RBA’s April 2022 decision

The RBA opted to hold the official cash rate at 0.1% at today’s monthly meeting, which came as little surprise as Australia waits for an election to be called.

However, the central bank boss again flagged that changing economic conditions could see an interest rate hike in the near future.

“Inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia’s invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices,” RBA governor Philip Lowe said in his statement. “In response, bond yields have risen and expectations of future policy interest rates have increased.”

Lowe noted that the Australian economy is continuing to perform well, with household and business balance sheets in good shape, an increase in business investment and a large amount of construction work in the pipeline, while national income is being boosted by higher commodity prices.

But he did concede that rising prices and hardships from natural disasters such as the recent floods are putting pressure on household budgets.

Unemployment falls again

Another improvement to the unemployment rate had it sitting at 4% at the end of February, while underemployment was also at a new low.

“The RBA’s central forecast is for the unemployment rate to fall below 4% this year and remain below 4% next year,” Lowe said. “Wages growth has picked up, but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic.”

On inflation

Lowe noted that while inflation has increased in Australia, it is at 2.6% in underlying terms, despite being 3.5% in headline terms.

This meant we were lower in inflation terms than many other countries, but “higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters, with an updated set of forecasts to be published in May”.

So will the RBA raise rates?

Lowe reaffirmed that RBA policy was to wait for evidence that inflation is sustainably within the 2 to 3% target range before increasing rates.

“Inflation has picked up and a further increase is expected, but growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target,” he said, adding that the board would continue to monitor various conditions in coming months.

And the observers say?

A Finder survey of 34 economists and financial experts found that while none were expecting a rate rise today, a significant 88 per cent expected the RBA to hike this year, with some forecasting the first movement as early as June.

AMP economist Shane Oliver said the conditions were right for a rate rise in the coming months.

“The RBA’s objective of full employment has been reached,” Mr Oliver said.

“Wages growth is picking up and inflation is pushing well above target with a rising risk that inflation expectations will start to rise, in which case it will become self-feeding, and the Budget will add in more stimulus this year. So the conditions for a rate hike will be in place by June.”

But Leanne Pilkington of Laing+Simmons said there was “a case to be made” for the RBA to keep rates on hold “given the delicate cost of living factors and global uncertainty.”

Aussies ready to tighten belts

 A separate survey by Canstar found that 56% of Australians were worried about being able to pay their bills if the RBA did raise rates in an environment of skyrocketing costs. Many of the survey respondents said their mortgages were their biggest concern, ahead of rising rents and petrol prices.

Canstar’s Steve Mickenbecker said a cash rate rise would make the situation much worse for a lot of Australians.

Costs keep rising for households with petrol prices reaching an eight-year high and supermarket shoppers reporting higher grocery bills, but the sting is about to get worse for some,” he said.

“Anyone with a mortgage will likely feel financial pain when the Reserve Bank raises the cash rate this year as predicted by some of the major banks.”

 

 

Please visit the following sites for more information:

Statement by Philip Lowe, Governor: Monetary Policy Decision – 5 April 2022

 

Settlement & beyond

Settlement & beyond

First time investors often sign on to a loan to purchase a property, without realising they are hampering their future investment opportunities. Later on, they realise they have made fast equity and want to withdraw some for their next investment, but find they can’t because their mortgage broker has signed them onto a deal which doesn’t allow them to refinance for two years. This can be because some lenders don’t pay broker commission unless there is a guaranteed period in which the borrower can’t jump ship for a better deal. It’s understandable as mortgage brokers work hard for their commission and they need to earn a living. However, this doesn’t mean you don’t have better options as a borrower.

Not your average broker

Zinger Finance does things differently. The company was set up by top property investor Nathan Birch, with the purpose of looking at finance from an investor’s side. Zinger is all about helping clients get the best finance available to them, which will also be agile enough to allow them to withdraw equity quickly and keep building their portfolios. One of the main ways Zinger does this is by viewing finance settlement as an early part of a borrower’s journey, rather than the end point. Once settlement has occurred, Zinger keeps checking in on their client, making sure everything is going well, plus keeping them informed of what is happening in the market and what opportunities are available to them.

One week in

Zinger makes a courtesy call to the client to make sure they have all their basic requirements ticked off. They’re ready to settle, but have they sorted out their electricity, water and other things? Have they got the right date for their repayments to start and enough money in the right account to cover it? At this point, Zinger reminds the customer that help and support is there if they need it. The client will have been given a discharge authority form so that they can choose whether or not to give Zinger permission to monitor their property’s value.

After three months

Provided they have the client’s permission, Zinger will keep them in the know on what the local property market is doing and whether they may have already accrued equity they could use by refinancing. At this stage Zinger asks how the client is finding everything, how their loan arrangement is working for them, whether they are happy with their lender and the interest rate they are paying and whether they were already considering their next investment. If Zinger’s market research shows potential capital growth, they will offer the client a new valuation and then help them get started with the next investment.

Accessing fast equity

Most major banks will only value a property at its purchase price and some will not be willing to re-value within three months because that time period is still regarded as current. This can cause a problem for serious investors because if they can’t access their equity as soon as an opportunity arises, they can miss out on a deal and lose thousands of dollars in immediate further growth, plus valuable time in the market. Zinger knows how to structure finance to avoid scenarios like that. One example would be to organise the first loan through a second tier lender and then refinance to a major lender three months later. That major lender then performs a fresh valuation.

Knowing the banks

Zinger has relationships with many lenders and knows which ones will be most beneficial for the holistic goals of their investor client. They know which ones accept JobKeeper payments as revenue and which ones don’t. They know which banks face such long delays due to backlogs on loan applications that there’s no point applying with them because the deal can’t be done on time. They know business development managers at various lenders, who regard them as a good company to deal with. If you need help structuring your finance or need more information on how it all works and what might be the best options for you, reach out to Zinger Finance and speak to one of their strategists.  

 

RBA’s First Meeting of 2022

The RBA board voted to leave the official cash rate on hold today, at its first meeting for the year.

The decision failed to surprise experts, though a growing number of economists are firming in the belief that the central bank will be forced to hike rates at least once this year; well earlier than its predicted 2024 timeframe.

Most commentators are making conservative forecasts, but Westpac’s Bill Evans went out on a limb last week, predicting a 15 basis point rise as early as August this year, followed by another 25 basis point hike just two months later, bringing the official rate to 0.5 per cent before the year was out.

Westpac also predicted further hikes in following years, until the rate hits 1.75 per cent by March 2024 (a date that the RBA has been telling us we would likely be at no more than 0.25 per cent by).

What does that add up to?

If you had a $1 million mortgage, you’d be looking at paying about $1000 extra a month on your home loan. This sort of rate increase would come as a massive shock to most mortgage holders, thanks to a decade or more of falling rates making historic low repayments “the new normal”.

And spare a thought for borrowers trying to get into the market. If Bill Evans is right about this year and we hit 0.5% by October, someone earning $100,000 a year would be able to borrow about $30,000 less than what they currently can. Further rate rises would make the situation catastrophic for borrowing power.

Take control of your own finances

RateCity research director Sally Tindall said that APRA data shows average Australian borrowers are nearly four years ahead on their home loan repayments, which is promising.

But being in control of your finances also means making sure you’re on the best rate. Tindall says borrowers should get ready to switch to a different lender or at least ask their bank for a better deal.

“RBA data shows the average existing variable rate customer is on a rate of 2.98 per cent, while the average new customer is on a variable rate of 2.59 per cent – that’s a 0.39 per cent difference worth haggling for,” she told News Corp. “If you do manage to move on to a lower rate, consider putting any savings back into your loan, which will also help minimise the impact of future rate rises.”

RBA puts end to bond stimulus

One big decision the RBA made at the February meeting was to put an end to its $350 billion bond purchase program, as it upgraded its economic forecasts.
Recently, core annual inflation hit 2.6%, which places it within the RBA’s 2-3 per cent target range.
And unemployment is now at a 13 year low of 4.2 per cent. These suggest a rate rise could happen in the short term, but the RBA has repeatedly said it wants these two measurables to be “sustainably” within their target bands, which means inflation will need to stay put for a while.
Wage growth is another factor and the central bank will want to see it rise from its current 2.2% to 3%.

RBA Governor Philip Lowe said in his statement that “while inflation has picked up, it’s too early to conclude that it is sustainably within the target band” and that “it is likely to be some time before aggregate wages growth is at a rate consistent with inflation being sustainably at target”.

He is no longer putting an “earliest” date on potential rate rises, but says the board “is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”.
So the coming months will be interesting, but in the meantime, speculation from commentators will continue to be rife.

 

 

Please visit the following site for more information:

Homebuyers warned to ‘batten down hatches’ ahead of sooner than expected interest rate hikes

RBA to end stimulus and retire its ultra-dovish bias

The lending year that was in 2021

The Lending Year That Was In 2021

The lending year that was in 2021

2021 was another crazy year in every sense of the word. Of course there was the pandemic, which put a stamp on us all for the second year running, with the Delta variant first becoming the dominant strain of Covid, followed by Omicron at the end of the year.

But economically speaking, it has been a year of trade sanctions and stand-offs, political uncertainty, continuing rock bottom interest rates and, importantly, the first shoots of inflation beginning to be apparent.

The lending space was especially marked by uncertainty. Here are some key moments in lending that marked 2021.

Fixed rate rises

Early in the year, it seemed as if the banks were racing towards negative interest rates in their bid to attract customers. Variable loan percentages beginning with a ‘1’ were beginning to seem common, while attractive fixed rates tempted borrowers into locking in loans for three to five years.

On top of this, a number of lenders were offering cashback deals for customers to switch from another bank via a refinance.

Then, around the end of the March quarter, talk began to emerge about future rate rises. The RBA had committed to keeping rates on hold until 2024, but economists and the media began to apply pressure, suggesting the central bank must move earlier than that.

Around this time, lenders began to increase the interest rates on their long term fixed rate loan products, mostly for four and five-year terms. Throughout the year, the trend gathered pace and by the end of 2021, lenders were hiking fixed rates repeatedly, even on one, two and three-year products. Some big four banks were increasing rates more than once a month.

Variable rates, however, continued to come down as the fight for customers continued. It will be interesting to see what transpires in this space in 2022, though you can only assume lenders will increase rates wherever they are able.

Family home guarantee

The Federal government introduced 2% deposit home loans for single parents in a bid to help them provide a home for their dependants.

With saving for a deposit a major hurdle, the family home guarantee saw 10,000 spaces made available over the next four financial years, beginning on July 1. Those eligible could obtain a home loan from one of 27 participating lenders, with a deposit of just 2% of the property’s value. The government would then guarantee the other 18% of the deposit so that the borrower would not be subject to lenders mortgage insurance (LMI).

APRA intervenes

The RBA has repeatedly stated that it would not seek to control the nation’s housing markets through decisions made at its monthly meetings. However, the Australian Prudential Regulation Authority (APRA), has been known to step in when it deems values to be headed towards bubble territory.

And in October, APRA did just that, instructing banks to now assess a borrower’s serviceability, using a mortgage repayment buffer of 3% rather than 2.5%. Basically, this means that formerly, when you applied for a loan, a lender would need to assess that you could handle a 2.5% increase to the interest on your repayments, in order to mitigate risk. From October onwards however, it would be assessed at 3%. And something that people on fixed rates might need to consider: the 3% is added to the rate that their loan reverts to at the end of the fixed rate period, which is generally higher in this kind of environment.

The move was designed to stop people from overstretching themselves and also take a bit of competition out of the market. By year’s end, there were more listings and property prices had settled somewhat, but it’s not certain how much APRA had to do with this.

Technology rethink

A huge couple of years of borrower demand have exposed some shortcomings in the turnaround times for loan applications through some of the major lenders.

A number of loans with attractive interest rates and great features actually missed out on business because the lenders were unable to process loan applications in time. Approval time is something that mortgage brokers monitor. They can then let their customers know which banks are actually likely to settle their finance in time.

And the stakes are high for borrowers, because there’s nothing worse than getting a deposit, getting finance approved, house hunting for months, finally winning a bid on a property and then the bank’s slow administration process means you miss settlement, can’t buy your property and in some cases, lose your deposit.

As a result, a lot of smaller lenders with better technology for loan processing won a lot of business. Already, some of the biggest banks have recognised their shortcomings here and begun to unveil new tech to fix the glitches.

This coming year will be an interesting one to watch.

To find out more on how you can take advantage of what’s been mentioned, book an appointment with our Zinger Finance Mortgage Strategists to see how we can help you.

 

 

Buying in 2022 - get organised

Buying Properties In 2022 – Get Organised

Here we are at the pointy end of the year already. And 2021 was a crazy one. Just as people spent the year going in and out of lockdowns, worrying about vaccines and facing financial uncertainty, property markets boomed all around the country.

If you were looking to buy, the year may have gotten away from you, and it’s too late to buy now if you want to settle before Christmas.

But don’t treat the end of year holiday period as the off season. Think about what you can do for the rest of this year, to make sure you’re ready to come out firing in 2022.

Your own personal stocktake

Take some time to look back at your year. Have you lived your best financial life? Giving yourself a financial health check can be a great way to prepare to start the new year on the front foot.

Start by auditing your bank accounts, loans, insurance cover, superannuation, credit cards, energy deals and anything else that may be affecting your borrowing power.

Within each of these products and services, ask yourself if you are paying unnecessary fees, or interest rates that are too high.

Chances are that if you have been with the same bank, energy company, or insurer for more than a year, you are not on their best deal. These guys are notorious for giving the best prices to new customers to win them over and leaving loyal customers to pay a “lazy tax” by just continually renewing without doing any due diligence.

Once you’ve identified wastage, you need to take action to fix the leaks. Demand better deals from your providers or threaten to leave them for a competitor. It’s amazing how many lenders and energy companies are able to magically come up with a better deal for you once they believe you will walk. Customer retention is as important to them as recruitment of new customers.

Credit where it’s due

Credit scores are all the rage nowadays for lenders looking to spot a bad borrower from a safe bet.
Is it possible you’ve defaulted on a payment in the past? Even just been late on a phone bill? Or someone else could have screwed you over…maybe a flatmate didn’t pay their rent on time. If you were both on the lease, this may have affected your credit rating too.

Your credit score will usually range between 0 and 1200. The higher your score, the better when applying for a loan. Your credit score is calculated by matching your basic personal details with the type of credit providers you’ve used in the past, the number of credit enquiries (such as loan applications) that you’ve made, the amount of credit you’ve borrowed and any blemishes on your repayment history.

You can access your credit report for free from reporting agencies such as Experion, Equifax and illion; or from certain comparison providers such as CreditSimple, Finder and Canstar.

If your score needs improvement (you want to be above 600 to be average, 700 to be good, 800 to be very good and 850 plus to be excellent), you can improve your score over time by getting rid of credit card debt (and preferably the card too) and making all existing repayments on time.

Start the conversation early

You need to be up to date with the latest intel when it comes to borrowing for a property.

What are the rates on offer now? What are the turnaround times on loan applications? Is it worth getting conditional pre-approval now rather than waiting until it’s time to buy?

The Australian Prudential Regulation Authority (APRA) recently intervened in the house market to slow what it saw as a concerning level of debt exposure by Australian borrowers. APRA expressed concern that around 1/5 of recent loans had a debt to income ratio (DTI) of more than six… i.e. a household was borrowing more than six times its annual income.

As a result, a number of banks now have caps on their DTI limits of six or seven, which may mean you are no longer eligible for a loan that you thought you were.

APRA also informed lenders that they must assess loan applications with a 3% repayment buffer, increased from the previous 2.5% buffer. The buffer is in place so that lenders can see if you would still be able to service a loan if interest repayments went up. So now the required buffer is bigger, are you still eligible to borrow as much as you thought?

You can get answers to these questions by speaking to Zinger Finance Mortgage Strategists and getting your finances sorted so that when real estate agents and solicitors are back from their holidays early next year, you’ve got the jump on the competition.

Please visit the following sites for more information:

  • https://www.ratecity.com.au/bank-accounts/news/perform-financial-health-check-new-financial-year
  • https://www.loans.com.au/blog/buying-your-first-home-how-to-get-your-finances-in-order
  • https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports
  • https://www.loans.com.au/blog/what-is-a-credit-score

 

What-The-New-APRA-Restrictions-Mean

What The New APRA Restrictions Mean

This week the Australian Prudential Regulation Authority (APRA) intervened in the property market by tightening some of its rules around borrowing and loan serviceability.

APRA wrote to banks and told them they had until the end of this month to increase the rates at which they calculate a borrower’s servicing power from 2.5% to 3%. What this means is that banks will now stress test loan applicants by calculating whether they can pay 3% higher than their current interest rate, rather than the previous 2.5%. So if you are applying for a loan with a 2% interest rate for example, you’ll have to demonstrate you were able to service a 5% loan in order to be approved. The reason they do this is to make sure individual borrowers can handle future interest rate rises without going bust.

What APRA hopes will happen as a result is that some of the steam will come out of the housing market.

They made the call after their latest data revealed more than a fifth of new loans have people borrowing six times or higher their annual income, something they regard as a level of concern. In the meantime, national property values have increased by more than 20%.

What does this mean money wise?

In a nutshell, APRA believes the change will result in a 5% reduction in a household’s maximum borrowing power.

So if your borrowing capacity was $1 million previously, it will now be $950,000. If it was $500,000, it will now be $475,000.

The numbers are significant enough to knock a bit of buyer competition out of the market and also stop those close to full capacity from biting off more than they can chew. However, those who borrow well within themselves won’t necessarily be negatively affected.

The fix is in

For variable rates, the 3% buffer is added to the rate that you are offered.

However, if you’re wanting to apply for a fixed rate loan, beware, you may be in for more of a shock under the new rules. This is because banks will calculate your 3% buffer based on the revert rate, rather than the fixed rate. The revert rate is the rate the loan will roll over into once the fixed period is up. So, if you are applying for a fixed loan with a 1.99% rate in the fixed period, but that rate reverts to 3.5% afterwards, the bank will calculate your serviceability at 6.5%, rather than 4.99%.

Seems like APRA always targets investors

Investors are often seen as cashed up magnates who swoop in and whisk properties away from the first home buyers and families who so desperately need them.

This is why APRA restrictions in property booms are usually set up in a way that investors are deterred by higher rates or more taxes, so that owner-occupiers can buy homes with less competition from people who may already own multiple properties.

APRA believes investors tend to borrow at higher levels of leverage than owner-occupiers and also have existing debt already, which may expose them to more risk. This is why investor loans always have higher interest rates than owner-occupier homes. Because the rates are already higher, the new buffer will affect investors even more. Not only that, but the buffer will be applied to their existing debt too.

Is this temporary?

It might be temporary, but if the measures don’t have APRA’s desired effect, things might get even tougher before they get better, so it’s important to adapt and evolve if you’re looking to build the kind of property portfolio that will help you live life on your own terms.

Things just got harder for investors, but there are always options out there and value to be found.

If you need help making sense of the new rules, what it means for you and how to tailor you strategy going forward, reach out to the Zinger Finance team.

 

 

RBA Announcement October 2021

There were no surprises today as the RBA voted to keep rates on hold at 0.1% at its October meeting.

The central bank also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue purchasing government securities at $4 billion a week until at least February next year.

RBA governor Philip Lowe noted that the Delta outbreak of Coronavirus continued to disrupt the recovery of the Australian economy, but maintained it was still just a temporary setback.

“Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well,” he said in a statement. “There is, however, uncertainty about the timing and pace of the bounceback and it is likely to be slower than earlier in the year…In our central scenario, the economy will be growing again in the December quarter.”

For AMP economist Shane Oliver, it was a case of another month having passed, rate movements no closer than before.

“The RBA’s stated conditions for a rate hike, i.e. actual inflation sustainably in the 2% to 3% target zone, are far from being met,” he said. “This will require sustained employment of around 4% and wage growth of 3% or more and that’s a fair way off.”

Rate expectations

But while the RBA reaffirms its promise not to raise interest rates until at least 2024, there is gathering talk among analysts that major banks will take their own action and raise variable rates out of cycle.

An October survey of 28 economists by comparison platform Finder found that 50% expected Big Four lenders would lift their standard rates within the next year.

Stability in the official cash rate did not mean lenders would follow suit, according to Finder head of consumer research Graham Cooke.

“Data from the RBA shows banks changed their rates seven times during the last stable period. Four of those changes were rate increases,” he said. “Those who aren’t on a fixed mortgage rate should stay alert to any changes from their banks as it could mean substantially higher monthly repayments.”

Pressure on home buyers

Any rate rises would have to be managed carefully, with borrowers stretching themselves to keep up with rising property values. In fact the research revealed first home buyers are borrowing over $53,000 more mortgage debt this year than they did last year, exposing them to more pressure should rates rise.

Because of this, 55% of the experts in the survey said they expected the Australian Prudential Regulation Authority (APRA) to intervene with lending restrictions in order to stem market growth.

“APRA recently confirmed they were looking closely at income to price ratios,” Cooke said. “This could be an early indication that lending restrictions are coming.”

APRA restrictions usually target investors to deter them from taking affordable stock off the hands of first home buyers, so watch this space to see how your portfolio might be affected.

Not so fast

Before we start to panic about lenders going rogue and hiking rates, current trends show they are still reducing their variable rates in order to compete for borrowers.

The latest RateCity research found 27 lenders cut at least one variable rate during September.

RateCity research director Sally Tindall suggested variable cuts were where lenders could compete in the short term, while adopting a “wait and see approach” on most fixed rates “as they work out what impact Australia’s Covid recovery plan will have on the economy”.

“However, this hasn’t stopped many lenders from taking the scissors to their more malleable variable rates, which were lagging well behind fixed rates,” she said. “When the RBA cut the cash rate last November there were just six variable rates under 2%. Today there are 48, including five investor rates. After the last two cash rate cuts, variable rates barely moved as most lenders opted to drop fixed rates instead. If anything, these cuts are overdue.”

Rush to refinance

It’s easy to see why banks are cutting variable rates at the moment, because borrowers are in a refinancing frenzy and there is plenty of new business to be acquired.

The last two months have seen record highs with refinanced loans valued at $17.8 billion in August.

With all the deals out there, it’s a great time to score a better rate or more flexible loan features. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy, with the deals that suit you best.

 

 

When-was-the-last-time-you-had-your-loan-reviewed?

When Was The Last Time You Had Your Loan Reviewed?

The lending environment is changing all the time, so it’s important to regularly review your loan or loans and make sure you’re getting the best deal you can.

Say you’ve had a loan for the last 2 years for example, chances are that you’ve missed one or more potential interest rate reductions. On top of this, your life may have changed. Have you accrued some equity? Got a promotion at work? Had children? Any changes mean your current loan may not be the most suitable for you.

Rate expectations

One of the major reasons to review your loan is that there may be a better deal on interest rates available.

If you are paying more than you need to on interest, you are essentially donating money to the bank. 

Interest rates have been trending downwards for the past decade. In fact, multiple banks have cut rates on their variable loan offerings in the past month, so it’s well worth testing the market.

There are variable rate loans out there for owner-occupiers for below 2% and investment loan rates below 3%. On the flipside, some rates are above 5%. If you have a $300,000 loan and swap a 5% interest rate for a 2.5% one, that’s $7500 a year you are taking back from the bank and using elsewhere.

Once compound interest is factored in, you save even more money because you take years off your loan.

Flexible features

Loans are complex beasts these days with a raft of features that can be tailored to the diverse needs of borrowers.

A couple of years out of the market could mean you are unaware that lenders are offering extra repayment options on fixed loans, better offset facilities or waiving certain fees. All of these changes can add up to money and time saved.

The flipside of this is that if you sign up to a loan with more bells and whistles than you need, you may find you are paying for the privilege of features that you never use.

And sometimes you can be trapped by a loan’s fine print…ie, the rates are great, the features are great, but you’re locked in for 2 years and can’t revalue to access your equity.

So, always look further than just interest rates, when choosing a loan.

Introducing…a better deal

If it’s been some time since your last loan review, you’d better believe you’re not on the best deal that bank can offer you.

See, banks count on you paying the “lazy tax”. Why do you think the bank sent people to your primary school when you were a kid to “educate” you about saving money and using deposit and withdrawal books?

It’s because they know that once people sign up with a certain bank, the vast majority never bother to leave.

Once you are on their books and have been for years, do you think they are offering you the kind of deals they are offering potential new customers?

Of course not. They don’t need to. But go online and you might find they are offering customers of other banks a $3000 cashback deal to jump ship to them. That’s because their business models are based on recruitment and retention.

But what about you? You’ve been a loyal customer for years, shouldn’t they reward you for your loyalty? The reality is that if you want access to those deals, it’s all on you.

Research what is out there at other banks. Are there lower rates, cashback offers, better features, introductory deals? If there are, you should be fully prepared to switch.

And if you like your bank and want to stay, simply go back to them and threaten to leave if they don’t match the deals. That’s where the retention part of their business model kicks in and you might just find they have something a little better up their sleeve for you.

 

 

Looking to climb up the property ladder

Looking To Climb Up The Property Ladder

So you want to make the most of low interest rates and rising property markets and build a bigger property portfolio?

Unfortunately, those same low interest rates make it much harder to save for a deposit the old fashioned way. But that doesn’t mean you can’t climb up the property ladder. That’s where equity comes into the picture.

Equity is the amount your property is worth minus what you still owe on it. Basically, it’s the portion of the property that you own outright. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. If that property rose by another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000.

If you already have at least one property, chances are that it’s gained in value over the past 12 months.

Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit on your next investment property.

New way of thinking

Back in the days when interest rates were high, the biggest hurdle to buying property was actually paying off the loan. Deposits were easier to save because your cash was boosted by those same high rates. So, saving a 20 per cent deposit on a $100,000 property didn’t take long, but paying it off could take 30 years!

These days, super low interest rates mean servicing a loan is the easiest part. But saving a 20% deposit, plus stamp duty costs when there are returns of less than 1% interest on the cash you have in the bank is much more difficult.

And this is basically why property investors have been dominating first home buyers at the affordable end of the market in recent years. They have equity ready to use as a deposit while the first home buyers are stuck trying to save money.

So how do I do it?

First things first, talk to the experts. Zinger Finance has a team that specialises in helping people build big property portfolios by using smart financing strategies and regularly pulling equity out of their assets.

Zinger can organise a valuation on your existing property. If, like most real estate in Australia, it has increased in value since its purchase or last valuation, you will have made some equity.

But you can’t use it all. Say for example, you have $200,000 equity on a property, the bank won’t let you use the full amount to invest because it would be exposed to too much risk if there was a dip in values for your existing property, or new property.

Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value minus the debt still owing.

So, in the case of that example property at the beginning of this article; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000.

But your useable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.

The Zinger difference

A lot of mortgage brokers set you up with loan products where you are locked in and unable to refinance for a certain period of time (usually years). This ensures they receive their full commission from the lender.

But Zinger Finance aren’t like your typical mortgage brokerage. They’re a team of Mortgage Strategist. It was founded to cater to property investors looking to build big property portfolios and one of the ways to do so is to ensure you have the flexibility to revalue and refinance as often as you need to.

Zinger’s team of strategists can help you get your properties valued and revalued regularly to unlock all the useable equity you need, at the right time to help you reach your property investment goals.

Reach out

If you need help building a strategy to climb the property ladder by maximizing your use of equity and being educated on the best way to structure loans, get in touch to our team of Mortgage Strategists.

 

 

Who-can-borrow?

Who Can Borrow?

There are a number of different borrower types that banks will lend money to for property investment in Australia. This article looks at what you need to know if you want to take a loan as: an individual, a joint venture, a trust and a self-managed superannuation fund (SMSF).

I’m an individual

Borrowing as an individual is the most common and straightforward way to get into the property market and you can use equity in your family home, the estimated rental return and your own steady employment to appease lenders. It also means you are the only one who signs off on selling, raising rent, engaging property managers and other decisions.

You are the only one responsible for your property investments and debt strategy and you won’t be affected by anyone else’s financial misfortune or mismanagement. You need to personally suit lender eligibility requirements around income, spending habits and credit history. Bear in mind that individuals with a full-time job will be assessed differently than someone who is self-employed.

Another benefit is being able to use negative gearing as a strategy, as long as it suits you. This means that if you are making a yearly loss by putting more money into the repayments and holding costs of an investment property than you are getting in return from rental income, you can offset that loss against your personal income for the year and pay less tax, while still benefiting from the growth potential of the investment. Negative gearing is not available when borrowing as a trust.

Let’s get together

If you and one or more associates want to get into the property market but don’t have enough of a deposit or serviceability to buy alone, you can go in together on a joint venture. If the property you purchase grows in value, you might find you can sell or withdraw enough equity to each go alone on a future investment. However, there are things to be aware of. If you split the loan and serviceability requirements down the middle, each investor will be held liable for the full debt, but will only have half the rental assessed as an income. So, if one loses their job and can’t make repayments, other members of the joint venture will be held liable and in the event that you’re not able to continue the full commitment your credit record and future borrowing power might be personally damaged.

If you’re going into a joint venture, you will need independent financial and legal advice before borrowing. Ensure you agree on a financial debt structure and exit strategy and have a legal professional draw up an agreement for the venture, to be referred to down the track if circumstances change or if one member wants to take a different direction than the others. 

In property we trust

Creating a family trust is a method of property investment growing in popularity. Under this financial structure, the assets and income are held by the trust and profits are distributed to the members/beneficiaries of the trust by an appointed trustee, who manages the investments.

Trusts offer a good way to create intergenerational wealth by passing assets to future generations without having to sell and pay capital gains tax (CGT). It also protects assets from the circumstances of individual beneficiaries: i.e., if financial disaster should befall one of the beneficiaries, the trust’s assets are not under threat from debt collectors.

The trustee can also use discretion to distribute profits to beneficiaries in a way that can reduce the amount of tax everyone has to pay. There are several different types of trust that will be considered, so engage a professional for advice on which is the best structure for you. 

Wanna be a super star?

Every year there are more Australians establishing SMSFs in order to manage their own superannuation. One of the key reasons they do so is to invest their nest egg in property. Your SMSF can borrow for a property but it’s harder than borrowing as an individual and there are complexities.

First, there is more risk attached for lenders, so banks are more conservative. You may need more than the usual 20% deposit and could pay higher interest rates and fees than a regular borrower. Superannuation law also makes it harder to service and benefit from the loan.

For example, when making repayments, your SMSF can only use the property’s rental income, plus 10% of your personal salary (your superannuation contributions), so you need to make sure it’s positively geared and in a market with great tenant demand.

Because it’s your super, you are not allowed to access the income or equity of the property until you retire (at least age 60). Also, neither you, nor your family or friends can stay in or use the property for personal reasons.

The good news is that investing using super is a non-recourse loan, so if the loan defaults for some reason, the lender can only access the asset in the SMSF trust, not your personal assets outside of super.

Reach out

If you have any more questions or want some information on borrowing and debt strategies, reach out to Zinger Finance. Our team of Mortgage Strategists can help you choose the best options for your investment journey.