who Gets It?

The Federal Government has committed to assist 10,000 First Home Buyers into the market by topping up their 5% deposits with a government guarantee for 15% of the loan.

However, based on the $500 million in equity the government has set aside, only 1 in 11 buyers will be able to enjoy the benefits of the scheme.

The scheme will remove the need for borrowers to pay Lender’s Mortgage Insurance, saving up to $27,000.

We suggest if you or someone close to you are buying their first home next year, you start planning now.

Single borrowers earning up to $120,000 or couples earning up to $200,000 will be eligible for the First Home Loan Deposit Scheme if they have saved 5% of the value of the property they are seeking to purchase.

Here are a few tips to help you on your way:

  • Although the scheme does not start until next year, start planning now to give yourself a chance to be the 1 in 11 who will receive support.
  • If you haven’t already, do a budget – click here to access a budget planner
  • Start managing your discretionary spending today as lenders are checking borrower’s living expenses closely.
  • Be aware of other benefits on offer including grants and stamp duty exemptions by visiting the State Revenue Office in your state or calling us on 1300 1400 15.
  • In some cases, the rent you are paying now will be included in the credit analysis to support your ability to meet loan repayments, so ask us to start checking on a suitable lender for you.
  • Get pre-approved so you know how much you have to spend.  We provide this without cost and it provides you piece of mind when you start looking.
  • Cautionary note: We calculate that if you only contribute 5% deposit rather than 20% on a $500,000 property you will pay nearly $60,000 extra in interest over the life of the loan.  The solution is, in this low interest rate environment, to pay at least 10% more than the Principal and Interest repayment the lender requires.

It is important to know that there are several other ways you can get into your first home with a low deposit and not pay Lender’s Mortgage Insurance so call me anytime for a quick chat on 0409 02 99 22.

Good luck with finding your first home it is a very exciting time.

Most Australian borrowers don’t know the score.
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Most Australian borrowers don’t know the score.

A recent survey indicated that most borrowers are in the dark about the credit scoring system lenders use.

More than ever it is important that you spend a few minutes to find out what a lender finds out about you when you apply for credit.

You can quickly check your credit score for free at www.getcreditscore.com.au and for more detailed credit report go to www.mycreditfile.com.au.

It is also important that you understand the impact of Comprehensive Credit Reporting (CCR).

Positive (Comprehensive) Credit Reporting (CCR) was mandated by the Australian government from 1 July 2018, giving lenders access to a deeper, richer set of data enabling them to better assess a borrower’s true credit position and their ability to pay a loan.  Because of this measure it may mean you see a change in your credit score within the coming months.  Why?  Read below for a further insight into what this means for you, how it might benefit you, as well as what it means for the financial market.

So what is Comprehensive Credit Reporting (CCR)?

Right now if you were to check your credit report it, for the most part, will consist of negative information (defaults, bankruptcies etc).  CCR will introduce more data on your credit report as the regime will allow credit providers (banks & lenders) to share more of your data with a credit bureau (i.e Equifax).  Ultimately, this will provide a more complete picture of your situation, allowing credit providers to better match the credit you applied for to your circumstances.  In February 2018, NAB were the first major bank to start participating in CCR in a phased roll out. From 1 July 2018 the big four banks were required to share 50% of your credit data (they can choose which data to share) within 90 days with credit bureaus and by 1 July 2019 this increased to 100%.

Why should you be aware of CCR?

It’s important that you’re aware of these changes as they affect what’s shown on your credit report and what information can be accessed by credit providers about your credit history.  Ultimately you may see a change in your credit score as this additional information is added to your credit report (your credit score is generated based on the information in your credit report).  These changes are designed to deliver better outcomes for customers as it will increase competition throughout the financial market.

So what additional information will be added to my credit report?

Comprehensive Credit Reporting will introduce more data that reflects positive credit behaviour.  For example, more information will be available on your payment behaviour, making it easier for credit providers (i.e banks & lenders) to better match the credit you applied for to your needs & circumstances.  This will mean your credit report may show the following information on accounts like credit cards, home loans and personal loans:

  • Credit account history:
    • Type of credit account (credit card, personal loan etc)
    • Date the credit account was opened
    • Current credit limit
    • Account closed date
  • Repayment history: your loan repayment history over a period of 2 years (24 months) including any late or defaulted repayments you may have received and the date you paid the default in full.


How might this benefit you?

As more CCR information is available to be shared by lenders, it can ultimately drive market competition and result in lenders offering a better deal based on your unique credit circumstances.  In short you could be rewarded for a good credit score with a lower interest rate.  Some of our lenders already do this in the market, i.e. tailoring their personal loan rates to your unique score, take a look for yourself here.  Your credit score may also change (in a good way) as the additional data (i.e. showing that you’re paying your bills on time) may positively influence it.

While these changes are still taking place in the Australian financial market, it is not an entirely new concept.  CCR is already common practice in the United States and the United Kingdom, we are simply catching up.

Is there anything I need to do?

No.  The changes will take some time as credit providers that are allowed to use CCR, may adopt it at different times.

Do you have a Depreciation Schedule? Make sure you’re not missing out.
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Do you have a Depreciation Schedule? Make sure you’re not missing out.

With tax time rolling around, I was staggered to be informed by Bradley Beer at BMT Tax Depreciation that only 20% of property investors bother to get a Depreciation Schedule.

Obviously this means that 80% do not. This is just plain crazy!

Why leave your hard-earned in the taxman’s pocket? Even if you use an accountant, make their job easier by providing a schedule for every property.

Click here for Brad’s latest article.

Don’t forget to mention Onyx for a discount.

Also, you might be interested in a webinar BMT are running. Click here for more information.

As always, if I can assist with any finance-related issue, please don’t hesitate to contact me directly on 0409 02 99 22 or email me at greg.clough@onyx.net.au

Greg Clough

New PICA analysis demonstrates property investors are generous contributors to government coffers
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New PICA analysis demonstrates property investors are generous contributors to government coffers

New analysis by the Property Investors Council of Australian (PICA) has detailed how much tax typical property investors pay to government under current negative gearing and Capital Gains Tax (CGT) rules.

PICA chairman Ben Kingsley said the council’s modelling showed an average Mum and Dad investor was adding hundreds of thousands of dollars to the public purse over the lifetime of a single investment property.

“The amount of federal taxes property investors pay is extraordinary and will surprise many – and that’s before state-based stamp duty and land tax costs are included, adding tens of thousands of dollars more to the bill,” Mr Kingsley said.

“Our numbers show while a typical Australian investor will benefit from negative gearing initially, they will be taxed around $167,000 in subsequent years over the full 30 years of modelling.

“It is clear that property investors do pay well above their fair share in taxes and our concern is that impost on investors is set to blow out even further if Labor’s policies see the light of day.”

Mr Kingsley said investors have been unfairly targeted throughout Labor’s and the Green’s election campaigns.

“With the majority of the nation’s 2.2 million property investors earning less than $80,000 a year, Labor’s claim about tax loopholes being for the big end of town are, frankly, insulting,” he said.

Mr Kingsley said political attacks via increased taxation on investors looking to self-fund their retirement would have far reaching economic ramifications for all Australians. It could force investors out of the market, reduce demand for property and weaken the market.

Mr Kingsley says this data proves Australian property investors contribute their fair share when it comes to government taxes.

Please see the attached media release and detailed analysis for further information. 

ANALYSIS – (PICA) – What Investors Pay Modelling Analysis

MEDIA RELEASE (PICA) Modelling shows investors pay hundreds of thousands in taxes

 

Be Prepared
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Be Prepared

On a positive note, despite reports of up to 25% of loans not being approved today that would have been approved 12 months ago, at Onyx we are having far more success than that.

Here are seven quick tips about being prepared for the more stringent lending environment that we are now experiencing:

1.     Allow extra time – loan applications and supporting documents are being more closely scrutinised, so don’t leave your application until the last minute.

2.     Get pre-approved – if you are purchasing, arrange a pre-approval so you can search confidently for a property and perhaps have an edge when negotiating.

3.     Be prudent with discretionary spending well in advance – lenders are looking at statements line by line, so making sacrifices for a few months will be rewarded.

4.     Know that you are going to be asked for more stuff – as an example, some lenders are now asking for statements for all credit facilities, even if they are not being re-financed.

5.     Don’t use ATMs at gaming venues – unfortunately, you may be judged.

6.     Be accurate with your cost of living – lenders are dynamite on this issue, so keep accurate records of all your living expenses.

7.     Don’t shoot the messenger – we do our very best to absorb as much stress as we can, however “they who have the money have the power.” Remember – if you have loans that settled longer than 2 years ago you are probably paying too much!

If have any questions or would like me to elaborate or clarify any of the above, or maybe just have a general chat, please feel free to call me at any time on 0409 02 99 22.

Don’t Kill Competition
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Don’t Kill Competition

No doubt you haven’t missed the news about the findings and recommendations of the Royal Commission into Misconduct in Banking.

The Royal Commission has resulted in the banks being slapped with a wet lettuce despite all the corruption uncovered meanwhile every Australian home loan borrower will pay more if the recommendations relating to “fee for service” are legislated.

Watch my video for my take on what the ramifications of these flawed recommendations are.

Please feel free to call me if you have any questions or if I can assist you in any way.

Industry Defence Campaign

The Mortgage & Finance Association of Australia has launched a defence of the mortgage broking industry, with a national campaign – Don’t Kill Competition – designed to show consumers and politicians what a world without mortgage brokers would look like.

The campaign comprises advertising across newspapers, radio, outdoor (billboards), television and digital platforms and is designed to demonstrate that banning commissions would be a great outcome for large lenders with branch networks, but a terrible outcome for everyday Australians.

The campaign kicks off with full-page advertisements in national newspapers (the Australian Financial Review and The Australian), before leading into television and the other outlets over the weekend. It also features a microsite at www.brokerbehindyou.com.au which has the relevant facts and content for you to share and promote, including pre-populated letters for both brokers and consumers to send to their local MP to show their support – the website will automatically populate an email to your local Federal MP, based on your postcode.

What can you do?

I’m calling on you to support the cause by making your voice heard as a current or future home loan borrower.

1. Take action with your local politician: Contact your Federal MP and let them know how you feel, by going to www.brokerbehindyou.com.au, clicking the link and sending the pre-populated letter to your local MP. This will take you less than one minute and has a significant impact.

2. Get others involved: Talk to your family, friends and your customers and ask them to go to the site and contact their Federal MP as well – there is a separate letter of support designed for consumers to send.

3. Sign and share the petition: There is a petition available at www.brokerbehindyou.com.au – please sign and share the petition to ensure policy makers understand the weight of support behind the channel.

4. Share the campaign: Additional campaign advertising collateral will be made available on the website for you to share and promote on your social media platforms daily over the next week and beyond.

Now, more than ever, we must unite as an industry and remind our politicians and policy makers that mortgage brokers are vital for healthy competition in the home lending market, are highly valued by their customers and are out there, every day, driving great outcomes for Australians.

… and for a lighter take on the situation …

Impacts of Labor’s proposed negative gearing and CGT changes
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Impacts of Labor’s proposed negative gearing and CGT changes

With a federal election expected to be called within the next 12 months, and Labor proposing some controversial reforms to negative gearing and the capital gains tax discount, a new report has assessed the risks of taking a blanket approach to their implementation across Australia.

RiskWise Property Research and WargentAdvisory co-authored the Impact Analysis: Negative Gearing, CGT & Australia’s Residential Property Markets report assessing the impacts of the proposed reforms.

RiskWise CEO Doron Peleg said with the federal election looming, government policies and their implications were being thoroughly assessed by policymakers, lenders, fund managers and property developers.

The ALP has proposed reforms to negative gearing and the capital gains tax discount to level the playing field for first home buyers competing with investors, improve housing affordability and strengthen the Commonwealth Budget position through limiting these subsidies.

However, Mr Peleg said one of the most important aspects of the proposed changes was that their blanket introduction across the country would have unintended consequences, and some geographical areas (SA4s), especially those with weak or fragile property markets, would be adversely impacted more than others.

The report identifies the Top 10 SA4s that would be most impacted if the changes went ahead as currently proposed. These include Darwin, Mackay, inner-city Perth and Townsville.

“Another unintended consequence would occur in the Sydney unit market where the proposed changes would be the equivalent to a sudden 1.15% increase in interest rates.”

Report co-author and WargentAdvisory director Pete Wargent said for years property commentators had been talking about a two-speed economy driven by the resources construction boom, but this dynamic had reversed, and those once prosperous areas were now struggling.

“The last thing they need is a further dampening of demand. An introduction of Labor’s proposed changes to negative gearing needs a more nuanced response with some mitigating processes and policies that could be implemented so there are no unintended consequences.”

He identified other impacts of the proposed changes, including declining dwelling prices (or price deceleration in some regions), a reduction in dwelling commencements and deteriorating rental affordability in some locations.

“While there would be some positive initial impacts on housing affordability, these would only be sustained in the largest capital cities if appropriate policies encourage the supply of owner-occupier suitable housing in addition to investment units” he said:

“There will also be distortions in the investor market, with the creation of primary and secondary markets for investor stock if subsidies are limited to new housing prospectively.”

Mr Peleg said from the second half of 2017, the risks associated with the residential property market had increased significantly and the proposed changes needed to be assessed thoroughly across all SA4s to ensure they did not unduly impact weaker housing markets.

“Credit restrictions have had a direct impact on investors in the Australian housing market. As a result, dwelling prices in Sydney and Melbourne showed a decelerating growth rate, followed by price reductions in Sydney and, to a lesser extent, Melbourne,” he said.

“In a relatively short period of time, the landscape for residential property in Australia has changed significantly and this necessitates thorough modelling and impact analysis of Labor’s proposed tax reform package.

“The bottom line is that the proposed reforms will achieve some of the ALP’s stated objectives, including tackling the fiscal challenge and Budget repair, but not the others.

“The Impact Analysis: Negative Gearing, CGT & Australia’s Residential Property Markets report covers our key findings. These are the principles that need to be looked at before any changes are made along with the consequences, and recommendations, if they are applied across Australia.

“As an independent company we wanted to assess the objectives, impacts and key findings when the proposed reforms are not supported by any mitigating measures, and also to add additional information to enable policymakers to take steps to improve housing and rental affordability, which is high on the political agenda.”

Having a Productive Conversation About Getting into Property Early
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Having a Productive Conversation About Getting into Property Early

Onyx CEO Greg Clough writes about his experience of helping his daughter and other young clients get into property early. 

You can understand why many GenYs and Millennials are despondent about buying a home, but in my view their pessimism is misguided, having been fuelled by journalists with limited understanding of how the property and finance markets work.  There are many pathways to home ownership, but most people haven’t been shown all the options.

Have your property with smashed avocado

Writers on this issue typically launch into a discussion on not buying that daily coffee or ordering smashed avocados so you can save for a deposit.  Frankly I think that launching into this approach is simply demotivating for most young people.  While not walking away from the need to budget I think there are more productive conversations about partnerships, entrepreneurship and investment which are going to be a far more empowering.

Conversations with my daughter

Ten years ago I had a conversation with my then early 20s daughter who had a modest income and very little money in the bank.  I explained that if she just walked into her bank branch she would certainly be rejected for a loan, but I outlined a number of alternative ways to go about it.

Now in her mid-30s she has equity in a property thanks to its capital growth over the last ten years.  This will provide a platform for her to buy her family home.  The pathway to property ownership will be different for each person but for her it was to partner up with a cousin who was around the same age.

Beyond inter-generational battles

Contrary to popular journalism the property marketing is not an inter-generational battle but more an opportunity for intergenerational collaboration.  In all honesty, it always has been.  Many of my friends back-in-the-day got a start with a deposit on their home with help from their parents.

For those of us who are parents of 20-somethings we have a role to give them a leg up into property as soon as possible.  This could involve the bank of Mum and Dad but more importantly it will involve encouragement and education.  Remember, as good as our education system might be they still don’t teach the life skills like buying your first home.

Why 20-somethings should buy sooner than later

There are some really good reasons why a 20-something should be interested in buying a property before they or you think they might be ready.

Firstly standing still is going backwards.  Property prices continue to increase – especially in popular locations – so the longer you wait the higher the purchase price becomes.

Doing something in your 20s will set you up for later when your lifestyle is more expensive.  Your 20s provide an opportunity to build equity in a property which can be used for a deposit on a future family home.

Buying an investment property is a great option in your 20s.  You can buy to invest wherever is best financially rather than where you want to live.  Rent your lifestyle, or even better stay at home with the parents to keep costs low.

The important thing to remember here is that there isn’t one single property market, there are lots of them.  Buying to invest gives you more choices and remember it’s a logic decision not an emotional one about where you want to live.

So how would you approach an early entry into property?

Well going straight to your bank is probably not going to be the best option.  The home loan market is constantly changing because banks are adjusting to market conditions and their own risk profiles.  This means that today one bank might be offering great deals to investors but next month they might decide they have too many investors want to attract other types of borrowers.  You need to know which lender is offering the best deal to suit your circumstances and that may not be the one your banking with right now.

You don’t need to go it alone.  Partnering with someone else to get into a property is a great option especially before you start having a family.  What one person lacks on their own – say for example a deposit – the other person may be able to cover. These partnerships might be with parents, another family member, a friend or even someone on a purely commercial relationship.

I’ve also seen situations where parents have purchased a property for their adult children to live in and eventually own.  The kids pay the mortgage and the parents provide the deposit and borrowing capability.  Given rising property prices this might be a better form of inheritance.

Importantly if you are entering into a “property relationship” with anyone, getting the right advice before you buy on the ownership structure and an agreed approach to exiting is vitally important to your financial success.

Being entrepreneurial in the property market

These are just a few approaches that you could consider but everyone’s situation is unique and there are many more ways to go about being entrepreneurial in the property market.  I understand that the price tags on property these days in suburban Melbourne and Sydney can be pretty off putting but we also live in a more flexible and fast-moving world that offers many more opportunities for innovative young adults and their parents.

The best place to start is a conversation with a mentor who has plenty of practical on-the-ground experience.  Feel free to call me for a chat anytime on 0409 029922.

Warms Regards

Greg Clough 

 

Interest Only Mortgage Changes: “Forewarned is Forearmed”
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Interest Only Mortgage Changes: “Forewarned is Forearmed”

The phrase “Forewarned is Forearmed” is as relevant today as it was when first used in the late 16th century, especially when it comes to matters of borrowing money.

If you have an interest only mortgage, or you’re intending to obtain one, then consider yourself forewarned. I hope this two-minute read will leave you forearmed and that it motivates you to take action before it’s too late.

So here is the forewarning!

If you choose to re-finance your Interest Only loan and remain on Interest Only it will no longer be a “fait accompli” that your new loan will be automatically approved as Interest Only without a lender’s inquisition.

Not considering refinancing anytime soon? Remember that most Interest Only loans revert to P&I after 5 years unless refinanced. Suddenly you’ll find that your monthly repayment takes a big hike because you’ll now be paying principle as well as the interest.

To clarify my point here is an extract from an industry magazine explaining ANZ’s recent policy change.

As of 5 March 2018, ANZ will regard interest-only (IO) loan renewals as “credit critical events” which require full income verification as part of its measures to streamline the credit critical process.

The requirements are set to apply to loan applications that involve changing from principal and interest (P&I) to IO, or extending an IO term.

Further, if serviceability is not evident, the loan will remain or revert to P&I.

ANZ will update process guides and renewal checklists to include the changes.

Moreover, customers will be notified by ANZ six months prior to the expiry of the IO period, and they will be informed of refinancing options available to them.

The bank noted that it is making the changes to further enhance its lending practices.

“We are making this change as part of our continual enhancements to our lending practices,” the bank said.

“Converting to or extending an interest-only period is a material change to original loan conditions, which could increase the total repayments over the life of the loan.”

Last year, the Australian Prudential Regulation Authority (APRA) imposed restrictions requiring banks to limit interest-only lending to 30 per cent of new loans.

In simple terms this change from ANZ means, and the others will probably follow, that you may need to find more of your hard-earned dollars every month to meet a P&I commitment.

On a positive note, lenders are encouraging P&I loans at the behest of APRA, by offering lower interest rates but even this will not stop the repayment hike you’re facing.

Here is an example to explain based on a $500,000 loan for Owner-Occupied borrowers.

Principal and Interest over 30 years @ 3.69% p.a. $2,299.00 pcm

Interest Only for 5 years @ 4.29% p.a. $1,787.50 pcm

Most Interest Only loans revert to P&I after 5 years unless refinanced.

As you can see even though the rate for P&I is lower the repayment, rather than a payment of interest only is over $500 more per month.

This is not an insignificant amount just for one loan so for borrowers with multiple loans the impact will obviously be even greater.

With the Royal Commission underway there is a strong chance lending policies and guidelines will become even tougher.

So be forearmed.

I strongly suggest you plan well ahead so that you do not receive a nasty shock when you come to refinance your loans.

If you would like us to crunch some numbers for you please call me on 0409 02 99 22 or email greg.clough@onyx.net.au

‘Praemonitus, Praemunitus’

Cheers

Greg

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