APRA to remove restrictions on interest-only home loans
Here’s some good news to kick off 2019. APRA is removing its restrictions on interest-only home loans as of the 1st January.
The restrictions were put in place as a temporary measure by the Australian Prudential Regulation Authority (APRA) back in March 2017. Encouraging lenders to adopt sound lending practices.
So why are they being removed now?
This comes after CoreLogic figures showed Australia’s housing market recorded its weakest conditions since the Global Financial Crisis (GFC).
National dwelling values slipped by 0.7% over the month. Led by Sydney where the drop was double the national average.
Many believe that the restrictions are being lifted to prevent the housing market from sinking further.
APRA, however, is claiming it’s simply a case of ‘mission accomplished’.
It says the restrictions have already led to a marked reduction in interest-only lending. I/O loans are significantly below the target of 30% of all home loans that lenders issue.
Is the restriction removed for all lenders?
Most, but not all.
Earlier this year APRA announced it would remove its 10% restriction on investor loan growth for lenders who could prove they had strong lending standards.
Lenders who have passed this test will also no longer face restrictions on interest-only home loans.
But for lenders that haven’t yet proven the strength of their lending standards, the restrictions will remain in place until they do so.
“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary,” says APRA Chairman Wayne Byres.
“Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.”
What does this mean for you?
With the restrictions lifted, it should now be easier for borrowers to secure an interest-only loan from January 1.
If that sounds like something you’d be interested in, give us a call. We’d love to help out.
You’ve probably seen ‘negative gearing’ and ‘capital gains tax’ in the news recently. That’s because they’re set to become hot topics ahead of the next federal election. Today we’ll take a look at both.
If you’re an aspiring first home buyer, negative gearing and capital gains tax (CGT) are things that you may have heard a lot about, without paying a whole lot of attention.
That’s because, well, if you don’t have an investment property yourself, who really cares?
However, Labor is proposing to reform both negative gearing and the CGT if it wins the next election.
Reforms may have a flow-on effect for the entire property market – whether you’re an aspiring first home buyer, or a budding property baron.
But before we (cautiously) tread our way into the political hoo-ha, let’s take a look at what negative gearing and CGT actually are.
What exactly is negative gearing?
Ok, rest assured it’s all much simpler than it sounds.
Gearing is when you borrow money to invest.
Negative gearing is when the rental income from your investment is less than your interest repayments and expenses.
Why on earth would you want to make a loss?
Well, negative gearing is a common technique used by property investors, who are often prepared to accept a loss to reduce their taxable personal income.
In turn, this minimises the amount of overall tax they need to pay.
For example, if you’re earning $90,000 a year, and you’re losing $10,000 on your investment property, your taxable income drops to $80,000.
Capital gains tax discount
Still with us? Great.
Ok, so we’ve established that negative gearing can help minimise your personal tax each year.
But you’re still going to need to pay tax on the profit that you make once you sell the investment property – this is called capital gains tax (CGT).
However, if the property is held for more than a year, investors may be entitled to a 50% discount on their CGT.
Who is negative gearing mainly used by?
Well, property investors first and foremost. Australia has more than one million landlords using a negative gearing strategy, according to the ABC.
The Liberal party says negative gearing benefits middle-income earners such as nurses, teachers and policemen.
However Labor disputes this, saying it’s mainly used to benefit high-income earners.
They point to Grattan Institute data which shows it’s used most by surgeons, anaesthetists and lawyers.
That all said, the option is open to all. It’s just whether or not it’s in your own best interests – and that varies according to your personal situation.
The flow-on effect
Now, earlier we mentioned that Labor was looking at reforming negative gearing and CGT, remember?
Labor wants to limit negative gearing to newly built properties and halve the CGT discount from 50% to 25%. Labor says this will help first-home buyers get a foothold in the property market.
The Liberal party, on the other hand, says these policies will crash the property market.
Now, that’s about as much as we can say about the situation without wandering too far down the political path.
Suffice to say many economists say the reforms have the potential to lower property prices. That’s good for first home buyers, not so good for (current) property investors.
Want to know more?
The above outline is only scraping the surface of negative gearing and CGT.
It’s also important to reiterate that everybody’s situation is different.
How much you earn, where your property is located, your age, and many other factors will all have a significant bearing on whether or not negative gearing would be a good fit for you.
There’s also plenty of pros and cons, not to mention risks vs reward, to weigh up. All of which, once again, will depend on your individual circumstances.
So if you’d like to find out more, get in touch. We’d love to discuss your options further with you.
Buying a house by the sea in a little known coastal town is no longer reserved for retirees. New research shows that those flocking to coastal towns are now predominately young families.
Most of us have dreamt of the days when we’ll one day be able to afford a house nestled down by the sea in our very own Summer Bay (minus the drama!).
However, joint university research shows that young families are turning their backs on the inner-city rat race in droves and pursuing a more affordable lifestyle by the sea.
Really? Show me the data!
The research shows that the sea change phenomenon, once largely the domain of retirees, now mainly involves Millennials, including young families.
Using ABS 2016 Census data, researchers have found the people most likely to move to Tasmania were 25 to 29 years (14.0% of all movers), followed by those aged 20 to 24 (11.8%) and then 30 to 34 (10.3%).
Similarly, relocating to the Sunbelt Coast (the region around Byron Bay in northern New South Wales) was most popular among 25 to 29 year olds (12.9%), 20 to 24 (10.5%) and 30 to 34 (10.2%).
Most people are moving to these areas from Melbourne, regional Queensland, Sydney and regional New South Wales.
So why are people moving?
There actually isn’t a single clear driver.
Better housing affordability, a smaller mortgage debt to pay off, and the desire to avoid stress and being overworked are some of the main reasons.
Other important factors include a perceived risk of living in the city, the desire to bring up children in a simpler environment, shorter commute time and, of course, the obvious reason – living in a beautiful location.
Workforce trends – towards more freelance, remote and consultant roles – may also be playing a part.
In fact, research shows that up to 4.1 million Australians, or 32% of the workforce, freelanced between 2014-15. This means many Aussies can set up shop and work from anywhere they wish – including idyllic little coastal towns.
Keen to make the move?
If so, you might not want to leave it too long.
Real estate experts are already predicting Tasmania’s recent housing boom will shift outside of Hobart and spread to areas such as the north-west coast.
So if you and your family are looking to quit the rat race and find your own little corner of Aussie paradise, get in touch.
We’d love to help you source a great home loan and make your sea change dream become a reality.
Make your New Year’s resolution all about a home loan health check
Whenever we think of New Year’s resolutions, we always seem to commit to improving our physical wellbeing rather than our financial wellbeing.
Whether that involves signing up to the gym, getting a personal trainer, or subscribing to a healthy food delivery service – more often than not it costs us money and the resolution doesn’t stick.
But there is one New Year’s resolution that will take up just 30 minutes of your time in January, and you’ll reap the benefits of it all year.
Put simply: it’s committing to a home loan health check.
And there’s no better time to do it than straight after Christmas, which is when all those extra festive season expenses are finally out of the way.
Why you should have a home loan health check
According to research by a subsidiary of NAB, more than eight out of ten Australians don’t know the interest rate they are paying on their home loan.
This staggering figure means that most Australians don’t know whether they’re getting a good deal on their loan, and as a result, may well be paying too much.
This is why making a home loan health check your New Year’s resolution is so important.
Back up a tick. What is a home loan health check?
A home loan health check is a simple 20-30 minute discussion we’ll have together to discuss your mortgage conditions to make sure they’re still appropriate to your needs.
It’s recommended you do this on an annual basis, just like the yearly check-up you should be getting from your GP.
Why should I get one?
Basically, if you don’t revisit your home loan conditions on a regular basis, you could be missing the opportunity to save money on changed loan terms and interest rates, or the opportunity to invest any additional cash in repaying your loan faster.
Another major reason is if you’re on an interest-only home loan. That’s because a raft of recent changes mean it might be a good time to start looking into the principal-and-interest option instead.
Some other major reasons for a home loan health check include:
Your financial situation has changed
After a decade of paying your mortgage, your financial situation may well have altered. For example, you may find you have money left in your paycheck each month to increase your mortgage repayments.
Even as little as an additional $50/month can make a huge difference to the interest you’ll pay over the life of the loan.
You might be paying too much interest
With interest rates at record lows, a health check is the perfect opportunity to renegotiate home loan rates with your mortgage provider.
This is particularly important for people who signed up to their mortgage over a decade ago, who may find they are paying interest far above the market rate.
You haven’t considered other loan features
You may have signed onto your home loan before you really knew about all the cash-savings features available, such as an offset account or a linked debit card.
Similarly, you may have arranged your home loan with a range of additional features which you haven’t been using, but have been paying monthly charges on.
Bring on 2019!
Now you understand the importance of getting a home loan health check, the next step is easy – give us a call to set up a time to chat in January.
We’ll work with you to ensure your 2019 New Year’s resolution is not only the best one for your wellbeing, but one you’ll actually stick to!