Indulgences such as caviar, wagyu beef and the finest bottles of wine shouldn’t count against you when lenders assess your application for finance, a Federal Court judge has said.
Ok, so maybe Federal Court Justice Nye Perram has a slightly different grocery list to the rest of us.
But his recent judgement should be welcome news to potential borrowers who have splashed out on the odd luxury over the past six months and are worried that it would completely derail their loan application.
So what’s going on?
Well, the corporate watchdog (the Australian Securities and Investments Commission, aka ASIC) filed a court case against Westpac in 2017 in an attempt to strengthen lending standards.
ASIC argued that Westpac’s automated decision system relied solely on a household expenses benchmark that underestimated real living expenses and, as such, was flawed.
However, Justice Perram ruled that Westpac had done nothing wrong by using its automated system, rather than manually checking the borrowers’ living expenses, when approving more than 260,000 home loans between December 2011 and March 2015.
A tasty morsel from the judgement
Justice Perram said that current laws do not explicitly require banks to check expenses.
“I’m unable to discern why, as a matter of principle, the consumer’s declared living expenses must be considered,” he said.
“I may eat wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.
“The fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship.”
Basically, what Justice Perram is saying is that just because you fork out for expensive items before you apply for a mortgage, doesn’t mean you’re incapable of reducing your expenses once you’ve taken out a loan.
What happened next?
The Australian Financial Review (AFR) followed up on the decision with a scathing smackdown of ASIC in an editorial that asked: “why did ASIC even bother?”.
“Leave banks – the institutions with the expertise and incentive to write good loans – to assess risks for home loans. Not second-guessing bureaucrats,” the editorial stated.
“After all, it is hardly in a bank’s own interest to lend to people who are unlikely to be able to pay the money back.”
CoreLogic Research Analyst Cameron Kusher meanwhile wrote that it was not only a big win for Westpac, but the entire lending industry.
“The judge in the ASIC/Westpac case seems to really get it. While you might spend a lot more before you get a mortgage, getting a loan is about knowing someone has the capacity to change their spending behaviour once they have a mortgage,” he said.
“Lending has become so prescriptive when it is really the unexpected life events that cause someone to default on their mortgage. You can’t foresee everything.”
Meanwhile, ASIC commissioner Sean Hughes said the commission was consulting on new guidance in relation to responsible lending obligations.
What this means for your next loan application
Westpac says the decision provides clarity for the interpretation of responsible lending obligations, however consumer groups who found the decision “disappointing” are calling on the government to amend responsible lending laws.
While this court ruling may have the potential to somewhat relax the tight lending standards currently in place, it’s better to be safe than sorry when applying for a loan and we can provide you with some good tips on how to get your accounts in order.
After all, it is still up to the lender’s discretion (perhaps hold off on the caviar for a while longer!).
So if you’re considering applying for finance in the near future, get in touch.
We’d be more than happy to help guide you through the ever-evolving responsible lending landscape.
Great news for home buyers – housing affordability is the best it’s been since 1999, according to new data released by the nation’s peak housing and building body.
That’s right – housing affordability is comparable to the days when the Y2K bug had us fearing for our lives, Nokia Snake was the pinnacle of mobile gaming, and median house prices in Australia ranged between $112,000 (Hobart) to $272,000 (Sydney).
These days, however, median prices range from $420,000 (Hobart) to $840,000 (Sydney).
But here’s where it gets a little interesting.
For a home buyer with an average income purchasing a median-priced dwelling (assuming a 10% deposit), mortgage repayments will consume the smallest proportion of their earnings since 1999, according to the Housing Industry Association (HIA) Affordability Index.
Hang on, how is this possible?
The main reason housing affordability is comparable with levels seen in 1999, despite house prices rising significantly faster than incomes over the last 20 years, is that interest rates are (in the vicinity of) 4.6% today compared with 6.7% in 1999, says HIA senior economist Geordan Murray.
Average earnings have also increased by 113% over the past 20 years.
While the median home price has increased by 228%, the lower interest rates have kept the cost of servicing a loan the same, points out Murray.
“The combination of lower home prices, improvements in wage growth and lower interest rates have contributed to the ongoing improvement in the HIA Affordability Index for the June 2019 quarter,”
What does the HIA Affordability Index measure?
HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments.
All eight capital cities saw an improvement in the affordability index over the quarter to June 2019, with Darwin seeing the greatest improvement with its index up by 4.8%.
This was followed by Melbourne (+3.0%), Perth (+2.6%), Brisbane (+2.6%), Sydney (+2.4%), Canberra (+2.4%), Hobart (+ 2.2%) and Adelaide (+1.0%).
It gets even better
There are a number of recent initiatives that are not reflected in HIA’s Affordability Index but are nonetheless providing further benefit to purchasers, HIA points out.
There’s the reduction in income tax, the easing of APRA restrictions on mortgage lending, and the Australian government’s First Home Loan Deposit Scheme.
According to HIA managing director Graham Wolfe.
“The passing of the federal government’s income tax package means that millions of Australians will have extra income to put towards a deposit for a new home,”
Get in touch
If you’d like to take advantage of the current housing affordability conditions, then get in touch.
We can help arrange a home loan that’ll put a smile on your face and get you partying like it’s 1999.
We’ve all done it. In a moment of weakness, a dodgy salesperson has persuaded us to hand over our hard earned money for a purchase we didn’t really need, let alone want. Here’s how to politely rebuff a salesperson’s pressure tactics.
Whether it was a shiny new car, sports or leisure gear, or simply an impractical pair of shoes – we’ve all been guilty of making a luxury purchase that we didn’t really need in our lives that knocked our family budget off course.
Below are some classic salesperson techniques to avoid, as well as some tried and tested strategies you can use to prevent yourself falling victim to them.
“You’re in luck, this is our last one.”
This line and those similar to it are used to create a sense of urgency or FOMO (fear of missing out).
It’s usually delivered as a closer to ensure you make a purchase then and there on-the-spot.
It will usually be followed by something along the lines of: ‘How about I take it up to the counter for you so no one else buys it while you’re making your decision’.
Online stores will use a similar technique by displaying “only 2 items left in stock!” next to the ‘checkout’ button.
Rest assured that if you ever hear or see something along these lines, then chances are there’s more stock. And if there isn’t, rival businesses or a nearby franchise will most likely have them available anyway.
Other variations of this tactic include “this is a one-time only offer” or “our sale ends today”.
“Here’s a little something to say thanks”
If you ever receive a gift for “free” while you’re deciding on whether to purchase an item (or after you’ve attended a seminar), then there’s every chance that it wasn’t intended to be given to you for “free”.
Rather, its main purpose is to make you feel obligated to purchase something else.
So if you ever receive a free gift, remind yourself that it’s just that: free.
You owe the salesperson nothing in return.
Variations of this method include “I can do this just for you” and “don’t tell my boss, but…”
Just because you like them, doesn’t mean you need to purchase from them
Most salespeople are very personable. There’s absolutely nothing wrong with that, and I’m sure most are decent, down-to-earth people just trying to make ends meet for their own family.
But remember: just because you like someone doesn’t mean you have to purchase what they’re pushing, or trying to up-sell.
For this reason, it’s important that you try and separate the two and ask yourself:
“Do you actually need the product?” Or are you being peer pressured by a charming person into making a purchase you can’t actually afford?
How to take the pressure off
We’ve all experienced a situation where we’ve decided we aren’t going to purchase something, only for the salesperson to somehow pull it out of the bag and get us signing on the dotted line a few minutes later.
Here’s a good response to give yourself some breathing room so that you can go home and research whether the product is dodgy, a lemon, or simply not very competitive:
I never purchase on the spot: “Thank you very much for your time today. I have a rule that I never break, which is to never buy or sign up to something on the spot. Can I please have your card so that I can make a decision with my (partner, mother, best friend, more research) please?”
This excuse works well because the salesperson most likely gets paid on a commission basis. By taking their card they feel they’ll still be the employee who gets the commission, should you buy the product.
And if they’ve offered you a “special deal”, get them to scribble it down on the card.
Finally, be firm
By now the salesperson may have built up a rapport with you, which can mean two things: a) it’s harder for you to be firm with them, and b) they’ll try their luck being a little pushier with you.
With that in mind it’s essential that you respond firmly.
Once you’ve asked for time to make your own, independent decision, stick to your guns.
Because while the salesperson might now be all chummy with you, remember that it’s highly unlikely the two of you are going to strike up a long-term friendship where you’ll meet every week for coffee or beers and discuss footy, children, grandchildren, etc.
Finally, remember that it’s your money. Money that could be better off going towards your kid’s education, your mortgage, or buying a superior product that you just haven’t gotten around to properly researching or saving for yet.
If you’d like to find out any more budget saving strategies, get in touch, we’d love to help out!
Welcoming a baby into your family is one of the most joyous occasions of your life. But just like anything worth celebrating (such as your wedding day or buying your first property), it’s not without its expenses.
How quickly they grow! The bills, that is.
Did you know it costs roughly $300,000 to raise a child from birth to age 17?
If you break that down, that’s $1470 a month.
This can put a significant strain on your monthly budget and mortgage repayments.
Rest assured, however, there are several steps you can take in advance to minimise the impact on your new family’s bottom line.
Obtain the essentials in advance
The upfront expenses are really going to whack your budget hard. So it’s best to obtain the items you’ll need well in advance to spread the cost.
Of course, you can purchase a brand new bassinet, playpen, clothing, car seat, cot, stroller, toys, high chair and changing table.
But chances are you don’t really need that fancy, brand new $1,000 cot. Focus on your needs instead of your wants, because wanting can quickly add up.
There’s absolutely nothing wrong with obtaining gently-used items second-hand, either at a substantial discount through trading websites or for free from a family member or friend. Remember that bub outgrows everything quickly anyway.
Check into paid paternal leave and corporate leave
If you worked before having your baby and made under $150,000 annually, you could be eligible for the government’s Paid Parental Leave program.
You do have to apply, but you get 18 weeks of minimum wage benefits (amounting to $719.35 per week before taxes).
There’s also a two-week partner and dad pay option available, and take time to check into your company’s leave programs.
Get on childcare waiting lists
Unless you plan to stay home with your children or have family members who will help provide childcare, get your name wait-listed at several childcare facilities.
Availability is a huge issue, so getting on the lists quicker will help in the long run. You can use the Childcare Subsidy Estimate Calculator to figure out if you’re eligible for entitlements.
Update your life insurance
It’s common for Australians to have total and permanent disability and death benefits through their super fund.
However, while the life insurance coverage may have been adequate pre-children, there’s a good chance it won’t be enough for a single parent to comfortably raise a child.
Additionally, you don’t want to fall into the trap of just insuring the breadwinner in your family. Everyone should have coverage in case something happens to one, or both, of the parents. This can be a complicated area to navigate alone though, so be sure to seek financial advice.
Make a will
Even if you don’t have significant assets or debts, you need a will if you have children.
Not only does a will specify what your family does with your belongings (including your super and insurance), but it also specifies who makes decisions if you can’t make them yourself, any wishes you may have, and who will take over raising your child or children if both parents pass.
Prioritise existing debt
If it’s possible before the baby comes, prioritise your existing debt and work on paying it down – or off – before the baby is born.
Once the baby arrives, you may not have a whole lot of spare cash to put toward any existing balances. Consider consolidating your debts or speaking to us about refinancing your loans or mortgages to one with a lower interest rate.
Update your monthly budget
One of the best things you can do is update your monthly budget with your newest family member in mind. It’s also great to start living on this budget before your bundle of joy arrives – start practising living on less.
You can update (or create) your budget using our Budget Planner. Don’t forget to include your quotes for childcare and any new miscellaneous expenses you’re likely to incur.
Start an emergency fund
If you don’t have an emergency fund, start one. You’ll want to have at least three to six months worth of living expenses saved, with the goal of at least a year’s expenses.
This can provide a buffer that you and your family fall back on if you run into unexpected expenses like an accident, the car breaking down, or something in the house needing immediate replacement.
The last thing you want during this happy time is to worry about your finances. That’s why it’s so important to prepare as early as possible.
If you’d like help with any of the steps above, then please get in touch. We’d love to help make sure that your first few months as a new family are enjoyable ones!
While housing affordability is improving across the country, for many young first home buyers cracking into the property market can feel like breaking into a fortress. Here are five ideas that can help bust down that door.
Housing affordability for new mortgage borrowers in Australia will continue to improve over the next 12 months because of declining housing prices, shows the latest research from Moody’s Investors Service.
That said, there’s no denying that hopeful first home buyers have a much harder time breaking into the market than those who house-hunted in decades past.
In fact, the dwelling price to income ratio showed a 78% increase between 1980 and 2015.
With that in mind, here are five tips to help you bang down the property market front door.
Rentvesting is a term used to describe the act of renting a property in the neighbourhood you’d like to live in, while purchasing an investment property in a more affordable neighbourhood and renting it out to a tenant.
That way, you’re able to live where you want while building equity in a home at the same time.
This tactic has become so popular in recent years that conventions, seminars and dedicated property investment businesses have begun popping up to help people do it effectively.
Take advantage of government schemes and incentives
Government schemes and incentives, such as the First Home Owners Grant (FHOG), can be a great way for first-time home buyers to offset some of the cost of purchasing their first home.
Similarly, many states and territories offer stamp duty discounts for first home buyers, which can also save you thousands of dollars.
Each state and territory has different rules around who is eligible to apply for them, but by and large, they make buying your first home more affordable.
Live at home while you save for a deposit
As unappealing as it may first seem to live with your parents while saving for a home, the idea becomes a lot more digestible when you consider that the national median rental price in Australia is $450 a week.
That’s $23,400 a year.
If you include all the money you’ll save by splitting food and utility costs (including water, gas, electricity, internet and phone bills) with your parents, you could save up to $30,000 a year.
Share the cost of ownership with a friend
If the property you want is out of your reach, why not consider going in on it with a friend or relative?
Splitting the cost of a home purchase with another person can allow you to build equity in the home of your choice, without overstretching your resources.
Just keep in mind that you’ll want to speak with a lawyer and draw up an agreement regarding ownership and mortgage liability, plus things like how maintenance costs will be met and what happens if someone wants to sell in future.
Rent a room in your house out to a tenant
If you want to own the property you live in and don’t want the mess that can come with sharing ownership with another individual, then renting out a room in your house can be another great option.
By renting out the room for $200 a week you can make $10,000 a year – plus you’ll save on utility bill costs.
If you’re not too fond of having a full-time housemate, consider creating a guestroom and leasing it out on Airbnb.
Just be sure to take out appropriate insurance and keep accurate records of the income you earn from Airbnb as the ATO is cracking down on undeclared income from the platform.
The Australian housing market may have cooled off in recent months, but pricing is still high enough that it can be very challenging for first-time home purchasers to break into the market.
By getting creative with some of the tips in this post, you’ll stand a better chance at turning your dream of owning your first home into a reality.
If you’d like any other help cracking into the property market then please get in touch – we’d love to help out any way we can!